Dear Upcoming Artist,

What Does Cross-Collateralization Entail?

As deal types evolve in the Nigerian music industry, we'll most likely hear more on this now or much later.

Before that, I should reiterate what Advance means, as it's a basis for understanding this subject.
If you’re handed an amount of money after signing a deal, the investor/label keeps royalties from your music until it makes up the given amount.

For instance, if you’re given N100k, the investor is entitled to the first N100k of royalties (other revenue sources) from your music
The process of keeping this money until it has been fully recovered is what’s known as Recoupment.

Now, mode of recoupment can be dependent on the type of deal or so.

Mode of recoupment in a standard record deal could vary from that of a licensing deal and so on.
In a standard record deal, recoupment could be through royalties and other revenue streams of the artist but in say, a licensing deal, it’s likely through just royalties.
In the music business, when there’s an unrecouped amount, the artist can be said to be “in the red” and once recouped, replace "red" with "black".
PS: An advance is a not always just “prepayment of royalties”.

Relatively, it could also encompass costs like recording, visuals, marketing/promo, or even transportation [re: Wizkid and Disturbing London…anyone?]
This varies per investor, per deal hence the need to always involve expert music lawyers before putting pen to paper.

Some of these things are woven in contracts, artists consent to them ignorantly and report to the public afterwards.

In some regions, under industry custom, there are amounts paid on artist behalf or in connection with the agreement that are typically never recouped like production costs, advertising, marketing, shipping (physicals) etc but hey…
Unto the crux here, Cross-collateralization.

In the music business, this concept can take several turns.

It is primarily understood from an album standpoint, but for the purpose of this writing, I’ll go from an unpopular angle because...
Now, think of a case where an artist signs a recording/licensing/distribution and publishing contract with the same company, cross-collateralization could mean that advance under either agreement can be recouped from both royalties.
Say, an artist gets an advance from signing a record deal, in an ideal world, the advance should be recouped solely from royalties of the recorded music.

Publishing is a different copyright and most artists belong to separate publishing companies from their record label.
For instance, Burna Boy is with Warner/Atlantic Records on the masters side and Universal for publishing. Taylor Swift was with Big Machine and now UMG/Republic Records on the masters side; for publishing, she was with Sony/ATV until February this year.
Same goes for Adele who’s signed to Sony/Columbia Records for masters but Universal for publishing - I digress.

If you understand the above link on music copyright, you’ll realize that recorded music and publishing are in a way run independent of each other.
Thing is, certain labels/investors might include some language in the contract that automatically cross-collateralize both copyrights.

The language could be innocently woven in the contract such that it can be overlooked by an average eye.
So, some artists sign away their publishing unbeknownst to them, hence if revenue from their masters won’t recoup their advance, revenue from their publishing suffices.
Concerningly, for an industry like Nigeria’s where many [young] artists have little to no knowledge/concern about their publishing before signing whatever deal, it gives room for this phenomenon to thrive.
At the risk of sounding like a broken record, another reason why just getting any lawyer isn’t enough but getting a music lawyer and not just any music lawyer, one who knows their onions because I have seen things...
Investors are more aware how valuable publishing can be and at the detriment of artists who are yet to catch on here.
As many [young] artists have taken to signing licensing/distribution or others than the traditional record deal - in exchange for advance, it’s important to be wary of shady clauses like this one.

There are many ways to get fucked other than the good ol’ traditional record deal.
PS: The part we don't talk about enough is what happens when the artist doesn’t generate revenue enough to recoup the advance?

Well, a loss for the investor/label!! If the song or artist doesn't do well, they’re not getting back that money.
They can’t do anything there, unless in cases where the artist outrightly breaches the contract maybe like failing to deliver music for the label/investor to work with, not co-operating for marketing/promotions or something as agreed.
For a product like music, consumers can be capricious and marketing cost isn’t funny.

What you probably don’t know is that actual labels are aware that not every of its signee will blow big.
They spend money to market their roster, hoping that one artist strikes enough gold required to finance the rest.

For them, it’s predominantly more about the roster than just one artist.
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