What Do Advance and Cross-collateralization Entail?

ADVANCE

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 signer 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. For context, an advance used to be recouped from just royalties, now, its mostly from every possible revenue stream of the artist [this varies per deal though, as advance from say distribution/licensing deals can be recouped solely via royalties]. In the music business, when there’s an unrecouped amount, the artist can be said to be “in the red” and once recouped, becomes “in the black”. 

PS: The money handed to you outrightly is not always the only recoupable. It could encompass other costs like recording, visuals, marketing/promo, transportation [...yup. Wizkid and Disturbing London…anyone?]

You can listen to the podcast by Ovie here where this was revealed.

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 manufacturing costs, advertising, marketing, shipping (physicals) etc but hey…

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. 

Cross-Collateralization

Another thing I’d like to demystify is 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 standpoint. Before diving in, you must first understand music copyright basics.

I choose to approach this from a recording and publishing agreement standpoint for some reason. 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. So, say an artist gets an advance from after 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. Taylot Swift was with Big Machine and now UMG on the masters side, for publishing, she was with Sony/ATV until February this year. Same goes for Adele who’s signed to Sony for masters but Universal for publishing - I digress.

If you understand the above embedded link on music copyright, you’ll realize that recorded music and publishing are in a way 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 proceeds from their masters won’t recoup  their advance, proceeds from their publishing makes for it. Concerningly, for an industry like Nigeria’s where many artists have little to no knowledge of their publishing, 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*. 

As many artists have taken to signing licensing and distribution deals than traditional record deals - in exchange for advance, it’s important to be wary of shady clauses like this one. There are many ways to get fucked other the good ol’ traditional record deal.