Q3, I'm a little surprised about RCA's lack of response.
Do you think the negotiations involved some type of buyout of Adam's contract by Adam? Should we send checks to Adam to help him defray costs?
No, that is not how it works.
Here is a plain English description of how recording contract options work....
Adam's recording contract will have something like a one-year term to allow the first album to be recorded and released. The first contract period, in other words, lasts a year. Then the contract will have a number of options that the label can exercise to activate the second contract period, the third contract period and so on. (I believe Adam's contract is for up to 6 studio albums.) RCA liked FYE, and exercised its first option so Trespassing was produced.
This is definitely a one-way affair. The label can choose not to exercise its option, and in that case, the contract terminates. When the label exercises an option, the artist usually has no way to get out of the contract if things are not good. That is why the open letter Adam posted is surprising. And Shirley has a comment about mutual agreement on creative direction.
Options have the effect of locking an artist/band in for six or seven albums (or more if the label rejects an album). If a artist/band is doing well, the options in the contract guarantee that the band will produce a large collection of albums according to the terms of the contract. For most artists/bands that sign their first contract as unknowns, this arrangement is very advantageous to the label. The artist/band produces six or seven albums at a low royalty rate. If the artist/band is not doing well, the label simply terminates the contract,
but the lock-out clause prevents the band from re-recording the material. Even if the label has no interest in the artist/band,
the label owns all the recordings. There is no way for the artist/band to re-release an album on its own.
Finally, there is a concept called cross-collateralization. I think that is involved here. Let's say a band's first album does well, but not well enough to recover all the recoupable costs, charge-backs, etc. For example:
The record company sells 300,000 CDs and makes $3 million.
The band gets a 10% royalty.
The recoupable expenses total $500,000.
So the band "makes" $300,000, but that money doesn't cover all the recoupable expenses. So the band is now $200,000 in the hole. The band does not get a check, but the label probably cleared $2 million from the album. So the record company exercises the first option. The band creates a new album. The income from the second album will have to cover all the remaining costs from the first album ($200,000) and then all of the new costs for the second album before the band sees any money. In this way, a band may need to produce several albums before it gets paid anything. It is not a pretty picture for a band that "almost succeeds."
The contract locks the band in, but the band makes no money from the contract outside of the advances.Trespassing is probably underwater right now so the financial deal Adam was offered would be ugly, and the covers album would not have much sales, so basically, RCA would do well but Adam would not.
The Season 8 Idol advances were large and increase if the first album was successful -- that means Adam got a big advance for Trespassing. Financially, he is probably best off to walk away.
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We do not know that much about Adam's RCA contract but my guess is, they offered him a cross-collaterized deal with a modest advance. In exchange Adam would have to record an album composed of 80's cover songs and do it on a tight budges.
It would have been a crap deal, but I bet that RCA thought he would say yes. Labels are arrogant and always underestimate artists.
