Record Deals Explained: How to Evaluate a Label Offer
Foundational Guide
Feb 1, 2026
A record deal is an exchange. A label invests money, infrastructure, and services into your music. In return, the label receives a share of the revenue and, in most deals, ownership or control of the master recordings for some period of time. The specifics of that exchange, what you give up, what you get, and for how long, vary enormously depending on the deal structure, the label, and your negotiating position.
The right deal with the right label can be the most significant career accelerator available to an artist. A label that invests in your recording, funds your marketing, connects you with the right collaborators, and puts organizational muscle behind your releases can accomplish in months what might take years independently. But the wrong deal, or a fair deal signed without understanding the terms, can lock you into unfavorable economics, cost you control of your work, and create financial and creative constraints that take years to untangle.
This guide covers what you need to understand before you sign anything.
Types of Record Deals
Deal structures exist on a spectrum from full label ownership to lightweight distribution partnerships. Each involves different trade-offs in ownership, income, and control.
Traditional Record Deal
How it works. The label funds the recording (through an advance that covers recording costs, sometimes living expenses, and sometimes a cash payment to the artist). The label owns the master recordings. You receive a royalty, a percentage of the revenue generated by those recordings, after the label recoups its investment.
What you give up. Ownership of the masters, typically for a long term (10-15 years, sometimes permanently, sometimes life of copyright). Control over how the recordings are used (the label decides about licensing, distribution, and marketing). A large share of revenue: artist royalty rates in traditional deals are typically 15-25% of net revenue, meaning the label keeps 75-85%.
What you get. Funding for recording. A marketing and distribution infrastructure you could not build independently. The label's relationships with playlist editors, press, radio, and industry contacts. An advance, which is money you receive upfront.
Who this suits. Artists who need significant capital investment and full-service infrastructure, and whose career trajectory justifies giving up master ownership. Major label deals and some well-funded indie label deals follow this structure.
Profit Split Deal
How it works. The label funds the recording and marketing. After all costs are recouped, the remaining profit is split between label and artist, typically 50/50, though splits ranging from 60/40 (label/artist) to 40/60 (label/artist) exist.
What you give up. Master ownership during the deal term (though reversion clauses are more common in profit split deals). A share of net profit. Some creative control depending on the contract.
What you get. A more favorable income split than a traditional deal once costs are recouped. Better alignment of incentives: the label makes money when you make money, at the same rate.
The important difference. In a traditional deal, the label recoups from your royalty share only, meaning the label earns its share from dollar one while you earn nothing until recoupment. In a profit split deal, the label typically recoups from the shared revenue pool before either party takes profit. The math is significantly better for the artist.
License Deal
How it works. You fund and create the recordings yourself. The label licenses the finished masters from you for a defined period (typically 3-7 years). The label handles distribution, marketing, and promotion during the license term. When the term expires, full rights revert to you.
What you give up. A share of revenue during the license term. Some control over marketing and distribution decisions during the term.
What you get. You keep ownership of your masters. Rights revert to you after the term. You funded the recording, so there is no recoupment against your royalties (the label did not invest in the recording). Revenue splits are typically more favorable to the artist than traditional deals.
Who this suits. Artists who can fund their own recording and want a label's marketing and distribution infrastructure without giving up ownership. This structure has become more common as recording costs have dropped and artists have more leverage.
Distribution Deal
How it works. The label provides distribution (getting your music onto platforms and into retail) and potentially some marketing support. You handle everything else: recording, creative direction, marketing strategy. The label takes a percentage of revenue (typically 10-25%) as a distribution fee.
What you give up. A relatively small revenue share. Limited creative control concessions (the label may have approval rights over release schedule and artwork).
What you get. Access to the label's distribution network, which may include relationships with physical retail, international markets, and platform partnerships that aggregators do not offer. Some distribution deals include marketing funds or playlist pitching.
Who this suits. Artists who are operationally self-sufficient and primarily need distribution infrastructure and possibly the credibility of a label affiliation.
360 Deal (Multiple Rights Deal)
How it works. The label participates in revenue from all aspects of your career, not just recorded music. This typically includes streaming and sales, live performance, merchandise, publishing, sync licensing, endorsements, and sometimes more. In exchange, the label invests more broadly in your career development.
What you give up. A share of every revenue stream, not just recordings. The percentages vary by stream (the label might take 15-30% of touring income, 20-30% of merch, etc., in addition to their recording royalty).
What you get. Larger advances and more comprehensive investment. The label is incentivized to develop every aspect of your career because they participate in every revenue stream.
The concern. 360 deals give the label financial interest in areas they may not directly contribute to. If the label takes 20% of your touring income but does not book your shows, promote your tours, or fund your touring expenses, that percentage is a tax on your work without corresponding value. Evaluate each revenue stream independently: is the label providing meaningful value that justifies their share in that specific area?
How Recoupment Works From Your Side
Recoupment is the most important financial concept in any record deal. Understanding it determines whether a deal that looks good on paper actually puts money in your pocket.
The Basics
The label invests money in your project: recording costs, advances, marketing spend, sometimes video production. This investment is called recoupable costs. Before you receive any royalties, the label recoups these costs from your royalty share.
Critical distinction: The label recoups from your share, not from total revenue. In a traditional deal where you receive 20% royalties, recoupment happens at 20 cents per dollar of revenue. The label earns their 80 cents per dollar from the first stream. You earn nothing until the recoupable costs are paid off from your 20%.
Concrete Example
You sign a traditional deal with a $50,000 advance. Your royalty rate is 20% of net revenue.
The album generates $200,000 in revenue.
Label's 80% share: $160,000 (the label receives this from day one). Your 20% share: $40,000. But you have not yet recouped the $50,000 advance. Your entire $40,000 goes toward recoupment. You still owe $10,000. You receive nothing.
The album needs to generate $250,000 for you to recoup ($250,000 × 20% = $50,000). Only after that point do you start receiving royalty checks.
Meanwhile, the label has already earned $200,000 on its $50,000 investment. The label is profitable long before you recoup.
What Counts as Recoupable
This is where deals vary significantly and where careful contract review matters.
Almost always recoupable: Recording costs (studio time, producer fees, mixing, mastering), the cash advance to the artist.
Sometimes recoupable: Marketing and promotion costs, music video production, tour support, independent radio promotion. Whether these are recoupable or treated as the label's cost of doing business depends on the deal.
The difference is enormous. If the label spends $100,000 on marketing and that is recoupable, your recoupment threshold just increased by $100,000. Your royalties need to cover not just the recording advance but the full marketing spend before you see any income. Always clarify what is and is not recoupable before signing.
Key Contract Terms
Beyond the deal type and royalty rate, several contract terms significantly affect the value of the deal.
Term and Albums
The deal term defines how long the relationship lasts, usually measured in album cycles rather than years. A "one album firm plus two options" deal means the label is committed to one album, with the right (but not the obligation) to extend the deal for two additional albums. The label exercises each option at their discretion.
Why options matter. Options benefit the label, not you. If your first album succeeds, the label exercises the option to keep you at the same terms for the next album. If your first album fails, the label does not exercise the option and you are released. You are locked in during success and released during failure. Negotiate for improved terms on option periods (higher advance, better royalty rate) so that success is rewarded.
Master Ownership and Reversion
Who owns the masters, and for how long? In traditional deals, the label typically owns the masters for an extended period. Some deals include reversion clauses: the masters revert to you after a defined period (10-15 years) or after the label has earned a specified multiple of their investment.
Reversion matters more than almost any other term. Masters that revert to you become assets you control for the rest of your career. Masters that belong to the label permanently generate revenue for the label indefinitely while you receive only your royalty share.
Push for reversion. If the label will not agree to time-based reversion, negotiate for recoupment-based reversion: once the label has recouped a defined multiple of their investment (2x or 3x is common in negotiation), the masters revert to you.
Territory
Where does the deal apply? A worldwide deal gives the label rights in every territory. A territory-limited deal (US only, North America, etc.) leaves you free to sign with different partners in other regions. Major labels typically demand worldwide rights. Indie labels may be more flexible.
Creative Control
Who decides what gets released? In many deals, the label has approval rights over the album: the songs, the single selections, the artwork, and the release timeline. Some deals give the label the right to reject an album as commercially unacceptable, requiring you to record additional material.
Negotiate for meaningful creative control. At minimum, push for mutual approval (neither party can release or reject without the other's agreement) rather than unilateral label control. Your creative output is the foundation of the deal. If the label can override your creative decisions entirely, you have given up more than masters and money.
Marketing Commitments
What is the label obligated to do? Many deals specify the label's obligations in vague terms ("commercially reasonable efforts") rather than concrete commitments. A label that signs you but does not invest in marketing, promotion, or radio has not breached the contract if the obligation is vague.
Push for specific commitments where possible: minimum marketing spend, minimum number of single releases, commitment to specific promotional activities. These are difficult to negotiate but worth pursuing because they protect you from being signed and shelved.
Accounting and Audit Rights
How and when do you get paid? Standard label accounting is quarterly or semi-annual, with a 60-90 day delay after the accounting period ends. Make sure the contract specifies: how often you receive statements, how detailed the statements must be, and your right to audit the label's books (typically once per year, at your expense unless discrepancies above a threshold are found).
Red Flags
These are not automatic deal-breakers, but they require careful scrutiny and, in most cases, negotiation.
Perpetual master ownership with no reversion clause. The label owns your recordings forever. This is standard in some major label deals but should come with a correspondingly large advance and favorable terms elsewhere.
Cross-collateralization across albums. If your first album does not recoup, the unrecouped balance carries over to your second album. You need to recoup the combined deficit before seeing royalties from either album. This can create a situation where you release multiple successful albums and never recoup.
Broad 360 provisions without corresponding services. The label takes a percentage of touring, merch, and other revenue but does not invest in or support those activities. Each 360 provision should correspond to a specific service the label provides.
No minimum marketing commitment. The label can sign you, release your album with no promotional support, watch it underperform, and blame the results on market conditions. Without marketing commitments, you are accepting all the creative risk with no guarantee of promotional investment.
Leaving member clauses. In band deals, this clause defines what happens if a member leaves. Some clauses allow the label to sign the departing member individually and retain the remaining members under the existing deal. These clauses can create significant complications.
Controlled composition clauses. These reduce the mechanical royalty rate the label pays for songs you wrote. In effect, the label pays you less in publishing royalties for your own songs because you are also their recording artist. These have become less common but still appear in some contracts.
When a Deal Makes Sense
A label deal is right for you when the label's investment, infrastructure, and services will generate more career value than you could create independently, and the terms reflect a fair exchange for what you are giving up.
Signs a deal may be right:
You have proven traction (audience, streaming numbers, live draw) and need infrastructure to scale. The label has a track record of successfully developing artists at your level. The advance lets you invest in your career in ways you could not otherwise afford. The team at the label understands your music, your audience, and your creative vision. The terms are fair as evaluated by your attorney.
Signs a deal may not be right:
You could achieve the same results independently with a distributor, a good team, and a smaller budget. The label is offering a deal based on potential without committing meaningful resources. The terms require you to give up master ownership or significant revenue share without corresponding investment. You feel pressure to sign quickly or without legal review. The label cannot articulate a specific plan for what they will do differently than what you are already doing.
The Self-Release Alternative
It has never been easier to release music independently. Distribution is accessible through aggregators. Marketing tools are available to anyone. Direct-to-fan platforms let you capture revenue at high margins. For many artists, particularly those with an existing audience and operational capability, self-releasing with an admin distributor produces better financial outcomes than a label deal, especially at the indie level where label infrastructure may not extend far beyond what an artist can do themselves.
The question is not "should I sign a deal" but "what specifically does this label provide that I cannot do myself, and is the cost of obtaining it through this deal reasonable?" If the answer is "not much" or "I'm not sure," the deal may not be worth it.
The Negotiation
You do not negotiate a record deal yourself. You negotiate it through an entertainment attorney, and potentially with a manager's guidance.
Why a lawyer is non-negotiable. Label contracts are drafted by the label's legal team to protect the label's interests. Every clause serves a purpose, and many of those purposes are not in your favor. An entertainment attorney who regularly negotiates label deals knows which terms are standard, which are aggressive, and which are deal-breakers. The cost ($2,000-$10,000+ depending on deal complexity) is a fraction of the money at stake.
What is negotiable. Almost everything in a first offer is negotiable: royalty rate, advance amount, recoupable costs, option terms, reversion clauses, creative control, marketing commitments, 360 provisions, and accounting terms. The label expects negotiation. A first offer is a starting position, not a final offer.
Your leverage. Leverage comes from alternatives. If you have a functioning independent career, label interest from multiple parties, or a growing audience that proves the music works without a label, you negotiate from strength. If you have no alternatives and no traction, your leverage is limited and the deal terms will reflect that.
Common Mistakes
Signing without a lawyer. The single most common and most expensive mistake. No exceptions.
Comparing only the advance. A $100,000 advance with an 18% royalty rate, perpetual master ownership, and cross-collateralization may be worse than a $30,000 advance with a 50/50 profit split and 7-year reversion. The advance is one number in a complex equation.
Not asking what is recoupable. If you do not know what counts as recoupable costs, you cannot calculate when (or if) you will recoup. Ask specifically, get it in writing.
Ignoring option terms. Options lock you into the deal during success. If the option terms do not improve with each album cycle, you are agreeing to the same economics no matter how successful you become.
Signing under time pressure. "This offer expires Friday" is a negotiation tactic, not a deadline. A label that is genuinely interested will wait for you to review the terms properly. If they will not, that tells you something about how the relationship will work.
Assuming the label will do the work. A label deal does not mean you stop marketing, touring, or building your audience. The most successful label artists are the ones who treat the label as an amplifier of their own effort, not a replacement for it.
Frequently Asked Questions
What royalty rate should I expect?
Traditional deals: 15-25% of net revenue for new artists, higher for artists with leverage. Profit split deals: 40-60% of net profit after recoupment. License deals: 50-80% of revenue depending on structure. These are ranges, not guarantees. Your specific rate depends on the label, your leverage, and the negotiation.
How long does a typical deal last?
One album firm plus one or two options is common. Each album cycle is typically 12-18 months. A full deal with all options exercised might span 3-5 years. Some deals are measured in years rather than albums (a 5-year term regardless of output).
Can I get out of a deal if it is not working?
Only as specified in the contract. Most deals include termination clauses for breach (the other party violates the terms) but not for disappointment (the album did not sell as well as hoped). This is why the terms you negotiate before signing matter more than hoping to renegotiate later.
Do I need a manager to get a label deal?
Not necessarily, but a manager with industry relationships can help you get meetings, evaluate offers, and negotiate alongside your attorney. If you do not have a manager, your attorney can handle the negotiation directly.
Should I sign with an indie label or hold out for a major?
This depends on your goals, your current traction, and what each label specifically offers. A well-run indie label that invests meaningfully in your career at fair terms can be a better outcome than waiting indefinitely for a major label offer that may never come, or that comes with more restrictive terms. Evaluate the specific offer from the specific label, not the category.
Read Next:
Plan Your Career:
Orphiq helps you build and execute a release strategy whether you are independent or working with a label, so every decision is informed by your goals and your data.