Breakage Deductions

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Do curso por Berklee College of Music

Fundações da indústria da música

946 classificações

Berklee College of Music

Fundações da indústria da música

946 classificações

Curso 1 de 4 em Specialization Music Business

This course has been developed to provide students with the latest instruction on the best way for creators, consumers, and facilitators to navigate the resurgence of one of the world’s most exciting industries: the music business. Three things are clear about today’s music industry: The consumption of music is expanding at the greatest rate in history and from the most portals ever imagined, the cost of producing music is decreasing, and the number of artists creating and seeking to expose their work and develop careers through the Internet has increased dramatically. Whether you’re a music creator, consumer, or facilitator of this process, you’ll want to understand the history, underpinnings, and basics of the music business. Course author John Kellogg—administrator, educator, entertainment lawyer, performer, and radio and television personality—offers students the opportunity to learn the fundamental principles of the developing new music business, for now and into the future. What you'll learn: -- The basic history of the music industry and today's business trends -- How recording agreements are formulated -- The basics of copyright law as it pertains to the music business -- The role of agents, managers, attorneys, and specific business entities

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Recording Agreements

This week, you'll learn the ins and outs of recording agreements and why they are important. You'll learn what royalties and advances are and how they are calculated. You'll also learn about 360 degree or "all-in" deals.

Third Party Licensing7:44

Breakage Deductions6:08

Streaming Services10:07

Conheça os instrutores

John P. Kellogg
Assistant Chair
Music Business/Management

Once again, the Packaging Deduction is based on the price to

which the Royalty Rate is applied.

But here's a deduction that's based on the number of records sold,

it's called the Breakage Deduction.

The Breakage Deduction really started and

was inserted in the contracts in the 40s and 50s, when records,

at that time, primarily 78's, were made of shellac.

Shellac is a very brittle substance, very easy to crack, very easy to scratch.

Well, record companies legitimately had a concern that the number of

records that they manufactured in the plant and shipped out to distributors

that were sold to retailers could be broken during that shipment processing,

many times they were, boxes would be dropped,

people unloading them in the bins could, they could fall from that area,

and you can end up with a number of broken records.

And basically, the retailers didn't have to pay for the broken records.

They could send them back to the record company, and say,

look, these broke, I'm not paying for them.

And so, record companies could count on about 10 to 15% of

the records that they shipped out breaking during that process.

Legitimate, 40s and 50s.

Here's the problem.

These provisions have stayed in record contracts well into the turn

of the this century.

The Breakage Deduction basically says that the record company doesn't have to pay you

for broken records and it got to the point that record companies just decided that,

since about 10 to 15% of the records were breaking during this shipment process,

the contract would say, we only have to pay you for 85% of

the records that we ship, or 90% of the records that we ship.

So in other words, if the record company would ship 1,000 records,

they only had to pay you royalties on 850, 85% of the 1,000 that they sent.

The music industry evolved to records being made on vinyl not on shellac,

vinyl is much more pliant, flexible, unbreakable, but did record

companies take that breakage provision out of the contract in the 60s and

70s as albums and 45's that were made out of vinyl were shipped and

became the predominant configuration?

No, what about cassettes?

Did cassettes break, cuz some cassettes could break.

But in the shipping process, no.

I mean, I remember having cassettes and after you played them for a long time,

sometimes the tape would come out.

[LAUGH] But they didn't break.

Not during the shipping process.

In other words, was the breakage deduction really a significant,

should it have been applied to cassettes, record companies took the position,

this provision stays in the contract,

1,000 cassettes shipped, you're only gonna be paid on 850.

The breakage deduction of 15% would apply.

CDs, I think, is the most ridiculous example

of the application of the Breakage Deduction.

Here's the thing, CDs,

the big marketing point of CDs was that they were indestructible.

Vinyl would scratch, sometimes warp.

So, the record companies came up with this marketing scheme for CDs,

saying that this disc, will never break, it will never warp, it will never

scratch, and that was a major, major part of the marketing of CDs, and it worked.

Should the Breakage Deduction apply to CDs?

Clearly, no.

Did record companies take the Breakage Deduction

out of contracts in the 80s and 90s?

No.

And they were very adamant about it.

I remember arguing that point in the early 90s with a business affairs person,

and I said, you know, this Breakage Deduction is ridiculous.

You're only selling CDs now, primarily CDs.

Why in the world do you have a Breakage Deduction?

I want you to reduce or eliminate that Breakage Deduction all together.

And I got a negative response, and the business affairs person says, no, this is

how our system is set up, that we're gonna enforce this Breakage Reduction,

you know, I might give you a bigger advance, I understand, I'll compensate for

it somehow, but the record companies decided to keep the Breakage Deduction in.

And it wasn't until about 2004 or 2005 that

the last major label eliminated the Breakage Deduction from their contracts.

And now, all of the major labels pay on 100% of records sold.

So, you might say, well, why should I be concerned about the Breakage Deduction?

None of the major labels use the Breakage Deduction anymore.

Well the major labels aren't the only companies that sign you to

exclusive recording agreements.

You have a lot of independent companies.

You have a lot of production companies that might sign you as an artist or

record you and enter into a deal with a major label.

And they're gonna have their own exclusive recording agreements with

you as an artist.

Many of these production companies, and even some of the independent labels,

might base their contracts off of old major label contracts that have

these packaging deductions and breakage deductions types of provisions in them.

And you need to be aware of those, because if they have that in their contract,

they are in the position to take those deductions from your royalties.

So, you need to be able to recognize whether or not a packaging deduction, or

breakage deduction, is being applied to the payment of your royalties.

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