It's Only a One-Year Deal. So Why Can They Keep You for Five?

Every music contract contains a few key provisions that can have a big impact on your career. In this series, we break down one concept at a time, in simple terms, so you can understand why it matters.

It’s easy to get a contract and look for certain key things—how long are you in for and how much will it cost you. But those are not necessarily easy questions to answer in a contract, particularly in a music industry contract. Everything is always tied to one thing, so it’s hard to look in one place and get an answer.

The term is a perfect example. The term might be the same as how long you are committed. Or it might not. It might just be how long your time is committed. The commitment of your money might be something else entirely. Or it might be that your time commitment is broken up into several parts.

Say you sign a contract with a one year term. Seems harmless. If things don’t work out, your career doesn’t suffer any major setbacks. But what if it also has options? In that case, there is only one party that gets to decide whether the term gets extended. And that party is NOT you. (I frequently have people ask for “mutual” options. At that point, they aren’t options anymore. It’s just an agreement to agree later on extension terms).

So you might be committed for one year. Or the other side might take those options and extend your commitment for several more years.

What Is an Option?

An option gives one party the right to extend an agreement—or acquire additional rights—without requiring the other party to renegotiate the deal. That means the other party, let’s say it’s a label, may get years of control for a single year of commitment.

Here’s how it works. You sign on for a one-year term with three, one-year options. That means you have one year where both you and the label are committed to the deal. And then the label has the right to make you perform for up to three additional years. But they don’t have to commit to those three extra years up front—they can decide every year whether to renew or let the contract end. You don’t get a vote.

So you are committed for four years; but the label is only committing to you for one.

Those are very different positions of looking at the same agreement.

Why Do Companies Want Options?

Options aren't automatically unfair. Imagine a label puts a great deal of money into an untested artist. After a year, the artist could be enormously successful; or they could still be a complete unknown. The label has to decide whether it is worth plowing more money into that artist to get them to a point where they can get a return on their investment or whether it is time to cut their losses.

Without an option, the agreement could expire just as the label's investment begins paying off. The artist could leave and sign somewhere else. Or a longer agreement could require the label to keep pouring money into an investment that they know isn’t working. Options give the company time to develop the relationship and evaluate the investment to make good decisions.

That's understandable. But now let’s look at what the option does from the artist's perspective.

The Risk Isn't Equal

Suppose the first album is unsuccessful. The label doesn't exercise its option, and the relationship ends. The label walks away, taking its losses with it.

On the other hand, suppose the album becomes a huge success. Without the options, that success would give the artist bargaining power. With the options, the artist has to remain under the existing terms, negotiated when the artist had no leverage.

That's the fundamental economic value of an option: if things go badly, the company can leave; if things go well, the company can keep you.

The One-Year Term That Isn’t Really a One-Year Term

This is why reading only the initial term can be misleading. You have to look at all of the extensions, too. When deciding whether to sign, consider the longest the agreement could last against your will. That’s your potential commitment.  

A one-year initial term plus three unilateral options can create a very different relationship from a simple one-year agreement.

Options Aren't Just About Time

Many of the artists I represent would love a four-year record deal. That’s four records someone else is paying for. Four chances to get your music out. Those same artists want out of that deal after album one. Why? Because options can affect more than how many albums you get to release.

Your popularity might grow, but your revenue might not. It is locked in by the contract before your first album is even recorded. You might have to pass on new opportunities that your newfound popularity creates because the contract you signed before you became popular won’t let you take them. And if your contract is measured in product rather than years, it could potentially tie you down even longer. I talked about this in a previous post. If the label holds off on recording your next album, those options could get stretched out even longer.

What Happens to Your Money During the Option Periods?

You also need to look at how your compensation is affected by options. Sometimes your royalties/recording budgets/advances escalate over the added terms. Sometimes they don’t. And even if they do, that escalation is usually modest, particularly when compared to what they would be if you could negotiate the terms.

So if you’re going to let someone control you for several years, you really need to ask what improves for you when they do.

Can You Ever Get Out?

Here's the question that matters most. Suppose the company keeps exercising options but isn't doing anything meaningful with your career. Are you stuck?

That depends on the agreement. That’s why it is important to define what the other party has to do. Some options have very particular timelines and requirements for the other side. Some don’t. That's why options shouldn't be reviewed in isolation. An option becomes much more significant when the other party can keep extending the relationship without having meaningful obligations during those additional periods.

The Reality

Options aren't unusual, and they aren't inherently unfair. A company investing money and resources into an artist may reasonably want enough time to benefit if that investment succeeds.

But the artist should understand the bargain. You are agreeing to an imbalanced relationship, where you give a commitment for years but only receive a commitment for one in return. And if the other side doesn’t have measurable duties, then you could find yourself tied to another party who is more like an anchor than a rocket.

This Week's Takeaway

Don’t just look at the initial commitment. Look at all of it. Because the most important number in the term provision may not be the length of the initial term.

It may be the number of options sitting behind it.