Advances have gotten a bad rap lately, as some of the exploitative sides of the music business and financial business are finally being aired publicly. This discussion makes it tempting to throw the baby out with the bathwater.
Advances aren’t always bad. They can be helpful tools when they’re the right fit for what you want to accomplish as an artist. But you often need a scalpel, not a chainsaw.
You can tell what tool you’re being handed by looking closely at your agreement. Whether from a music company or a finance company, advances generally come with all types of fine print. That’s not bad in and of itself; agreements are complicated because life is complicated. Fine print demands close reading, and you should never be afraid to negotiate.
Here is some important fine print to look for:
The distributor/platform offers the advance under a separate financing company using their brand name, like "Distributor Capital, LLC". Why do you care? Now you have two contracts with two different companies, one for distribution and one for the advance. And what happens if the distribution company or platform tanks? That separate finance company whom you do not know will continue to control your music and royalties. Try getting them on the phone!
The agreement may allow the company to sell the rights you granted them under the agreement but doesn’t give you the same rights. This means you, your music, or your future royalties may be sold off to someone you don't know or don't like without your consent or knowledge. In other words, you are trapped. Think Taylor Swift's very public beef with her first label, Big Machine, over the sale of her masters to a manager she had a contentious history with. These struggles can feel devastating and can seriously throttle your career.
Cost of the advance. Think of this from multiple angles, all of which should be considered before deciding if the deal makes sense for what you are trying to accomplish.
Monetary: What is the total amount of money it costs you to repay the advance and how is it recouped? This cost isn’t the same as the APR (annual percentage rate) you’d consider for car loans, credit cards and mortgages since a) advances are not structured as loans (debt) and b) they are generally non-recourse, meaning you are not personally liable for repayment.
If the advance is from a music company (distributor/label/publisher), ask if it’s recoupable? If so, at what % rate and based on what measurement (gross sales vs. net sales after marketing costs, etc? What other expenses can they charge you as recoupable? If the advance is extra-contractual, meaning it's in addition to any advances guaranteed in your agreement with them, does it extend the term of your agreement until you are recouped or increase the cost of their service? How much better of a royalty rate could you get or how much lower could you to get them to go on their fees if you simply took an advance from a company like Lyric vs taking it from them? Does that higher rate or fee you are paying for distribution to get an advance to continue for the length of the contract (3-5 years) or just until you recoup?
If the advance is from a finance company: What is the breakdown of the costs you are paying (finance fees, processing fees, bank transfer fees, all the fees). If they won't state these charges clearly (in plain English and in a language you can understand) then run—don’t walk!—the other way.
Prepayment: Can you repay your advance more quickly than projected without penalty? Does that reduce the cost of the advance? (Hint: it should!)
Political: Does taking the advance to give the company leverage over you in terms of creative or marketing control of your brand or your music? The bigger the advance, the bigger the expectations and demands from the company. Remember, they are not in business to make you money. They are in business to make money for themselves. Whether you do or not is not their concern.
Practical: Many finance companies take control of your artist account by asking you to give them Power of Attorney and/or control of your login and password. The problem here is if they are bad actors, they can use that POA or login credentials to block you from monitoring your royalties, which means you have no way to tell if they are being straight with you or accounting to you accurately and fairly.
Lyric Financial’s approach:
Treat the artist as we would want to be treated. Explain the offer in a way that it is easy to understand the total cost of the advance, how long it will take to recoup and what protections are included for the artist and Lyric.