Cross-Collateralization

Alright, it's time to speak to musicians about the dreaded Cross Collateralization clause. This is a clause feared by many who know what it is capable of. Many a record deal has been brought to ruin thanks to this gem of a contract.

Cross-Collateralization is a defense mechanism by record companies. It forces artists to repay the record company for any monies spent on the record with successive records. Let's break that down into a real world example. You get a record contract. Yay! Congrats. Now, for your first album the record company spends $250,000 in studio fees, distribution, advertising, etc... Your album doesn't do the greatest, and ended up only returning $150,000 to the record company. The record company isn't concerned though, because they can collect against the $100,000 deficit of the last album through the sales of the next one you make. However, lately it doesn't just stop there. The record companies have found they can do this with every media outlet you try.

In the last 10-15 years record companies have started to use this cross collateralization concept on any form of income to the artist. So, suppose you owe them $100,000 from the poor sales of the last album. Lately, they have clauses that allow them to take money from other sources of revenue for the artist. If you get a great licensing contract to put your song on a movie and get paid $150,000 for it, guess where $100,000 of that is going? Yup, to the record company.

So, musicians be very careful about what you sign and know exactly what rights you are giving up, and what revenue streams the record company can take from.