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Is it common for indie labels, especially the bigger ones like Merge or Matador to keep the rights to a band's album masters? If so, is there a good business reason to agree to this?
It's funny, 20 years ago this wouldn't even be a question a band or artist might entertain. The idea that an artist might retain their rights to their masters is very much a newer development in all levels of the music industry.
I spoke to the head of one of the big American indie labels (he asked to remain anonymous so he could speak candidly) and he said it's different, deal-to-deal, and depends on how competitive things are for an artist's record. "If you have a few labels vying for you, you can probably write your own ticket and retain your masters and license them to the label for a set period of time. This is perhaps a little more typical if a band is coming in with a finished record already in their hands rather than someone who is getting a recording advance to make a record with a producer. An offer to let a band retain their masters is seen as very artist friendly and may be something labels do attract bands, but it's not terribly common."
He also said there is a bit of a misconception about masters, a general ookyness about not owning them that probably stems from draconian horror stories, and for the vast majority of bands, masters are not going to be an issue. Most bands and music fans are familiar with the horror stories of acts who got inked to major labels amid the 90's grunge/indie/pop punk signing boom and had to pay to get the rights to get their own goddamn album back into print -- which, rightfully have put the issue of masters-ownership on the radar.
For another expert opinion, I called someone who has had real experience in working to get their band's masters back: Jawbreaker drummer Adam Pfahler. Over the last decade he's managed to get ownership back to almost all the band's albums, save for, rather notoriously, Dear You, and has re-released their entire catalog on his own label, Blackball. "Is there a benefit? I don't think so. The upshot with indies is that they don't usually ask for the masters in perpetuity." Most major label contracts stipulate they own your album forever and ever, throughout the territory of the known universe.
In Pfahler's case, he got the Jawbreaker masters back from the indie labels that had initially issued them after they had enjoyed a good long multi-decade run. There was nothing about reverting rights to the masters in their agreements and the labels were, according to Pfahler, reasonable in giving them back. "I don't know what the benefits are of other people owning your masters because I have never experienced those benefits. It is always good to own your own work, own your own publishing." Pfahler, rather infamously, had to pay $10,000 to license an out-of-print Dear You from Geffen for a five-year term, which, ironically, included having to pay royalties on sales to the label on their own album, which they themselves don't in turn receive.
Both he and I share the same opinion that ideally you work on the shortest terms possible -- which is probably something like a scant five years, though a minimum at most labels is usually going to be upwards of 10 -- and license your album to the label. That way, if things are not working out, you can take off, go elsewhere. Short terms can be an incentive for the label to pay you, keep a good relationship so that you, the artist, are interested in sticking with them (especially given that this is a contracted deal, not a terminate-at-will deal). Labels depend on catalog sales. If they own your masters and say, they are not paying you, you might have to bail from the contract empty handed.
While the labels you mention are known for being responsible to their artists, indies can sometimes be just as awful as majors. There is a big indie from the '80s and one that made its name in the early '90s with a massive catalog both; both are known for not paying artists and shady accounting, where some of the marquee acts are finally just getting their masters back after lengthy and, in some cases, expensive fights. If the label has your master they are in position of power when you are negotiating. As Pfahler put it, "Negotiating getting an album back will likely cost you more than you will ever make on it."
Another thing to consider is if a label owns your master, they have a right to do things like take a video of your song down off YouTube and only make it available on their corpo-commercial laden YouTube channel. There are also all manner of platforms, medias and digital developments coming down the pike in the next few decades that we can't even imagine, and if a label owns your master they get to decide the terms and manner your music might be available (or not).
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That said, it is reasonable to give the label you are signing with some rope, some dominion to work with. Everyone needs some skin in the game. Make sure that when you are inking a deal you are represented by a lawyer who not only understands the terms of the deal and what is industry standard--but also is well familiar with what is typical for the label you are signing to, what sort of terms they've done with other signees. Which is to say don't have your mom's real estate attorney's best friend looking over your contracts.
Here's to making informed decisions!