Cross-Collateralization
Contractual arrangement where losses from one revenue stream offset profits from another, affecting how artists recoup advances across multiple income sources.
Definition
Cross-collateralization allows record labels to combine financial accounting across different revenue streams, albums, or deal components. Losses from one project can be recouped against profits from another, extending the time before artists see royalty payments.
This practice commonly links album sales, touring income, merchandising, and publishing revenues, creating a single recoupment account rather than treating each income source independently.
Why It Matters
Understanding cross-collateralization is crucial for contract negotiation, as it significantly impacts when and how much money artists ultimately receive. It can turn profitable projects into non-paying ones if linked to unsuccessful ventures.
Artists and managers must carefully evaluate these clauses during deal negotiations, as cross-collateralization can extend recoupment periods by years and reduce overall earning potential across successful projects.
Examples in Practice
A major label deal might cross-collateralize three album advances, meaning the third album's profits help recoup losses from the first two albums before the artist receives any royalty payments.
A 360 deal could link touring losses from early career development shows against future streaming and merchandise profits, delaying recoupment despite successful recording sales.
Publishing deals sometimes cross-collateralize advances across multiple writers or catalogs, where one writer's successful songs help recoup another writer's unrecouped balance within the same deal structure.