Unlike a lot of indie labels, major labels don’t like getting unsolicited demos. Such demos open up the label to way too many legal hassles for accepting them to be worthwhile (“hey, I sent my demo to such and such label and they gave my song to Beyonce!”). Still, demos are an important part of the new artist equation for many labels. After all, without a demo, how do you know what an artist’s music is really like and how they will sound on record as opposed to a live show? To get around being out of the traditional demo loop, major labels (and some big indies) rely on so-called demo deals.
Demo deals are essentially label funded tryouts. A record label will offer you a set budget to go into the studio and record a demo that meets their specifications in terms of number of songs. You record the demo, hand it over to the label, and they check it out and decide if they want to offer you a deal. Make no mistake about it – demo deals aren’t handed out like candy. If a label offers you such a deal, then they are very interested in your music, but there is no guarantee that a “real” record deal will await you at the other end of the demo process.
That being said, labels can’t sit on your demo forever. Demo deal contracts usually specify a set period of time the label has to make a decision about your music, and it is usually pretty fast: a month or two is usually the limit. During that time, you aren’t allowed to send your demo to other record labels and try to use it to land any sort of deal.
After the allotted time has passed, the label can offer you a deal or tell you “thanks, but no thanks.” You can’t decide not to listen to an offer from a label that has given you a demo deal. This is called first negotiation rights, and it means that you have to come to the table and hear them out.
What you don’t have to do is accept their offer. If you’ve negotiated and negotiated and you just can’t come to terms, you can take your demo and walk. With your demo in hand, you can nowshop it to other labels. If another label loves your music and wants to offer you a record deal based on what they’ve heard, your commitment to the label that paid for the demo is not over. Most demo deal contracts stipulate that that label has “first refusal rights.” That means that you have to take your new deal to them and give them a chance to match it. If they’re willing to match the deal, you have to take it. Sometimes you only have to go back to the first label if you are planning to accept a deal for less money than they offered you, and sometimes it is any deal, any time. Your demo deal contract will tell you which is which.
If you do sign a deal with another label, the first label is going to be holding their hand out looking for repayment for their outlay for your demo. If you have the money, great. In the very likely event that you don’t, your new label may step up, pay your bill and then recoup their expenses from the royalties from your release for them.
It is also important to note that demo deals have an enforcement time limit. If you record a demo and nothing happens, and ten years later you sign a record deal, that first company usually can’t come back and say, “remember that demo? We’ll take our cash now.” Again, your contract should have a provision that lets you off the hook after a year or so.
Are demo deals good? From a label perspective, they are a roll of the dice. You may end up with a great new artist, but you also may end up never recouping your outlay. From a musician perspective, demo deals let you professionally record a demo without spending the cash upfront, but they can also leave you with a big red mark on your label account that will eat up your royalties for quite some time – and believe me, you will have enough of those without a demo deal.
The bottom line? Demo deals involve some risk on the part of all parties involved, but sometimes they are quite useful. It all comes down to your circumstances, how enthusiastic the label is and the size of the outlay.