You should always consider your future objectives,and goals as a producer before deciding to sell or lease your beats. You may produce tracks that you feel are "throw-away" beats and are probably more willing to sell these tracks to new artists. Naturally, you probably want to hold on to those beats that you feel are "hot" for an established artist or a more talented new artist.
However, that "throw-away" beat may just fall into the right hands and become a hit, while your "hot" tracks might not make the album cut because the label decides to add some veteran producers to the roster to "beef-up" the album. For that reason, the decision of whether to sell or lease your beats requires you to consider several important issues - no matter how hot the beat is.
In general, when selling a beat to an artist or record label, a producer may seek to take advantage of the following income sources:
(1) Producer fees - compensation for the value of your physical work and time spent creating the beat
(2) Master purchase or "buy-out" (for ownership of your portion of the master recording containing your beat) - compensation for the right to control the use of fine master
(3) Producer royalties (paid in advance and on the back-end) - compensation for your services rendered in performing and or creating the beat, in an amount determined by the number of copies of the beat (or records that contain songs that contain the beat) that the record label sells; and
(4) Publishing - compensation for the use of your copyrighted material, including
(a) the reproduction of your beat on individual records (mechanical royalties) and (b) the public performance of your beat (i.e., air play performance royalties).
Although we will discuss these income sources in further details, at this point it is only necessary to understand them_ as -either up-front payments or back-end payments.
UP-FRONT PAYMENTS
The producer fee, amounts paid for the ownership or use of the masters, and advances against royalties are monies that a producer receives before the record label begins manufacturing and selling records/units. We call these amounts up-front payments.
SACK-END PAYMENTS
The balance of producer royalties (minus advances) and amounts representing publishing royalties are residual payments, which are made to the producer over time, following the manufacture, distribution and sale of units by a record label, on a per-unit and/or per-performance basis. In that regard, we consider royalty payments to be "back-end" compensation to the producer for his or her services in producing the beat.
With that said, when merely leasing a beat "on spec" - allowing the beat to be used by an artist without a guarantee that the beat will actually be used on an album manufactured, distributed and sold by a record company, a producer typically receives an upfront payment in the form of a production fee and/or an advance against producer royalties, but the producer still owns" or retains his rights in the beat (the master).
In leasing a beat "on spec," the artist initially pays the producer only a fraction of the production fee or advance, and the balance of the agreed fee and/or advance is paid once the artist is signed to a record deal. In other words, when leasing or selling a beat on spec, a producer is paid a portion of his up-front money in exchange for the artists Limited use of the beat.
THE "QUASI-SALE"
When agreeing what we call at-"quasi-sale" of the beat, the producer is paid his or her entire production fee* and/or other up-front-monies. The producer also sells his interest in the ' master recording of the song containing the beat to the artist or record label, and his up-front payment should include compensation for that sale. In exchange for these up-front monies, the producer will relinquish his or her right to collect back-end producer royalties, so the amount paid should reflect compensation for relinquishment of those rights as well. However, the producer will retain his or her publishing rights.
THE OUTRIGHT SALE
When a producer sells a beat "outright," the producer receives a purchase price consisting of the producer fee, the value of the masters, the current value of the producer's back-end producer royalties (including possible advances on that amount), and an additional amount for his publishing rights in the underlying composition - i.e., the producer sells his rights in the masters and the underlying compositions. While this purchase formula may look impressive, in actuality, beats are often sold outright for as little as 0.
