Contracts – Escalations

Contracts – Escalations

Escalations are used to change a royalty rate once a preset threshold has been exceeded. This could be a date, a volume or a value. So an artist’s share could increase once an agreed amount of revenue has been generated by a release in a given territory.

ESCALATION TRACKERS

To program an escalation point, a tracker must first be created in the Escalations tab. Give the tracker a name & set the starting values for Units, Gross Amount & Net Amount. If this is a new relationship for your business these will likely be zero.

Once your Tracker is linked to a Term (as we will show further down in this topic), these fields will automatically amend as sales are being processed by this Term in your Contract.

Name – Name the Tracker for your own reference, in a way that makes sense
Units – The number of Units processed by the linked Term
Gross Amount – The calculation input processed by the linked Term, so the total revenue before a royalty rate or participation rate is applied.
Net Amount – The calculation output processed by the linked Term, so the royalty that is paid to your artist.

If you are transferring over an existing relationship you’ll need to program these values carefully by referring to the current status of the account. In the below example, we are onboarding a Contract which has previously processed digital revenue. Of course, we want this to count towards our Escalation Tracking & put these in as the starting values.

 

ESCALATION EQUIVALENTS

Escalation Equivalents allow you to set a different weight to the Units per Configuration. You may for example want Downloads or Physical sales to way heavier in the Unit count than Streaming units would. In the below example; 500 Premium Streams will count as 1 Unit & 1000 Ad-Funded Streams will count as 1 Unit. For all other Configurations, 1 Unit would count as 1 Unit in the Escalation Tracker.

ESCALATION TERMS

Once you have a tracker set up, add it to one or more sales terms. Any sales that fall under the conditions defined by the term will contribute to the tracker counts. In the below example, all Digital revenue flowing through this Contract will count towards the Digital tracker. Imagine we process 120 digital downloads with a Net Amount of £100; the tracker will automatically update with 120 counting towards Units, 100 counting towards Gross Amount & 20 counting towards the Net Amount (as there is a royalty rate of 20% on this term).

 

You then need to define the trigger points for the escalation & how that escalation will operate. Hit the +Escalation button to define the condition under which the royalty rate is to change & then set the new rate to apply once the condition is met.

In the below example, the original royalty rate is 20% of Net Receipts. But the rate will be switched to 25% once the Net Amount (so what the artist has earned) of the Digital tracker has reached a total greater than 500,000. It is possible to add multiple Escalations to a sales term; the second escalation will change the royalty rate to 30% of Net Receipts once the Net Amount of the Digital tracker has surpassed 1,000,000.

Rates can also be changed based on the date of sale or reporting date. In the below example the royalty rate is 50%. But this will update to 60% for any royalty periods that will be run after the 1st of January 2022.

 

Lastly, multiple Conditions can be applied to the same Escalation, in which case the royalty rate will only be updated once all conditions have been met. So you can combine a unit threshold with a date threshold, or units & value etc. In the below example, the artist will receive a 25% rate once the total LP sales are greater than 5,000 units, but not for any copies sold before the 1st of January 2022.