Cross-Collateralization in Music: How One Bad Album Can Eat Your Hit's Profits

What is Cross-Collateralization?

Cross-collateralization (cross-collat) allows a label or publisher to offset losses from one project against earnings from another. If your first album is $200,000 unrecouped but your second album earns $300,000 in royalties, the label takes $200,000 from your second album's earnings to cover the first album's deficit.

Without cross-collat, each project is accounted for separately. Your second album's royalties would be yours immediately (after that album's own recoupment), regardless of what happened with album one.

Where Cross-Collat Appears

Across albums within a record deal: The most common form. Losses from early albums offset earnings from later ones.

Between recording and publishing: Some 360-style deals cross-collateralize recording income against publishing income. This is particularly aggressive and should be resisted.

Between territories: International sub-publishing deals sometimes cross-collateralize across regions, so poor performance in one country reduces your earnings from another.

Between advances and royalties in different periods: Option period advances can be cross-collateralized against prior period earnings.

The Real-World Impact

Consider this scenario:

Album 1: $150,000 advance, earns $50,000 in royalties. Unrecouped by $100,000.

Album 2: $200,000 advance, earns $350,000 in royalties. Recouped with $150,000 surplus.

With cross-collat: The $100,000 deficit from Album 1 is deducted from Album 2's surplus. You receive $50,000.

Without cross-collat: Album 1 stays unrecouped (no additional obligation to you). Album 2 pays you the full $150,000 surplus.

That's a $100,000 difference from a single clause.

How to Negotiate

1. Remove it entirely. The strongest position. Each project stands on its own.

2. Limit to within option periods. Albums within the same option period can cross-collateralize, but not across periods.

3. Exclude publishing from recording cross-collat. These are separate income streams and should be accounted separately.

4. Cap the cross-collat amount. Limit how much of one project's deficit can be offset against another's earnings.

5. One-way cross-collat. Only allow cross-collat in one direction (e.g., a hit can cover a flop, but not vice versa). This is unusual but worth asking for.

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