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CROSS-COLLATERALIZATION

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A policy used by record companies and sometimes music publishers.

In the case of record companies, it is a statement inserted in a recording contract (a contract clause) that would permit the record company to take receipts otherwise due the artist from any of the artist's releases and apply them towards any recoupable advances or costs incurred from any other of artist's recordings.

In short, this would allow the record company to pay debts incurred from one venture with profits realized from another venture. Some companies may even try to use one artist's profits to pay another artist's losses! Also, record companies could "sit" on certain releases or their incentive to push a release could be influenced by the wording of this clause.

Depending on the wording of this and other clauses, a cross-collateralization clause can have direct, deceiving, and often very undesirable consequences to the artist when applied in conjunction with other clauses of the contract (or with past and future contracts). It is possible for an artist who has had many successful releases to never receive any royalties! Experienced artist negotiators will reject this clause.

In the case of a music publisher, it is a statement inserted in a Songwriter/Publisher contract (a contract clause) that would permit the publisher to take receipts otherwise due the songwriter from one song and apply them towards any recoupable advances or costs incurred from another song.

In short, this would allow the publisher to pay debts incurred from one song with profits realized from other songs. This can, depending on the wording of this and other clauses, be very deceiving, and have vary undesirable consequences to the songwriter. One consequence may be that a songwriter who has had many successful songs could never receive any royalties because they would be used to offset losses incurred from other endeavors-including losses the publisher has realized from songs of other songwriters!

Experienced contract negotiators would refuse to allow such clauses. They would maintain the publisher could "sit" on some songs and not suffer loss, and that allowing such a clause could remove the publisher's incentive to push a song.

See Cross-links: ROYALTY, ADVANCE, CONTRACT-RECORDING CONTRACT clause #37, CONTRACT-SONGWRITER/PUBLISHER CONTRACT clause #26.

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