ABSTRACT
The return percentage allowed varies between manufacturers and ranges from 0 percent to 100 percent. As artists are paid royalties based on the number of products sold (not shipped) manufactures withhold or reserve a percentage of the royalty payments as a means of compensation for returned goods. Often reserved royalties are withheld for a period of time before reverting back to the artist. In a recording contract, a record label can withhold the payment of royalties to an artist until unsold and returned albums have been accounted for. Also known as “Reserve for Returns,” a recording company will base the withholding amount on their “best business judgment.” Artists will often negotiate the removal of this clause or settle for a shorter withholding period from the date a recording has been shipped. Furthermore, artists will insist on a specific ceiling percentage as well as a period of time in which the label can withhold royalties. This practice is standard in most recording contracts, even in the case of electronic distribution.
