Thursday, September 9, 2010

What's an inducement letter?

Dear Rich: Can you tell me what an inducement letter for a recording contract is?  Inducement letters are a sort of legal hocus-pocus that increase the chances of recovering damages from a wayward artist. Here's how they work: A production company (for example, a record company, movie company or TV company) is negotiating for the services of an artist. For liability or tax reasons, the artist wants the production company to sign with the artist's company (and not directly with the artist). The trouble with this arrangement is that if the artist doesn't show up (or shows up drunk), the production company can only sue the artist's company which often has no money. So, to cover their assets, the production company insists that the artist sign an inducement letter. In the inducement letter, the artist acknowledges reading and understanding the main agreement.  The production company believes that this secondary agreement will give it some more juice if it needs to go after the artist for legal reasons.