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A general overview of royalties in the entertainment industry

Many people doing business in California, especially in the entertainment industry, are paid in part through royalties. Royalties allow others to have access to intellectual property owned by another, while also providing the owner of the intellectual property with payments for that access. For example, one might earn royalties by selling their intellectual property, such as the copyright to a piece of written work, and then receiving payments that have their basis in the money generated from the sold intellectual property.

While each royalty contract is different, in general, there are some provisions that can be found in most of them. The contract will have a detailed definition and description of the intellectual property at issue and its owner. The contract will also contain provisions describing the scope of how the intellectual property can be used, as well as any limitations on its use. There will also be provisions regarding the royalties themselves. The contract will include statements regarding when the owner will receive the royalties, how the royalties will be paid and in what amount, along with how the parties intend to keep records of the royalties paid.

In some royalty contracts, an advance payment is issued. This means that the owner of the property will receive the advance. After that, the owner of the property will "earn out." For example, when it comes to contracts for authors, the author might get an advance. After that, once what the author would receive in royalties from the sale of his or her written works meets what the amount of the advance was, the author will begin being paid any additional royalties based on the sale of his or her written works.

This is only a brief overview of some basic concepts regarding royalties as they relate to contract law. Those who wish to enter into a royalty contract would be well-served to seek legal advice, so they can learn more about such contracts and make informed choices.

Source: thebalance.com, "What You Need to Know About Buying and Selling Royalties," Jean Murray, June 21, 2017

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