The Difference Between Royalty & Profit Share Deals
On Curve, we have three different Contract types: the Royalty, the Profit Share - Classic and the Profit Share - Flexible deal.
Which deal type to select for your Contract on Curve depends on your deal's structure. Royalty deals are the most flexible deal type on Curve, since you can very easily apply a different Royalty Rate or Cost Recoupment Rate per Catalogue Group, Territory, Channel, Configuration, Price Category or Source. Flexible Profit Share deals are helpful when your deal types specify that a fixed percentage of the profit is to be shared with the artist, but are still flexible enough to handle additional scenarios such as cross-contracts. Classic Profit Share (✪) deals should only be used when you have a simple and classic profit share setup, where you take the sum of all sales and costs, and then apply a profit share percentage, without any further exceptions.
Differences in Calculation
A Royalty contract will calculate the royalties due for each line of costs & sales. Which royalty rate is applied to the Sales revenue depends on the Sales Terms specified in the Contract. Which royalty rate is applied to the Costs depends on the Cost Terms specified in the Contract. Profit Share deals work different on Curve. In a Profit Share - Flexible deal, instead of applying a royalty rate on each Sale and Cost line, we will take the sum of all Sales and Costs, and then apply the Profit Share % to result in a figure that is to be shared with an artist. In a Profit Share - Classic (✪) deal, we will take the sum of all Sales and Costs, but only when there is a positive balance (read profit), Curve will apply a profit share % to be shared with the artist.
Imagine a Royalty deal with a Sales Term of 80% and a Cost Term of 100%. If we imagine £1000 in revenue and £500 in costs, the artist will receive the below royalty:
(Sales x Sales Royalty %) - (Costs x Cost Royalty %) = Artist Royalty
£1000 x 80% - £500 x 100% = £300
Now, imagine a Profit Share deal with an 80% Profit Share Percentage. Again, if we imagine £1000 in revenue and £500 in costs, this time the artist will receive the below royalty:
(Sales - Costs) x Profit Share % = Artist Royalty
(£1000 - £500) x 80% = £400
Differences in Setup
In our first example, we are setting up our Royalty deal example with a Sales Term of 80% and a Cost Term of 100%. Essentially, of all revenue that enters the Contract, 80% of that will be added to the artist's balance. Of all costs that enter the Contract, the full 100% of these costs will be recouped from the artist's balance.
In the below example, we are setting up a Profit Share deal with a Profit Share % of 80% to be shared with the artist. Essentially, of all profit earned by this Contract, 80% of that will be added to the artist's balance.
When setting up a Profit Share deal, a Profit Share % field will appear for you to specify the percentage of profit you wish to share with the artist. Via the Terms tab, you will then specify which sales and costs you wish to include in the profit pool. The most standard profit share deals will have a 100% sales term and 100% cost term, meaning you'll include all sales and all costs in the profit pool. Though thanks to these Terms you have the flexibility to exclude specific sales or costs from your profit pool. Please note that when no Sales or Cost terms are set in your Profit Share contract, nothing will be included in your profit pool and no royalty will be calculated.
Differences in Statement Output
A different deal type requires a different statement output. In the example below, we compare the output of a Profit Share and Royalty type deal in a Combined Statement Design.
In a Profit Share statement, the total Income and Costs are displayed. There will be an additional area where we specify the final profit and the profit share rate applied. In the Royalty statements, all the amounts displayed are after the artist's Royalty Rate % is applied.