PPD vs. Net Profit: Understanding the Difference in Record Royalties

Navigating record deals can be tricky, especially when it comes to understanding how your royalties are calculated. Two of the most common types of deals you’ll come across are based on PPD (Published Price to Dealers) and Net Profit. But what exactly do these terms mean, and how do they affect the money that ends up in your pocket? Let’s break it down. 

PPD: Published Price to Dealers 
PPD refers to the wholesale price charged by distributors to retailers—the price a record store or streaming platform pays to sell or distribute your music. For most major label deals, artist royalties are calculated as a percentage of the PPD. Typically, that royalty rate falls between 20% and 25% of PPD.

Under a PPD deal, artists must recoup the following before they start earning royalties:
• Personal advances (any upfront money paid to you)
• Recording costs (production, mixing, and mastering costs etc.)
• Other expenses considered as advances 

One thing to keep in mind is that marketing and promotional costs are generally covered by the label and are not recoupable. This can be advantageous for the artist, as these are often substantial expenses that don’t eat into your future earnings. 

Net Profit: Sharing Both the Ups and Downs
A net profit deal works differently. In this type of contract, all costs—from recording to marketing—are recouped from gross income before any profit is split between the artist and the label. Once the album generates more income than the total costs incurred (i.e., it goes into profit), the label and the artist typically split the profit 50/50.

While this may seem fair, there are often nuances that can tilt the balance in the label’s favour. For instance, labels may deduct a distribution fee, typically up to 15% of gross income, before splitting the profit. This fee effectively results in a 57.5/42.5% split—more advantageous to the label than the artist. 

PPD vs. Net Profit: What’s Best for You? 
• A PPD deal offers a fixed percentage of royalties on the wholesale price and often comes with fewer recoupable costs, but you’ll need to clear advances and recording costs before you see any royalties.

• A Net Profit deal involves sharing the financial risks of the project. However, even though it promises a 50/50 split of the profit, certain clauses and fees can tilt the deal in the label’s favour. 

How Songpact Can Help 
While understanding record deal royalties like PPD and Net Profit is essential, it’s just as important for artists and rights holders to have clarity in their collaborator agreements. With Songpact, you can easily generate, negotiate, and sign custom agreements with your collaborators, ensuring everyone is on the same page when it comes to concepts like recoupment and profit sharing. Songpact helps you craft clear, plain-English contracts that reflect the financial dynamics of your project, allowing you to handle the business side efficiently and focus on what matters most—creating music.