The Oracle: What are the options in contracts?

A –An option is a term in a contract that gives one party the right to do something at a given time in the future. Options are used all the time in music business contracts. You may have heard people boast that they got a "five album deal” from their record label. In truth, however, the record company will not have committed to recording and releasing the five albums. Instead, it will have committed to record and release one album, and after that it will have reserved for itself the “option” to record and release further albums, up to the number set out in the contract. If the first album satisfies the record label’s expectations, the label will likely exercise its “option” to compel the artist/band to record the second album and so on. This means that if things don’t work out, the five album deal may very quickly become a one album deal, with the artist being effectively dropped if the first album flops. Options are almost always exclusively in favour of the record label.
Options can also be used by record labels during the time in which they are assessing a band with a view to signing them. This type of option gives the record label further time to consider signing the band, without even obliging them to release a first album. Granting a record label such an option ties the artist to the record label without tying the record label to the artist. This type of option should not be granted unless the record label is willing to pay a price for it.
Other forms of options are often contained in management agreements. Such agreements will sometimes give the band or artist “options” linking the continuance of the contract to the achievement by the manager of results. For example, some management contracts will oblige the manager to obtain a recording deal for the band within a given timeframe. If the manager fails, the band will have the option to terminate the manager’s position. For newer acts, the milestone might be the achievement of a specified minimum number of gigs.
Publishing agreements will often contain clauses under which the songwriter/composer will have the option to terminate or vary the publishing relationship, the publisher fails to sub-licence the music assigned by the songwriter to the publisher.
The most important thing to remember about options is that they give the option holder the right, but not the obligation, to do something, i.e., if you hold an option you don’t necessarily have to exercise it.