Instead, they must find an appropriate entertainment company to do so. Most artists will fail to earn a profit for their producer. A few, however, will earn enormous sums. To ensure that artists who generate a profit will remain with the company, producers use personal service agreements to bind artists for a certain time, during which the producers must attempt to recover their investment in the artists, make a profit, and cover losses from less successful artists. In some entertainment industries, personal service agreements are structured using options.
Options give a producer the right to extend an agreement for several time periods.
For example, a record company may contract with a musician to provide one album during the first year of the agreement, with an option to extend the contract. After one year, if the record company feels it would be economically wise to release a second album by the musician, the record company may exercise its option and require the musician to provide the second album. Under option contracts such as this, producers can keep artists on their roster for many years, or as long as the artists are profitable. Some option contracts can be disastrous for the artist. Musicians sometimes sign an option agreement without a provision that they can break the agreement if the record company fails to release their products.