This is a unique situation. What would normally happen is that lyrics would be submitted and you may choose to use them or not to use them. If corporate money were involved you would purchase the lyrics outright and the writer's name would never appear. His copyright would say "work for hire" and he would be entitled to no royalties.
On the other hand it appears that you will be "working together" on each song. Therefore the ownership of the song is 50/50. This means that each of you are entitled to mechanical royalties (about 9 cents USD split 50/50 per song). Additionally you would split any royalties paid by radio stations airing your music.
Songwriting and performance are two different things. A performer must obtain permission to play a written song unless he is the writer. The artist usually has a stake in the sound recording copyrights. This means that their instrument and/or voice is the primary aspect of the recording. Studio musicians are paid outright for their services making them a work for hire. If a label is involved, they likely are footing the bill giving them sole ownership of all copyrights with the sound recording but usually pay the artist a nice royalty.
Now that you have before you how it works with labels, this appears to be more on a "semi-professional" level. This means everything is privatized and you can opt for pretty much any division you see fit. Here are my suggestions:
• He has to make an agreement to you that by sending you lyrics he immediately gives you permission to use them as you see fit and record them without additional release or permission from him. I would also get a release form stating that you carry the decision as to the marketing and distribution of the final product.
Now it gets a little hairy...so I will give you a few options to think about:
• He can agree to standard terms of 1/2 of the mechanical rights and aired royalties (meaning he gets about 5 cents USD per song he co-wrote per CD produced, or sold...your choice). If this sounds low, figure that if a CD cost you $5000 to record and then another $2000 to press up 1000 copies, then you must sell at least 700 of the 1000 copies before you break even on your out of pocket expense. This will not even reimburse you for your time involved...not in CO-WRITING the song, but in performing it.
Edit: I forgot to add that this would also mean paying him about $600 USD for the 1000 CDs if the CD had 12 songs that he co-wrote on it. Therefore you would not see a profit till you had sold about 800 of the thousand!
OR
• Set an expense for what you will charge for your time in recording. Add that to the expense of the actual recording. Add that figure to the total cost to press the CDs. Pretending this figure is about $7000-8000 I would then tell him that you will split the profits 50/50 with him. This means AFTER you have recouped the expenses (which you will agree to disclose to him along with all CD sales) then you will send him 50% of the proceeds.
The latter is viewing his lyric writing as more of an equity stake. But when you it is a do it yourself project, it is probably the easiest way to go. Just don't tell the studio musicians.
Solo
). He is able to write lyrics in quite a short time and I like them. Once I have his lyrics I will compose the song and record it (performed by myself and other musicians/singers, some of them I have to pay for). Production will cost about 600 EUR per song and I have to pay for that. To be honest I don't expect a major success - realistically I might sell some CDs and some songs via the internet, I don't expect air-time.
I went for the 2nd option you described. The only thing I couldn't grasp was your last sentence: why shouldn't studio musicians know of this idea? (I know I miss something here