Manage for Success: Artist Agreements Revisited, Newsletter #20, December 2002

Many of you are familiar with my philosophy about artist agreements -- essentially keep them fair and keep them simple. (See Newsletter #7 from November of last year: Recent events have brought this subject to the front of my consciousness.

First BMG, a division of Bertelsmann AG, announced a few weeks ago that, beginning in 2003, it would simplify its artist contracts, basing the royalty rate on the wholesale rather than suggested retail list price, and eliminating many standard deductions such as for packaging, new technology, and free goods.

About a week later Universal Music Group (UMG) also announced it would simplify its artist deals, but few specifics were provided, other than that they plan to make their manufacturing records available to auditors. This would be a "first" in that no other major label has allowed that, deeming it unnecessary because artist royalties are commonly paid on sales, not manufacturing. UMG claims that this will shorten the audit process and increase the response time.

In these decisions by the two majors, the actual royalty expected to be paid to artists will remain about the same, just that they'll be calculated differently and that they'll be less complicated.

Even more recently, after several hearings which included Courtney Love and Don Henley, along with representatives from the five major labels, the California Senate Select Committee on the Entertainment Industry issued a report calling on labels to reform their accounting practices or face legislative penalties in the future. The report, released by the committee's chairman, Sen. Kevin Murray, states "The hearing showed that at the very least there is purposeful neglect on the part of the record company accounting departments." He also admonished the labels for contracts with clauses that preclude penalties for underpayment, even if caught in the act! "Each recording contract" he says "contains a clause that the record company, no matter how egregious their behavior, will never be liable for more that the amount of royalties due."

The legislative solutions might be introduction of laws defining how to pay royalties to the artist as a fiduciary duty, or to designate severe penalties to those companies engaging in patterns of underpayment.

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Devising fair artist agreements is just one of the myriad of responsibilities for the effective and caring record company owner. And that's where I come in. With almost four decades of experience solving the multitude of problems that occur in companies of different size, I may be the ideal person to help you over the hurdles of running your label.

Don't hesitate to call me to discuss your particular situation and to see how I might be able to assist you to more effectively manage your label for success.

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It's been my belief for many years that artist deals should be fair to both artist and label, and that they be much less complicated. 100-page major label agreements are not unusual, and even many independent label contracts exceed 35 pages. This is wonderful for attorneys, but not for artists, particularly the less legally-sophisticated ones.

Part of the problem has been that artists compare royalty rates, not realizing they're frequently based on different premises, with dissimilar terms and deductions from contract to contract and label to label. The artist with the largest royalty rate does not necessarily means he's getting the best deal or will get the most money per unit sold. Larger is not always better!

My suggestion to labels is to keep it straightforward, clear, and understandable. The fewer deductions you have, the happier your artist will be. Why penalize him by paying on only 90 percent of sales? Why include onerous packaging deductions and deductions for free goods? Why charge back the cost of making videos, or for independent publicity or radio promotion? Why tie artists to unreasonably long contracts? And finally, why consider CDs to be a "new technology" although though they've been around now for over twenty years?

Keep the language uncomplicated and easy to understand. A bi-product of a straightforward agreement will be that the calculations for royalty statements will be considerably less time-consuming, therefore less costly, and should result in clearer, more comprehensible, statements. Why, the artist and his attorney or manager may actually be able to understand them -- a novel concept!

Remember, gaining -- and keeping -- the good will of your artists should always be uppermost in your thoughts.

Finally, let me take this opportunity to wish you and yours a very happy holiday season and best wishes for a safe, healthy, and prosperous new year.

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Copyright 2002 by Keith Holzman, Solutions Unlimited. All rights reserved.