So Why Can't Major Record Labels Provide Accurate Accounting To Bands?

from the because-that-would-mean-paying-them-accurately dept

The more you learn about the way major record labels work, the more ridiculous it seems. Unlike pretty much every other creative deal making situation, musicians who sign major record label contracts basically hand over all their rights to the label. The label gets the copyright. It gets to determine the type of music the musician plays. It handles much of the marketing and promotion. And... the biggest thing of all is that it handles all the accounting and payments (if there are any). Over the years, that's resulted in many, many accusations from artists that the labels are flat out lying about how much an artist actually earns. That's why you hear stories of artists selling millions of albums and never seeing a dime in royalties or of artists suing record labels because of sneaky accounting tricks to hide how much an album has earned.

Dave Stewart, from the Eurythmics, has written an article for Billboard where he points out that any retailer in the world has access to amazingly detailed technology and tools to track transactions and settle details with credit card company merchant accounts. He notes how ridiculous it is that such systems have been available for nearly thirty years... and he still can't get an accurate transparent accounting of what a record label has sold.

In the past, the major labels could get away with this, because they were the only real game in town, if a band really wanted to get big. But that's changing. This, of course, is the major labels real concern over new innovations and technology. It's not piracy. It's that new technologies take away the biggest scam they've had going for ages: the ability to keep tons of money that never belonged to them. And that's changing. As Stewart notes:
In the future, all incoming revenue streams will be reported in real time, with transaction costs pre-defined and competitive with the market. In the old model, content distributors have been slow and/or reluctant to adopt new media. Distributors frequently take significant portions of creative control out of the hands of the artist, placing restrictions on format, functionality, interactivity and other components. Copyright controls inherently limit the models and methods of release and distribution of artist products. Digital distribution and rights management methods have failed to leverage technological and business advancements to serve consumer, artistic and corporate interests. With many distributors, the feedback loop on consumer usage is also limited. Buyer profiles, habits and usage patterns are not shared with artists, who are then forced to use other means (surveys, focus groups) to determine how their content is being received by the fan. Especially troubling is that, in many cases, artists are not entitled to any control over precisely what happens with their creative work, or to apply some of the new and innovative ideas in the digital landscape due to restrictions from rights holders. Digital media technologies for distribution, asset management, security and monetization have matured to the point that an easy-to-use, scalable, fully featured digital media gateway and financial tracking system is now possible and should be demanded by all artists.

Filed Under: accounting, dave stewart, eurythmics, labels, music


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  1. icon
    Auditrix (profile), 19 Jun 2009 @ 2:51pm

    Re: Marketing Costs

    Hi Anonymous Coward:

    You are correct to suspect charges by affiliates of a record company. As a royalty auditor, I have made many claims for such improper charges, particularly if the arrangement was not at "arm's length."

    However, now that WMG is no longer part of Time Warner and UMG is not part of NBC Universal, etc., it turns out that many of the charges against artist royalty accounts are legitimate costs charged by third parties, not affiliates (...although I am always looking for evidence that the third parties give the record companies kickbacks or phony invoices, which does happen but can be hard to prove). The bigger problem with affiliates are the intercompany fees they take off the top of the revenue, not so much the marketing costs.

    However, regarding marketing costs charged to artists, a trend that I have noted over the past five years is that recording contracts provide for the deduction of additional types of costs, including wardrobe and third party marketing, not just 50% of independent (radio) promotion charges, which was the standard for decades. If you are negotiating an agreement like this, at least require the artist's approval, so that your auditor can claim any unapproved charges upon audit.

    With respect to your statement that "Artists get money out of the profit that their music makes," I just wanted to point out that major recording artists receive sizable royalty advances, and many such artists' records never become profitable for the record company. So, even though I am a strong artist advocate, I still think there are many artists out there who have received more money than they have earned. Bottom line: Most artists who complain about never receiving any money did receive enormous advance payments and are simply unrecouped. Whether the record company is correctly calculating and applying the artist's earnings to his unrecouped account(s) is a separate issue, but it is only relevant if the artist has the potential to recoup.

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