LABELS, ARTISTS SQUARE OFF
IN SACTO

Attorneys, artists and label representatives testified today (7/23) in Sacramento before a joint hearing of the Senate Judiciary Committee and the Senate Select Committee on the Entertainment Industry regarding record label accounting practices.

The informational hearing, presided over by State Senators Martha Escutia and Kevin Murray, allowed artist reps and labels to present their side of the controversy, and then rebut each other. Murray said the hearing "allowed artists a public forum to discuss the institutional problems that exist in the royalty system."

The event, which kicked off with remarks from Escutia and Murray, got into gear after a balanced and unbiased assessment of label accounting practices by Jeffrey Light, a partner in the law firm Myman, Abell, Fineman, Greenspan & Light.

Following Light’s testimony, the artist side presented its case with Rock and Roll Hall of Famer Sam Moore, his wife/manager Joyce Moore, attorney Fred Wilhelms, representing Mary Wells, Artist Empowerment Coalition counsel L.Londell McMillan and Montell Jordan. Attorney Don Engel and CPA Fred Wolinsky also testified on behalf of the artists. Backstreet Boy Kevin Richardson, who was scheduled to appear, was a no-show.

The artist side argued that record labels are in the practice of underpaying royalties and consistently taking advantage of them. Murray said today's hearings are not about specific recording contracts or how royalty rates are negotiated, but rather an investigation into why it has become an "industry standard" for artists to audit record companies in order to discern how much in royalties they "should" have been paid and were not. "Sunshine is the best disinfectant," he said. "There is no penalty for under-reporting. We need to fix these problems and we need rational solutions."

Steve Marks, Senior VP of Business and Legal Affairs at the RIAA, and Steve Marenberg, outside counsel to the RIAA, presented an extensive study concerning the fairness of recording contracts. These label reps maintained that claims of faulty accounting practices are actually part of the renegotiation process.

The RIAA study, conducted by Michigan State University’s Steven Wildman, is an analysis of about 600 contracts between artists and the five major label groups. The study takes great care in detailing the fact that label contracts are a result of negotiations between the labels and artists and their representatives (which includes agents and attorneys) and are based on terms that both parties have agreed to.

"Record companies are in the business of promoting artists and their music," testified Marks. "Perhaps we have not spent enough time explaining how that business works, and as a result, a glaring misimpression exists that record labels are high-profit, low-risk companies uninterested in paying artists their fair share. That’s simply not reality.

"It is no accident that many of the higher-profile accounting and other financial disputes that have arisen over the years have been resolved with new contracts, not a parting of the ways."

Marks added, "The point is that artists today are handsomely rewarded for their work, and that on average, they do far better as a class than the record labels who sign them, even in a relationship where labels bear the initial risk."

Marenberg told the joint committee that "disputes of interpretation or application are by-products of these complex negotiations and contracts. Many royalty audits are, in fact, a process of raising and resolving disputes between artists and record labels over the meaning or applicability of disputed contractual terms or the division of revenues between artists and record companies that are not even covered by the terms of specific contracts. Although there are certainly times when the nature of the audit process is to discern whether a record company has correctly accounted for all the dollars and cents payable to an artist for the label’s sale of records where contractual provisions provide clear guidance, modern royalty audits can often be characterized as post-contract negotiations between the parties."

Lucky for us we’re not getting billed by the word.