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"If you're asking, why is somebody who has been so successful and was obviously so well-represented when his contracts were negotiated making a claim, only Mr. Henley can answer that question."
KRONFELD KLUES US IN
In Which We Take Our Cue From the One-time PolyGram Holding Senior Executive on the Seven-Year Statute, Label Accounting and More
As the controversy rages over State Sen. Kevin Murray's bill to repeal California Labor Code Section 2855, Subsection (b)—the so-called recording industry exception to the seven-year statute—no label or label group heads have been willing to go on the record to give us their perspective, for the easily understood reason of not wanting to appear anti-artist. More than one, however, told us to talk to Eric Kronfeld.

A music-industry lawyer for 37 years, Kronfeld certainly knows the upper-echelon label turf, having spent seven of those years as President and COO of PolyGram Holding, Inc. (the U.S. umbrella for Dutch-owned PolyGram in the days before the Seagram merger), reporting to the likes of Alain Levy and Roger Ames. Kronfeld left PolyGram in 1998 and is now chairman of a privately held investment bank. Below, a label-group veteran's take on the artist-label conflict.

There's been talk of a compromise between the Recording Artists Coalition and the labels: Repeal the damages subsection in exchange for allowing "tacking," or restarting the seven-year term with each contract renegotiation. Is this a feasible idea?
Well, it certainly removes some of the uncertainty, from a record company's point of view. After seven years, even if the record company and the artist actually renegotiate a mutually agreeable contract, a number of artist representatives have taken the position that, notwithstanding the new contract, the artist is still free to claim the seven-year provision. If the artist and record company renegotiated a contract and there were a tacking provision enacted in new legislation, then that claim would no longer be open to the artist. And it would certainly add an element of fairness to things.

The subsection that Sen. Murray wants to repeal has to do with damages for undelivered albums if an artist walks after seven years
The 1987 amendment carved out a specific exception for phonorecords, and what it says is, if the contract to make records wasn't performed within seven years, the artist could leave. However, it recognized the economic damage that could happen to the record company holding that contract, and made specific provisions for damages. Sen. Murray's amendment would void the damages provision completely.

Hypothetically, if a case were to go to trial, how would damages be determined? Is it a matter of the label simply recouping its investment?
No, the measure of damages under the statute has been that if the artist owes the record company albums—three, four, five, whatever the number is—the measure of damages would be the entirety of profits earned by the company that signs the artist and distributes their records. So it's a pretty severe penalty: Why would a second company sign an artist knowing it would have to give its profits to the company that held the artist's contract in the first place?

So, if damages were awarded, it would basically end the artist's career?
That's the practical effect of the statute.

When you look at the nuts and bolts of how the record business works, does it make sense to have the damages clause in place?
If a company spends $2-3 million trying to establish an artist who has just delivered an album, isn't it fair that a company should have a chance to recoup that investment, or, if it has been successful, to get a reward for the success of its investment?

Don Henley is at the forefront of the artists' march on Sacramento, but at the same time he's made millions with the majors. Is he playing both sides of the fence?
I don't know Mr. Henley's contract. Clearly, Mr. Henley is an overridingly important artist. If, generically, you're asking, why is somebody who has been so successful and was obviously so well-represented when his contracts were negotiated making a claim, only Mr. Henley can answer that question.

Courtney Love is making many claims and insists she will take them to court. Do you think she would be better off renegotiating?
I can't speak for Ms. Love. I don't know what her motives are. But as far as it sounds like she is absolutely determined to have a court decide the validity of the law, if she chooses to prosecute her claim, that's her right. She may believe that the statute is insidious and an unfair restriction on artistic freedom. And however much I may disagree with it—and I do disagree with it—that's my opinion.

This is a great time to bring up accounting issues, with Enron and everything. The Dixie Chicks have claimed systematic fraudulent accounting in their suit against Sony. What's your take on this?
In reality, I'm certain there can be fraud anywhere. With regard to the major companies, all of whom, with the exception of Bertelsmann, are owned by public companies, it would beggar belief to think that there would be a deliberate fraudulent accounting by any of them. I'm certain mistakes happen, but there also can be interpretations put on the meaning of a clause that are in dispute—how much of something is deductible, what is the proper royalty rate, what records bear royalties, what don't—so when an artist's accountant makes a royalty claim, traditionally they are for very large amounts. Then when the accountant sits down with the business affairs people and is shown that his claim is absolutely without merit, a settlement is made for a fraction of the original request. It happens frequently.

There's been some pretty strong rhetoric—"indentured servitude," etc.—thrown around about this on the artist side. Why do the artists feel so abused?
Since the early days, record contracts haven't changed, though the time frame for them has—it really became impossible for an artist to record an album a year as the process of breaking a record became more time-consuming and costly. So an artist could end up being under contract for a very long time. Some artists, who had no success, would then say, "But I'm not making any money. Why should I stay here? I'm not an indentured servant." That's where that came from—artists would like to have the freedom to sell their services to the highest bidder.

Some have said that comparing record labels to the old Hollywood studio system is unfair. Do musicians have greater control of their time and other moneymaking activities (publishing, touring) than did actors bound to exclusive studio contracts?
The reason the seven-year statute was passed was the studios would sign house contracts with actors, saying, "You can only perform with us." The actor was prevented from doing anything else. With recording artists, it's true that an artist can write songs and perform. And if a record contract is properly drawn, the label can't sit back, record an album, and then say, "Okay, you're never recording another album." The option has to be picked up [within a specified time] or else the option is voided and the contract is voided.

Don Engel said recently, "Labels don't want albums as quickly as the contract would require," but you've said one can't make a record a year if one is going to tour and promote properly. So is it unrealistic for artists to maintain they could fulfill a contract for seven albums in seven years?
It's virtually impossible. You can't write that many songs. And it takes the label a very long time, and millions of dollars, to try to make the artist commercially successful. The reality is it takes anywhere from one and a half to three years to have any modicum of success. So it would be wholly unrealistic to think an artist could release an album Jan. 1, 2002, have the album fully successful, the artist having done all the promotion behind the album, including personal appearances, press, publicity tours, etc., and have the new album written and recorded for release Jan. 1, 2003.

Most of the artists speaking out about the seven-year statute have or have had successful careers. Would the seven-year law ever be an issue for any but the most successful artists?
It clearly wouldn't apply to the majority of artists. For the struggling artist who has been through seven years, because it wouldn't apply before then, I can't imagine that a company would want to continue with that artist. They just wouldn't pick up their option.

In practical terms, has the seven-year statute simply served as leverage for artists in renegotiation?
The fact that the seven-year rule exists and has been waved as a red flag by artists is some form of leverage, to the extent that companies believe, "This could be applied in a court against us, and we're not willing to test it." But it's a matter of practicalities. I don't think anybody has wanted to test the statute and have a court say, "Sorry, we're throwing out part of the statute as unconstitutional or as an unfair restraint on trade." I'm not a judge, but any time there's a statute and one is willing to test it, there is always that possibility that a court will void the statute or claim it's unconstitutional. How much are you willing to gamble that the court will side with you?

With the law as it stands now, labels both practice "tacking" and have the damages subsection in place. Why would the labels go to the bargaining table with the artists when they have both? Why don't the labels just say, "Take your best shot"?
I don't pretend to speak for the labels, but isn't certainty always better than uncertainty? And if you're talking about an artist who has been with a label for up to seven years, in the majority of cases, doesn't that mean that the label wants to continue with that artist? The labels would like to be able to say, "OK, we want to give them a new contract. We just don't want this club over our heads where even after we give them a new deal, six months later the artist can walk anyway."

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