AN APPEAL AGAINST REPEAL

January 7, 2002

The Honorable Kevin Murray
California State Senate
P.O. Box 942848
Sacramento, Ca 94248-0001

Dear Senator Murray:

We are writing to express our strong objections to the repeal of subsection (b) of California Labor Code section 2855. Such repeal would alter the very fundamentals of the music business.

Subsection (b) was added to the Labor Code in 1987 in recognition of the unique nature of recording contracts and simply clarifies that an artist has a legal obligation to produce the number of albums to which he or she freely commits and that damages can be sought if he or she fails to do so. If that subsection is repealed, the contractual balance that now exists between artists and record companies will be dramatically disrupted.

Recording agreements are the subject of intense and competitive negotiations in which artists are represented by experienced and forceful legal counsel. As a result of those negotiations, artists routinely sign contracts and accept huge advances and other payments based upon their commitment to deliver a specified number of albums. If an artist is willing to undertake an obligation to deliver a greater number of albums,that artist will generally receive better economic terms from the record company. Artists should not be able to walk away from the commitments they have made without any liability for damages.

This situation is particularly inequitable given that recording artists are in a unique position to determine whether or not the delivery commitments under their agreements are fulfilled within seven years. Unlike most personal service contracts (in which performance consists of showing up for work as directed), recording artists are largely able to determine unilaterally
whether and when an album is recorded. No one can compel an artist to record. This means that artists can accept significant payments based upon the notion of a long-term agreement and then choose not to deliver the promised albums within the seven-year period. This would deny record companies the benefit of their bargain unless they have the right to seek damages for undelivered albums.

Unlike other personal service contracts, recording agree-ments do not require an artist to exclusively perform services for a record company during the term of the contract. For example, while the record company waits for an artist to record an album, the artist can choose to perform in films, television shows, at concerts, etc.

All of these activities can be highly lucrative for the artist. None of the income derived from these activities is shared with the record company, even if it is the recording agreement that originally made the artist viable in these other areas.

The recording industry is making huge and escalating investments in marketing, promotion and talent costs for new artists (in amounts now exceeding $1 billion each year). But less than 10% of the recordings released each year are able to generate a profit. The only way record companies can continue to invest in new talent is if successful artists live up to their agreements.

If record companies lose their ability to sue to recover damages from artists in whom they have invested but who refuse to deliver the albums they have agreed to produce, companies will be unable to invest in as many new artists in the future.

In question are not just opportunities for new artists, but also the jobs and prospects of thousands of California workers, whose businesses depend on California's recording industry. This proposed change would have a grave effect on record labels large and small, "majors" as well as small independent California-based labels.

As you know, only California has a seven-year personal services contract limit. Eliminating the ability of record companies to seek damages under subsection (b) when an artist does not honor a commitment could create a competitive disadvantage for California's recording industry versus that of other states. California cannot afford to risk damage to its important entertainment industry, especially as it faces a weakening economy.

We remain committed to working with you on this measure, but we respectfully request that you reconsider your position in light of the unique nature of recording contracts.

Sincerely,
Miles Copeland
Chairman
Ark-21 Records

Robert Jamieson
President & CEO
BMG North America

Glen Barros
President
Concord Records

Alain Levy
Chairman & CEO
EMI Recorded Music

Pat Berry
CEO
Six Degrees Records

Thomas D. Mottola
Chairman/CEO
Sony Music Entertainment Inc.

Doug Morris
Chairman & CEO
Universal Music Group

Roger Ames
President & CEO
Warner Music Group

Clive Calder
Chairman/CEO
The Zomba Group of Companies