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"BMG’s new royalty accounting model will bring clarity and simplicity to a process that is outdated, inefficient and confusing."
——Rolf Schmidt-Holtz, BMG Chairman/CEO

BMG RESHAPES ROYALTY SYSTEM

New Policy Aims at Simplicity and Transparency, According to Chairman Rolf Schmidt-Holtz
It may be too late to renegotiate Clive Davis’ new deal, but BMG Chairman/CEO Rolf Schmidt-Holtz has announced his company will enact sweeping changes in its royalty accounting policies.

The overhaul will create a "simpler, more transparent" accounting process by "eliminating certain standard deductions applied to contracts" and by moving to a wholesale model rather than one based on suggested retail list price. The changes will take effect next year.

No, royalties will not be paid in deutsche marks as part of the plan.

BMG has responded to sessions by California and New York lawmakers to look into record contracts by becoming the first of the majors to end the practice of deductions for packaging, free goods and new technology, which will also be eliminated from the company’s online royalty policy.

"BMG’s new royalty accounting model will bring clarity and simplicity to a process that is outdated, inefficient and confusing," explained Schmidt-Holtz. "We are committed to doing what we can to fister and maintain strong relations with our artists and hope the changes announced today help them see clearly that our dealings are clear, unambiguous and demonstrate our respect for the creative process. Now, does anyone know the name of a good CPA?"

Currently recording artist royalties are calculated as a percentage of the suggested retail list price of a CD less a series of standard deductions that reflect costs incurred by the record label. By eliminating the standard deductions cost and using the wholesale price as a basis, the process is dramatically streamlined, while the amounts BMG’s artists receive remain the same. Contracts can now go from more than 100 pages to 12, so lawyers and Kinko will probably be the ones that take the brunt of this hit.

"Today represents an important first step in laying the foundation for updating the model on which our artist contracts are based," said BMG COO Michael Smellie. "We clearly recognize that there’s room for improvement that can strengthen the important partnership between artists and their labels. By the way, who’s account should be charged for this press release?"

BMG’s new royalty accounting policy will extend to online revenues, which will no longer be subjected to deductions and will be calculated on the artist’s album, rather than the lower, singles rate. The policy will be adapted in a number of ways to accommodate the evolving online market price, which should hasten the digital rollout.

BMG plan a series of meetings during the first part of 2003 with artists and their representatives to demonstrate how the new policy will be implemented.

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