Should Artists Pay for the Labels' Mistakes?
California Senate Hearings on the Seven Year Statute

By Eric de Fontenay (Founder & Publisher) (more articles from this author) 2001-09-06

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Should artists be treated differently from other entertainment professionals? This is the basis for hearings held today in the California State Senate by Senator Kevin Murray, recently named as Chair of the Select Committee on the Entertainment Industry. At question is an exemption from Labor Code Section 2855, otherwise known as the Seven Year Statute, that limits the amount of time anyone can be held to a contract for their personal services to a maximum of seven years. The statute was amended in 1987 to provide an exemption for the recording industry. While artists cannot be held to a contract extending beyond seven years, any contractual obligations remaining such as the delivery of additional albums still hold and failure to meet them exposes the artists to liability from the record label. The issue has resulted in a series of lawsuits by some big-name artists, such as Courtney Love and Don Henley, who will be joined by Patti Austin, record company executives, entertainment lawyers, as well as the Recording Academy, AFTRA and AFM in testifying at the hearings.

The recording industry argues that their industry is different from other entertainment sectors, such as film, for two major reasons. First, they argue that the nature of marketing in the industry is very different: while a movie studio markets movies on an individual basis, record labels invest in marketing the actual artists rather than individual albums. Thus, while movie studios invest on a project-by-project basis, record labels invest in the artist's career. The insinuation is that record labels must be able to recoup that investment over a much longer period, resulting in multiple album deals to lock-in the artist with the label. Otherwise, artists could switch labels after their name recognition has been built, to the detriment of the original label that made the necessary, initial investment in building that recognition.

The argument, though, neglects some key practices in the recording industry. It does not recognize, for example, the investment made by the artists themselves in marketing and promotion. As Ann Chaitovitz, Director of Sound Recordings with the American Federation of Television and Radio Artists (AFTRA)testified: "The Royalty Artist must pay for all of the production costs of the album, and typically pay 50% of the independent promotion costs, 50% of the costs of videos and 50-100% of tour costs." Furthermore, Patti Austin states "Recording contracts can be some of the most onerous of any contracts that I have seen in the entertainment industry, and I have seen a lot. Many of the recording contracts that I have signed required that I pay for all of the production and a portion of the marketing of my recordings out of my small royalty before I ever received any royalty payment. No other entertainment industry contracts I have seen have such provisions."

The recording industry argument also neglects the fact that artists typically must transfer ownership in the sound recording to the record company. "This is true, although, the artist actually pays to produce the sound recording, with the record company acting like a mortgage bank which provides a loan to the performer to finance the recording in the form of an 'advance,'" explained Ann Chaitovitz. "However, unlike a bank which grants a mortgage to a homebuyer, the record company maintains ownership of the work even after the artist has 'paid back' the advance."

Artists are also at a distinct disadvantage in negotiating their first contracts with record labels that hold significant market power. The combination of the statute exemption and multi-album deals allow labels to lock-in artists in a disadvantageous negotiating position. While the recording industry has argued that artists may renegotiate those agreements later in the contracts life, if they are successful, the fact that they cannot use other labels to secure a better offer provides little incentive to the original label to negotiate in good faith. "If the amendment doesn't allow them to get out of their agreement after seven years, it can keep them there for a whole career," explains Barry Bergman, President of the Music Managers Forum-U.S. "When they make deals for five, six or seven albums, how can a recording artist deliver that number of records in less than, say, fifteen years . How does an artist assemble the material, record the album, make videos, tour the world, engage in press and radio promotion, AND deliver the required number of albums in seven years. Add to this, a proper setup and launch by the label, which in most cases takes several months. A recording artist is a creative soul, not a magician."

Tom Lee, President of the American Federation of Musicians (AFM), concurred in his testimony: "At all levels of the industry, royalty contracts contain impossible delivery requirements and one-sided option terms. Thus, a new artist, with little or no leverage, is forced to agree to onerous terms that will potentially govern the duration of his or her career."

"The record companies generally want the artists to leave 2 years between delivering albums so he/she can tour to support the prior record," said Ann Chaitovitz. "Thus, the record companies knowingly enter into contracts with artists which, by the terms of the contract, cannot be completed in seven years."

The second argument advanced by the recording industry is the high failure rate faced by record labels. In a Reuters article on the hearings, RIAA senior executive vice president and general counsel, Cary Sherman stated, "Record companies try to make a profit and they know that 90 percent of their artists will not succeed. They pay vast amounts on advances, promotional and marketing costs for these artists and rely on the handful of artists who succeed to recover their losses and make a profit."

However, Barry Bergman disputes the relevance of the high failure rate to the amendment, placing the responsibility on record labels own business strategy. "I believe that a lot of artists are unprofitable, but I think it is due to the recording industry's own fault. They can claim that it takes a few artists to bankroll a lot of artists, but the real reason is because of a lack of artist development and a very short term mass marketing philosophy. The fact is that they only work a few of the records that they release. They should sign less acts and work more closely with those that they do sign. They should be developing artists and catalogue for the future. Instead, they are worrying about their corporate financial targets."

"If they are to have a 90% failure rate, why should artists have to pay for it? It's not fair for artists to pay for the failure rate that the labels have created. What the labels are doing is using their own shortcomings to negotiate better deals for themselves in the courts and Congress, when they should be transforming their business model to reduce that failure rate. It doesn't make sense to blame the goose that lays the golden egg."

Linkography

AFM - www.afm.org
AFTRA - www.aftra.org
MMF-US - www.mmf-us.org
RIAA - www.riaa.com

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Related MusicDish e-Journal Articles:
» Testimony of Ann Chaitovitz, Director of Sound Recordings, AFTRA - California State Senate Hearings on Recording Artist Exemption to Seven Year Statute (2001-09-05)
» Testimony of Michael Greene, President & CEO, Grammys - California State Senate Hearings on Recording Artist Exemption to Seven Year Statute (2001-09-05)
» Testimony of Patti Austin, Recording Artist - California State Senate Hearings on Recording Artist Exemption to Seven Year Statute (2001-09-05)
» Testimony of Thomas F. Lee, President, AFM - California State Senate Hearings on Recording Artist Exemption to Seven Year Statute (2001-09-06)

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