Thursday, July 15, 2010

I signed a deal with the devil and now he wants my soul! Tales of Record Industry Woe...

Yesterday I visited Liz Phair's web site hoping to hear this new song where she raps. Instead I was subjected to 90's quality web-design and a short note about how rebellious her new songs are because they cost her her management and record label. "You weren't supposed to hear them," it read. It reminded me of one of those conspiracy theory web sites.

Today I read an article about business practices at major label (Mis-titled "RIAA Accounting" as if RIAA does the accounting at major labels).

Every few weeks or so, I hear a story about how evil record labels are for not paying musicians or not understanding them, or something along those lines. Search the internet and you will find lots of stories about how record labels do the accounting in order to avoid paying bands what they rightfully "deserve" or would have made under different conditions, like with a smaller label, or if they had done it themselves, or if the label had done the accounting "fairly" or something like that.

Well, most of it's true, more or less. Record labels are out to make money. Plain and simple. The record business is, er, a business (newsflash!). What's most surprising to me about this is how surprising it seems to be to so many people.

Let me see if I understand correctly. You say a deal with the devil didn't work out the way you expected?

Musicians have many goals, one of which, like the labels, may be to make money. Many of the goals of musicians are at odds with the goals of the labels. When it comes to signing the contract, though, the labels have the upper hand: musicians are desperate to get signed, and the labels have been doing this for years and they know how to make bands sign a contract that works better for them than for the band.

But let's get something straight: Investing in bands is hard. Seriously, you may think you can pick the next hit band when you hear them at the bar, but there's a lot more to it than writing a catchy song or two. Can the band deal with management? Can they work in the studio? How do test audiences respond to them (this is more important than how real audiences respond to them)? Have they sought legal council? There's a million questions many of which have nothing to do with the quality of their music and it's still a crap-shoot.

And yet, record labels are doing it: they are investing in bands. In order for it to work at all, some really ugly stuff needs to happen. Crappy pop bands need to get signed. Lousy deals need to be made, and, here comes the horrible truth you don't want to hear, most bands fail by any measure. In my opinion, major labels could probably make some more money off smaller artists if they invested more, but instead they focus on the artists they think are going to be huge, because they are big organizations structured for big payoffs. The mid-sized or potentially mid-sized artist is best served by signing to a smaller label or hiring a private publicist, and either paying out of pocket, or getting money for that in record contract. Of course, no one thinks about being a mid-sized artist when they sign a record contract.

It's not pretty, but that's music industry sausage. But, contrary to the complaining, the label doesn't want the band it's invested in to starve, either: a savvy band with good management has plenty of opportunities besides record sales to make money, and the record label has no interest in cutting into that. Usually, these sorts of proceeds are not included in these "record labels are evil" calculations, but that's probably fair, because the point of those calculations is usually to show that labels aren't paying musicians, which, by and large, they aren't. A savvy band should realize that album sales are promotion for they other items, and the label knows that other items such as touring (which, as I understand it, is increasingly becoming part of the label income, too) are promotion for the records.

A smart band will negotiate their record contract rather than just signing it. As I mentioned earlier, it's still pretty one-side, but small things can be huge wins for the band. To use an old example I happen to remember, Primus kept the rights to their demos and made a lot of money off the sales of them when their album sold well. The fact is, contracts wouldn't suck so bad for bands if bands didn't want to be signed so badly. But bands are desperate. They want contracts, so they sign them. Bands can and sometimes do walk away from the table, but that's rare, and the record contract is the only deal on the planet where someone is going to give you significant amounts of money to record and play your music. Plus, it's cool to bitch about record labels being "evil" after you are signed. Like you had nothing to do with it. "I made a deal with the devil and now he wants my soul! Can you believe how evil he is?"

Maybe that's unfair of me, but it's worth emphasizing the flip-side of the argument, when the internet is full of "record labels are evil and screw artists over" talk. I just read one article where the author compares a record deal to a loan. It's not a loan. Loans come with a promissory note, which is a promise to pay the money back. Banks only give you a loan when they think they are going to get the money back, and if they can't get you to pay, they take your collateral, which is usually something like your house. The record label knows that there's a good chance that they are not going to get the money back. Would a bank give a band a loan to make a CD? Maybe before the housing market collapse, but even then you'd need some collateral. Like the afore mentioned house. But the label isn't taking collateral. While there are many crappy things about all this, we have to appreciate that one fact. It's kinda magical.

So if it's not a loan, what is it? It's an investment contract, like venture capital. And as with venture capital, when the original investment goes big, the venture capitalist, ie the record label, gets a big cut. They also want a fair bit of control, ownership, and so on. And yea, that sucks. Talk to anybody who's started a small company with venture capital about how their investors "don't get it". The best position to be in is to have a good contract from the get-go, and to do that you need as much negotiating power as you can get. That might mean turning down the first record contract that comes along, or spending some cash on a real shark to read and help you understand the contract, or maybe you need shop your demos to the labels who are a better match for your needs, rather than just every label in town. At the end of the day it means research, hard work and compromises.

But if that still seems unfair -- and I'm not arguing it's totally fair -- I ask again where else are you going to get money to make music and tour with your band? The fact is that labels are not signing the contract to be nice to you because they think your music is awesome and they believe in awesome music. They are signing you because they want to make money. As much money as possible. I wonder why bands forget they are making a business deal when sign these contracts and that the other party wants something, too. It's not like it's free money: it's an investment in them as a business, and if they can't think of it that way, they shouldn't sign the contract.


  1. I found this article as a link off which is about plain old fraudulent accounting (as in, got sued and lost). That certainly colored my reactions to this piece.

    I'd say part of the point is that RIAA members rig the contracts to avoid paying post-advance money for albums. In most cases they pay the 'advance', get the record, sell it for whatever they can, and keep *all* the proceeds from sales. It's clearly unusual to sell enough 'records' to recoup the advance and pay the band again (until the next album, when things restart from $0 - advance).

    As an outsider without much knowledge of the industry, it looks like the record execs are more 'corrupt' (meaning sleazy & tricky) than average, and more powerful than usual relative to the *desperate* bands they are dealing with -- as you point out.

    It's not even VCs (with a lot of leverage) vs. entrepreneurs, who at least have a business the VC's interested in and should have business savvy & lawyers. Rock bands aren't (generally) as well prepared to deal with the sharks.

    But yes, nobody in the 21st century should be expecting generosity from a label. They link to an interesting article by a guy who now works at Rhapsody, pointing out how sloppy and incompetent their accounting is -- as in, breach of fiduciary obligations, but how many bands (and lawyers!) are going to sue for a $0 settlement?

    Forewarned is forearmed!

  2. @reppep: Most of that is true. As for fraudulent accounting, it's mostly a matter of keeping the contracts simple: it would be hard for the label to figure out how much of their overhead goes to each act they sign, so instead of doing that they estimate, and since they write the contract, they estimate really unfairly. Slimy, yes. Misleading, yes. Fraudulent, not technically.

    Also, it's worth noting that some labels won't listen to a demo unless it comes from a lawyer, because they want to make sure that the band has sought counsel. That's terrific. Somewhere along the lines they realized that bands were getting upset about what they signed, and that wasn't working out well for anybody. However, I suspect what ended up happening was this: that lawyer is in bed with the label (how else did they get the demo there?) and the band payed them to get the demo played. Then that lawyer represents the band at record dealing signing time. Everyone's interests are in the wrong place, here.


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