Lemmy’s gift to Steve.

The following is a letter from Steve in support of Senator Murray’s senate bill (1034) regarding record company accouting practises. SB 1034 would give artists the assurance they deserve that record companies must accurately report royalties and pay them in accordance with their contractual obligations. You can also read more about the bill at www.rightsforrecordingartists.com

To Whom It May Concern,

My name is Steve Vai and I have been a professional musician for the past 25 years.

I am in unequivocal support of Senator Murray’s bill SB 1034 regarding recording company accounting practices.

It has come to my attention over the past 20 years that the conventional record company contract with artists is lopsided and unfair, favoring the labels. Artists are given deals that have them paying for virtually every aspect of their art and usually never retaining any ownership over their work. It is unheard of in our industry for an artist to undergo an audit of a label and not discover a large percent of their royalties unpaid, that’s if an artist can afford the time and money to audit their label. One in every thousand artists have the resources to audit. There are stock calculations that labels make in order to justify “creative accounting”, and when the artist does find outstanding funds that are rightfully due them, labels “negotiate” what the artist will actually receive as a settlement, and most of the time it’s not more than a third of what is found. Artists have very little to no recourse.

Following are some of the creative accounting practices and “basic deal points” that conceal royalties from the artists. Most major labels…

1. Do not calculate tax breaks that they receive from international affiliates into the appropriate artists account, thus not allowing the artist to enjoy the royalties that are reflected in those tax breaks regarding their own work.

2. Do not properly calculate free goods, especially in the international realms.

3. Artists are not allowed to audit manufacturing numbers. Go figure that one. If you cant’ see the records by which your CD’s were manufactured, how can one determine if they were accounted to properly?

4. Many deals state that artists do not have the right to hire an auditor based on a commission of what they find. Artists are then forced to come out of pocket great deals of money to hire an auditor at the chance that the funds they may find due to them can not adequately cover the costs of the audit itself. There is usually no way for an artist to be compensated for auditing bills regardless of the outcome. Most audits take 2 years to complete and that’s from the time that the label sets a date allowing an auditor to come in. That could take up to two years also. The auditor is usually never allowed to make claims or see documents that go back further than 2 years from the time of the initial letter sent by thte artists attorneys notifying the label of their intention to audit.

5. Audits are costly and labels never pay the amount found. They usually negotiate with a take it or leave it attitude. For an artists, even the most successful ones, to sue a record label would be prohibitively expensive, create bad will, keep an artist from releasing product for many years thus having a serious effect on their career and personal livelihood.

6. When money is found, whatever the settlement amount is and however long it has been due to the artists, It is extremely rare for a label to pay interest on what they have been withholding, and the label never reimburses the artist for audit fees, or legal fees. Even if an artist successfully audits a label and uncovers millions of dollars, they may never recoup their legal expenses or recover from the career blows the inability to record and release product has created.

7. Even in a very good deal scenario an artist can receive close to 15 points (percent) of the retail price of a CD, minus various deductions which can include:

   a. packaging deduction of up to 25 % of the retail cost (sometimes more)

   b. An allotment for free goods of up to 15 %

   c. a reduction in their full rate mechanical publishing royalty of close to 25 % or more

   d. Recoupment of up to 100% of any independent radio support (that’s another criminal activity that is too timely and painful to get into).

   e. Recoupment of up to 100% of tour support, video etc.
   After all this, that CD that sells in the store for $16.98 or so, is worth around $1.50 per CD to the artist. Out of that the artist has to pay for…
   

   a. 100% of this amount (the $1.50) goes to recouping by the label of any advance the artist received to make the record, thus in essence the artist pays for the making of the record and much of the marketing solely from their royalty and holds no copy-write on the product. They pay for it but do not own a bit of it.

   b. Artist must pay their management and producers from their royalty and then split the rest among the band members if there are multiple members receiving royalties.

   c. Pay for any audits, law suits, touring needs, their own life, etc.

There are many more, to numerous to mention, but suffice it to say that artists are driven by the desire and need to create. They are most fascinated with the music. Most record executives are fascinated with numbers and just as artists toil away endlessly to create music that is part of themselves from deep within, and are vitualy desparate to have their work heard, most executives put the same amount of mental toiling into creating documents that are largely to their advantage.

Nary do the twains meet.

The language of the conventional record deal is archaic, unbalanced and has not changed with the evolution of technology. For instance, most record deals have a new technology clause that states the artist is only due half of their normal royalty for new technology that the record industry experiences. CD’s for the most part were considered new technology even thought labels received much more per CD than for vinyl.

The new trend in shopping and purchasing music is on-line by buying a download. There is no packaging cost to the label, no distribution fee, no real free goods and yet the labels take all of these things as deductions for a download and then pay the artists only 50% of what they would normally receive because it constitutes as “new technology”. This is an abysmal travesty that many artists will have to deal with for their whole career.

For instance, If you go to Itunes and download a song for $.99, Apple retains about $.34 and the label receives about $.65. Labels then calculate a royalty base price to apply to the artists deal points. Following are some of the deductions:

a. A packaging fee (container cost) of up to, and sometimes more than, 25%. That’s 25% of retail which is $.99 equaling about $.25 (by the way, there is no packaging on a digital download).

b. A 15% deduction for free goods. That’s an additional $.15 or so. (There is usually no free goods with digital downloads unless someone is ripping it from the net.
That leaves a royalty base price of close to $.60 per track that the artists royalty is calculated against. If an artist receives 15 points in their deal (and remember, that’s a very good deal) then he is entitled to aprox. $.09 a track. This is then cut in half because of the “new technology clause” that is incorporated into most deals. The artists royalty is then calced out at $.04-.05 a download and from that, 100% of it is withheld by the label to go towards recoupment of any advances to make the record, advances in general, tour support, radio promotion and other things in some cases. Most managers and producers are paid from record one and are paid regardless of the expenses, leaving the artists with even more of a recoupment burden before they start to see any income.

Technology is moving in a direction that is changing the way we purchase music. As net based vendors such as Itunes become more robust, it’s not unlikely that the only way we will be able to receive various catalog music and maybe even all music, will be online. The infrastructure of the deals for artists pertaining to this new technology and how they will be compensated for their past work and future is brutally pathetic.

The tragic state of the conventional recording contract as it deals with artists ability to rightfully be compensated for their work is not a myth or an Urban legend. It’s real and in the world today.

Artists are in DESPERATE NEED of help with legislation that will afford them some accessible recourse against these industry foibles. ARTIST NEEEEEEED this bill to pass…. did I say need?

Please, if you only knew the reality and severity of this issue you would not hesitate to support Senator Kevin Murray.

Kind Regards

Steve Vai
Feb. 20, 2004