Contacts and contracts – why an artist can go gold one day and be flipping burgers the next (V)

Sometimes even the extra stream of revenue from the publishing royalties against the advance is not enough, for either party. Certain well-established bands have tried to create a new model for the relationship between the record company and the artist, with EMI leading the way for the record companies. As of this writing, EMI’s most recent deal was with the hard rock band Korn. The artists received a $25 million advance, far larger than most. More than just a piece of the publishing, this large advance gives EMI’s Virgin Records imprint a 30 percent stake in everything Korn makes – touring, licensing, merchandising, publishing, endorsements, the works – over the course of two albums and two tours. Billboard estimated that it would take $84 million in gross profits for the record company to break even.

Dave Marsh, however, wasn’t so sure EMI got a bad deal:

Korn not only loses economic independence, its revenue streams are further compromised by the specter of what’s known as cross-collateralization – the lumping together of all an artist’s royalty incomes on a statement. Imagine that Korn’s last album on the deal sells so few copies that the band is now $3 million in the red on its record royalties.

But its worldwide concert tour associated with the record has a profit of $6 million. Of that, the record company is entitled to something more than 25 percent, that is, at least $1.5 million. Doesn’t the $3 million in record royalties come out of the $6 million, too? (Why else would the label make this deal?) $3 million plus $1.5 million is $4.5 million, plus a bit more – that is, the company keeps almost all the money from the tour plus all the money from the record sales… . It’s even a good deal for Korn, presuming they break up quickly enough.

While the stakes are higher, it bears a striking resemblance to the reason the record company in our contract wanted to maintain control of the artist’s publishing.

Pretty much the polar opposite of this strategy is the one used by label. Fake Science. With 15 bands on its roster, this Oakland, California-based company offers artists production, engineering, and marketing. The artists get 60 percent of the revenue from all songs downloaded from the Fake Science website, and keep the rights to all their material, both the songs and the recordings that Fake Science funded. Basically, the label puts the band at no financial or creative risk. That said, no one involved – not the artists or the label’s owners – seems to have given up his or her day job.

But then, Fake Science has the luxury of their day jobs. To them, the label is a flyer, something they do because they can, a hobby, even. Virgin Records is a full-time record company, and as such needs to make a profit by selling records and any other way it can within its purview. You see, unlike with so many of the “dirty little secrets” we’ve uprooted, the reason why the record company would want to foist a contract like this onto its artist should not seem mysterious. When only 5 percent of the records released make a profit, the record company needs every edge it can get. However, the music business, as we saw right up front, begins with the artist. Without the artist, why make records in the first place? And if it all begins with the artist, doesn’t it make sense to look after and develop that investment? The contract is a crapshoot. The artist can be eternal.