My Hilarious Warner Bros. Royalty Statement
toomuchjoy.com
toomuchjoy.com
You get a profit if you make an investment, but if you charge for all your services, you didn't make an investment, so why do you deserve a profit?
But, I guess it works, since people are doing it.
Albums basically amount to free advertising for the band.
Because it means more money in their pockets, duh. Accounting in the entertainment industry is as crooked as it gets.
If you order repeat bank statements from your mortgage bank, are they not allowed to charge you for postage??
As far as the article can show, Warner Bros is out $300K on the deal with little prospect of getting it back. That's presuming the digital download sum was actually $92,000 instead of $65.
That 90-10% repayment split is part of the contract agreement he made with WB. If it isn't he can sue WB.
---
Other world examples: When one pays off a mortgage, you need to pay both for the interest portion as well as the consideration portion.
That can vary over time. First you are paying off interest, later a mix.
Again very clearly a contract term and not morally wrong.
Sure, it's in the contact. But it's morally wrong.
--
WB put in advance money to make the albums in the first place. Nothing morally wrong there.
Further, lets say that 90% fee on current sales goes into the pool of money for signing new bands who might be successful. Nothing morally wrong there.
WB does not necessarily blow it all on Cocaine binges and executive Porsches.
6 points by pierrefar 2 hours ago | link
The numbers are scary: WB claims to be $300k out but they're not accounting for a sizable revenue stream. The post mentions the band earned $12k in 5 years from albums they control, and they expected the albums WB control to earn 2-5X more. Assume 5x$12, and you'll get closer to $200k.
Do that over quite a few years, and they'll end up owing the band money while the band members are alive. Keep telling them $62 over five years and they'll never ever need to write them a cheque.
How is this not pure and simple theft?
If anyone is owed multiple $100K, for any reason, there should be motivation to hire a legal team to ask for it. Those sorts of cases happen successfully all the time, and the band guy should start his own action.
But he'd need to be nursing circa $500K loss for him to be $100K in credit by the time the settlement was awarded
However, the contract was written so they could do some accounting tricks and make it look like the show was a net loss. He knows the game well enough to know he was never going to see the money. But there was an odd moment where an executive happened to mention the actual billion in profit from the show. And he said something about his cut. At which point the executive said something about how it was still in the red. Even though as a producer he know how much the show cost, he could read the subtext and in the interview he said "I want to keep working in Hollywood and I know the game."
However, if he took them to court he could probably get a large payout at the cost of never working in Hollywood again.
They apparently tried to pull something similar with Peter Jackson and the billions of dollars from LOTR, though Jackson did end up taking them to court.
If we're going to stick to this mortgage comparison: do you think it would be fair if all the banks colluded to charge interest rates starting at 90%?
Right/wrong, morally/legally that doesn't bother me. Is it fair? That's the question. The answer IMO is "No".
This is what riles me, especially when as a consumer it is very difficult to find this kind of information so it is difficult to make "fair" purchases to stop this kind of thing.
Do you think it's "fair" that banks offer Interest Only[1] mortgages, where you the householder can pay off 100% of the price of the house... and then owe the bank the same amount again?
I understand why you are riled... but see my other post about my friend who offered better terms to bands and got no business[2]
-----
[1] http://www.thisismoney.co.uk/mortgages-and-homes/tips-and-gu...
What is unfair is selling these mortgages with endowment plans as a "dead cert" to consumers like banks did in the 80s in the UK. They were all successfully sued and settled in the late 90's / 2000s.
In the UK the council that sets interest rates is an independant entity.
If a new band approaches a record label for a contract, the label knows how much it will cost to produce and promote their album, but given the fickleness of the public taste, they don't know whether that album will sell ten thousand copies or ten million. And after the band has sold ten million albums, it will have a lot more negotiating leverage in the next round of contract negotiations.
So the record label has every incentive to lock the band into a contract that grabs as much as possible for the label. Bands that only sell a modest number of copies get screwed by this arrangement, but if the band members only expected to sell a modest number of copies of their album, they wouldn't be seeking a deal with a major record label to begin with, right?
That's typically not true in the US....
> This is what riles me, especially when as a consumer it is very difficult to find this kind of information so it is difficult to make "fair" purchases to stop this kind of thing.
Actually, it's pretty easy. If you're buying in a store, it's almost certainly from a "rip-off record company".
Come on. I have a different viewpoint. I happen to think it is completely "morally defensible" thank you.
---
One of my best mates at University (in Sydney) graduated in Law and set up business helping unsigned Bands on equitable terms for low fees.
Unfortunately for him, there were not enough bands who sought his low-cost, equitable contracts. They preferred the expensive, "morally-indefensible" contracts with terrible terms.
My friend is now a primrary school-teacher and enjoying life a lot more.
What do you have to say about that? Or will you just say I'm "missing something"? or "you don't get it"
What they are missing, however; is the payment from the band. Presumably they agreed to pay back the full amount out of their pockets in the original contract. And where does their personal income flow from? Royalties. This is how I see the numbers if they were to pay back the loan:
Gross Profit: $4,000,000 TMJ Share: 400,000 Warner Share: 3,600,000
TMJ Profit: $0 Warner Profit: $4,000,000
Warner Bros. will essentially make a 10x ROI before TMJ earns a dime. Just because bands willingly sign these contracts does not make them morally defensible. The record labels are clearly making a killing off artists who simply break-even, and I think people are finally starting to realize this...perhaps your friend's business was just ahead of its time.
Because, as the article explains, many bands (presumably most of them) never pay back what the label invested. If TMJ never earns them a penny, they have to cover their losses with those who do.
Let us say that an album sale makes $6 for the label and $3 for the band, then the label first takes the $6 and then also takes the $3 to pay down the advance. So even though that album sale in effect gave the label $9 in revenue, they only decreased the loan by $3. So in this example the losses from a 90k$ advance will be completely recovered after 10k sales, but the band will still 'owe' the label until they've made 30k sales. So just because a band still 'owes' a label hundreds of thousands of dollars, that does not mean that the label lost that money.
It's not a matter of principle here, it's a matter of how bad the bargain is in reality. In my example, the employee receives a decent guaranteed pay but low percentage of the upside. The founder receives low guaranteed pay but more upside. The label though receives most of the upside and most of the guaranteed pay too.
It's all interesting stuff and this is an area where there is limited information. Read both!
"If you're going to start a company that deals with musicians, please do it because you like music. Offer some control and equity to the artists and try to give us some creative guidance. If music and art and passion are important to you, there are hundreds of artists who are ready to rewrite the rules."
Do that over quite a few years, and they'll end up owing the band money while the band members are alive. Keep telling them $62 over five years and they'll never ever need to write them a cheque.
How is this not pure and simple theft?
It sucks but that's how it has worked and sometimes still works for artists although a lot of them are wise to this game.
It's like in The Producers... Whether intentionally or not, the record labels are banking on the fact that people do not look too closely at the accounting of a losing enterprise.
Like here: "Wasn't it Buffalo Tom that were only getting 12% less 10? Whatever. The old label only wants 50 grand, an no points. Hell, Sub Pop got 3 points when they let Nirvana go."
I vote for the second option.
Want to be a journalist? Start a blog or a site.
Sell shit nationwide? Make a website, ebay, Amazon, etc.
Be famous across the world? Youtube.
Distribute an indie movie? Video sites and online stores.
The important feature of the internet here is that it allows anyone to be a distributor. Survival of the fittest can work more ideally. No more people/companies being there simply because they were there first.
> ebay, Amazon, etc.
> Youtube.
> Video sites and online stores.
Unless you are selling directly from your site there is still a middle-man/distributor. As a content-creator, 'distributors' are a middle-man between you and the retailers, but the retailers are middle-men between the distributors and the end-user/customer.
The internet is really for reducing costs, but doing something like selling streaming HD video (or just HD video downloads) is not something you can economically accomplish on your own with just a hosting service. You need a framework (iTunes, YouTube, etc) and they become the new distributor. They may be a better distributor (or just more 'barebones'), but they are still a distributor.
>The important feature of the internet here is that it allows anyone to be a distributor.
Anyone can be the distributor, so competition is fiercer. Monopolies/oligopolies are harder to maintain. Competition can be more ideal.
> doing something like selling streaming HD video (or just HD video downloads) is not something you can economically accomplish on your own with just a hosting service.
But more companies can jump into the space, even if one cannot do it individually. The barrier to entry to a lot of industries is reduced because of the internet.
My point was not that it makes everything accomplishable by one person, my point was that the internet lowers the barriers to entry and encourages more ideal capitalism.
> ...they are still a distributor.
Yes, and if you self-distribute, you become the distributor. There will be a distributor. My "fuck the distributors" statement was directed at the current distributors. It was a statement directed at all the inefficiencies of their current systems.
Distributors will always be there. Of course. But the internet will allow more distributors, because the internet gives all access to the world.
I interpreted your post as saying that everyone can become a self-distributor on the internet. So I was commenting that if you use iTunes/Amazon/YouTube/etc you are not a self-distributor, you've just moved to a different distributor that may provide better service/terms/etc. So we are essentially on the same page.
Except for those there first with huge network effects...
As an aside that some may find of interest, and since the article mentions the Red Hot Chili Peppers, I forwarded it to a friend who works with the firm that does royalty audits for the Chili Peppers. His response (the auditor's name has been removed):
"The Chili Peppers use ____ to audit their royalty statements, which they pay ____ a lot of money for, and they always get checks for hundreds of thousands of dollars when ____ settles the audits with Warner Bros. Obviously, Too Much Joy can’t afford ____’s level of expertise. So the little guy gets screwed... No surprise there!"
You are not being a jerk by trying to zero out your balance. If what you said about your other albums is correct, you could be at $250K currently rather than the $400K. That means reaching "recouped" (whatever that means in this insane contract you're bound to) could be possible in 10-15 years.
The crooked side in this is that the labels outright own rights to the small 80%'s catalogs.
It would be better for everybody if Warner let them out of the pen so that artists could deal with rhapsody, etc themselves.
I doubt that the book-keeping and time spent on uploading, cashing tiny checks, etc would work out to being a positive net gain for the artists.
The fact that they can't properly account for the 80% strongly implies that they can't properly account for the 20%.
edit: Maybe I should mention that I'm not defending them, just pointing out that there could be a plausible explanation. In this case, the plausible explanation is that their accounting people are idiots (they probably think that their system is more reliable because an accountant is looking at all of the numbers instead of some automated process, not taking into account that MS Excel isn't exactly bullet-proof software).
The rights of each track are tortuous and split. There are many different responsible bodies that need to be consulted as to who owes how much to whom.
* Mechanical Rights
* Production Rights (maybe split say 30% 30% 35% somehow)
* Recording Rights
These are all spread around different collecting bodies. There may be different societies for different artists, countries.
It is a difficult, time-consuming and manual problem to allocate the monies.
When record companies deprive artists of income through misaccounting, they should be charged with copyright infringement, and fined at the same high rate per copy that they have bribed legisltors to apply when others infringe copyright. And if that means they go bankrupt, it's no more than they deserve.
That’s how much they spent on us, and we don’t see any royalty checks until it’s paid back, but it doesn’t get paid back out of the full price of every album sold. It gets paid back out of the band’s share of every album sold, which is roughly 10% of the retail price. So, using round numbers to make the math as easy as possible to understand, let’s say Warner Bros. spent something like $450,000 total on TMJ. If Warner sold 15,000 copies of each of the three TMJ records they released at a wholesale price of $10 each, they would have earned back the $450,000. But if those records were retailing for $15, TMJ would have only paid back $67,500, and our statement would show an unrecouped balance of $382,500.
Just because the artist is unrecouped doesn't mean the record company isn't making money.
Good thing startup founders are usually a little bit better at math. Seems like it'd be about like this:
"Advance" your startup $1M (really, advanced to yourself,
since you're hanging onto the money)
Sell the startup dubious services at outrageous prices,
force them to make your dumb cousin an SVP
"Pay back" the loan with %10 of the *profits*
When the profits top $10M, the founders *start* seeing
10% of what comes in (after expenses, of course)
edit: As I read this, I'm realizing that there probably are termsheets out there that aren't far off from this.
With a decent enough BP, I doubt a suit is needed.
No idea if it's just an urban legend or if it really happened. The story says that Virgin was practically bankrupt, and that Branson went to their bank - a very stodgy, conservative British bank - and on purpose avoided wearing a suit contrary to all advice. He apparently got there dressed in his normal casual clothes, sat down and asked for huge increase in their credit facility without any plans or anything to back it up other than some vague claims about needing money to expand.
The thought was supposedly that if someone in his business showed up to the bank in a suit with a detailed plan for "how to save the business" they'd smell the desperation and get rid of him as quick as they could, so instead he went looking like it was any other day and it really didn't matter to him if they said yes and no, but hey, it wouldn't hurt with another half a mill to grow a bit faster, hoping that they'd figure that business had to be great if he was that casual about those kind of amounts.
Not that I'm advocating that approach in general..