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Could Music Companies Help Black Artists By Adjusting Old Record Deals?

If the major labels won’t raise royalty rates, they might at least consider writing off unrecouped debt for heritage artists. Indie label Beggars Group offers a model to doing so

Kelis

Kelis

Dave Sitek

“If the music industry wants to support black lives, labels and platforms can start with amending contracts, distributing royalties, diversifying boardrooms, and retroactively paying back all the black artists, and their families, they have built their empires on.”

This statement, from professor and author Josh Kun, caught fire in influential places after it was posted on Twitter during the music industry’s “Blackout Tuesday” last week. R&B hitmaker Kelis amplified it on Instagram, as did Erykah Badu and John Legend manager Ty Stiklorius.

Since then, Universal Music Group, Sony Music Group, and Warner Music Group have collectively committed nearly a quarter-billion dollars to social justice and anti-racist initiatives ($25 million, $100 million, and $100 million, bankrolled by the Blavatnik Family Foundation, respectively). This is not chump change: $225 million is nearly a third of Warner’s total adjusted annual EBITDA profit in the 12 months to end of March this year.

Yet, so far, none of the major music companies have made any moves on the specific issues Kun addressed. (Warner has caught particular flak for the lack of diversity on its board, though sources reportedly suggest fixing this issue is a “serious priority” at the company.)

When I read Kun’s tweet, my mind flicked back to a speech given in February 2016 by Martin Mills, the founder and CEO of Beggars Group — one of the world’s biggest indie record companies, with head offices in both London and New York and $100 million in annual revenues. The Beggars family is home to labels such as 4AD (Grimes, The National), Matador (Queens Of The Stone Age, Kurt Vile), Rough Trade (The Strokes, My Morning Jacket) and XL / Young Turks (Adele, The xx).

Speaking at the pre-Grammy Entertainment Law Initiative lunch in Los Angeles, Mills called on the global record industry to adopt practices that could unify the world’s labels and their artists as one community. Mills implored the majors to adopt five points of change, with the first two on his list carrying particular current prescience:

1. “To win the support of performers, all labels — majors and indies — should commit to a 15% minimum royalty for digital exploitation for all existing contracts. Not as much as current norms, but way more than many heritage artists are paid.”

2. “They should also commit to the writing off of all artist balances after 20 years, so that after that point any earnings flow through.”

The first point here tessellates well with Kun’s call for the majors to start “retroactively paying back” artists who were signed decades ago. (Kun would like labels to go even further, and “redistribute profits” to black musicians as part of “musical reparations”.)

Personally, I can’t see the idea of dragging up historical royalty rates gaining momentum within the walls of the modern major music companies today, no matter the level of societal pressure. Company valuations are of unassailable importance at the majors right now, with Universal Music Group worth $34 billion (according to a recent deal with Tencent) and Warner Music Group worth approximately $16 billion (according to its market cap on the Nasdaq). Every additional percentage of royalty cash that major labels hand to heritage artists immediately reduces these valuations, because catalog income is a cast-iron indicator of perpetual future revenues in the streaming age.

I caught up with Mills last week for a brief chat. He confirmed that Beggars some time ago raised its own base streaming royalty rate for most heritage artists to 25%, which it considered “the fair and right” thing to do. Mills shared my skepticism about the prospect of the majors implementing a similar royalty rate rise. He acknowledged: “In some respects it’s obviously easier for Beggars to do this as we don’t have outside shareholders saying, ‘What are you doing with my value?’ — We can make our own decisions.”

The second of Mills’ five suggestions back in 2016, the one about writing off unrecouped balances for heritage artists, may be slightly more likely to at least engender discussion within modern major labels.

Something worth knowing about record deals: When an artist agrees a royalty rate with a label, they often also agree an advance of money. This becomes a debt for the artist, paid back to the label in accordance with the act’s own royalty percentage. In other words, if we agree an 20-80 royalty split, I advance you $10,000, then your music generates $20,000 in gross receipts, you’ll still owe me $6,000 — because your artist’s share of that royalty income (20%) only amounts to $4,000. This is one reason why some artists can remain unrecouped, and therefore receive zero regular royalty income, even after their deals become profitable for a record label. (It’s worth noting for balance that, over the expanse of record industry history, most artist signings have actually resulted in a financial loss for record companies.)

Mills tells me that as a matter of policy, Beggars wipes off all unrecouped debt on advances 15 years after the firm’s “active relationship” with an artist ends – i.e. after the last record of an agreed contract is released. In 2016, Mills challenged the majors to do the same thing, 20 years after their own “active relationship” with each artist comes to a close.

Prominent black voices in the music industry are now advocating for a similar outcome, against the backdrop of a wave of social justice protests in the US. Ron Sweeney, a veteran artist attorney who has represented the likes of Sean “Puffy” Combs (and Bad Boy Records), as well as James Brown, Public Enemy and DMX, just published a 12-point public plan for the majors to address racial inequality. Point eight on that plan: “With respect to black artists signed to you prior to 2000, that are no longer signed to your companies, zero out their unrecouped royalty balances and let their royalties flow to them so they can support themselves.”

The majors doing so remains unlikely, but there is at least a modicum of reason for hope for Sweeney et al on this topic. In 2018, in a magnanimous move that surprised many in the music business, Sony Music dismissed unrecouped artist balances when distributing profits reaped from its sale of $768 million in Spotify shares. In doing so, Sony ensured that every penny of the portion of that $768 million it shared with artists (though to be in the region of $300 million) actually landed in the pocket of those acts, as opposed to remaining within its company coffers.

Universal Music Group, with a nudge from Taylor Swift, subsequently said it too would ignore unrecouped balances when paying out profits from its Spotify shares, which are yet to be sold. Warner Music Group did not ignore artist unrecouped balances when paying out $126 million of its Spotify share money in summer 2016, meaning a chunk of that money, in reality, stayed within WMG’s bank account.

Of course, calling for major record companies to wipe off debts for artists signed decades ago may fall on deaf ears, just as calling your bank today and asking for your legally binding mortgage contract or loan agreement to be written off may result in the line going dead. Yet, if they’re serious about making moves that financially further the causes of the black creative community right now, the majors have a delicate culture vs. commerce equation to consider: how much unrecouped debt would Universal, Sony and Warner have to write off in order for a wave of elder artists — and their families — to start earning regular income from their recorded music for the very first time?

Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for Rolling Stone.

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