Warner Music's Royalty Statements: Works Of Fiction

from the too-much-joy dept

For years we've all heard the stories about how bad the major labels are at accounting for royalties they owe bands. There have certainly been a large number of lawsuits from artists claiming that this rather opaque accounting system is used to hide money from musicians, with various multi-platinum selling musicians claiming they never saw a dime of royalties from their albums, thanks to major label accounting. This is, of course, rather amazing in this day and age where technology allows for amazingly accurate accounting practices -- even for massively complex operations. But, then again, these are the major labels we're talking about, and they're often proud of their technical cluelessness.

Still, it's quite interesting to see a blog post, sent in by Quentin Hartman and written by the singer for the band Too Much Joy, Tim Quirk. Quirk is in an interesting position. Having been a moderately successful major label artist who is now an executive at digital music company Rhapsody, he's seen different sides of the business -- and in his must-read blog post, he details the absolute fiction that is a royalty statement from Warner Music Group -- leading to the flat-out false claim that Too Much Joy earned a grand total of $62.47 in digital royalties over five years across their three Warner albums. You really should read the whole thing, as it's quite detailed about how the major labels view most bands on their roster.

Back to my ridiculous Warner Bros. statement. As I flipped through its ten pages (seriously, it took ten pages to detail the $62.47 of income), I realized that Warner wasn't being evil, just careless and unconcerned -- an impression I confirmed a few days later when I spoke to a guy in their Royalties and Licensing department I am going to call Danny.

I asked Danny why there were no royalties at all listed from iTunes, and he said, "Huh. There are no domestic downloads on here at all. Only streams. And it has international downloads, but no international streams. I have no idea why." I asked Danny why the statement only seemed to list tracks from two of the three albums Warner had released -- an entire album was missing. He said they could only report back what the digital services had provided to them, and the services must not have reported any activity for those other songs. When I suggested that seemed unlikely -- that having every track from two albums listed by over a dozen different services, but zero tracks from a third album listed by any seemed more like an error on Warner's side, he said he'd look into it. As I asked more questions (Why do we get paid 50% of the income from all the tracks on one album, but only 35.7143% of the income from all the tracks on another? Why did 29 plays of a track on the late, lamented MusicMatch earn a total of 63 cents when 1,016 plays of the exact same track on MySpace earned only 23 cents?) he eventually got to the heart of the matter: :"We don't normally do this for unrecouped bands," he said. "But, I was told you'd asked."

As you hopefully know, with a major record label, the band gets an advance to record the album. From then on, the label no longer pays the band anything. Even though the band accrues royalties on albums sold, those royalties simply go towards repaying the advance. Most label bands never fully repay the advance, and are thus considered "unrecouped." This does not mean (as record label defenders will claim) that such bands were money losers for the label. The labels still take their own hefty cut from any album sales. They just also hang onto the tiny fraction of album sales that are officially designated for the actual musicians.

Basically, what Quirk notes, is that whether through malice or indifference (or a combination of both), the general major label attitude towards "unrecouped" bands is that the accounting is meaningless, so they don't even bother. That means they make massive mistakes -- such as the time Warner just happened to make a $10,000 mistake in Warner's favor, and then mocked Quirk for even caring about such a measly sum.

Now, when it came to digital revenue, for most artists, Warner apparently doesn't even bother to tell artists what their digital royalties are. They're unrecouped, so it doesn't matter in the minds of Warner execs. Quirk, by nature of also being an industry exec was able to (thanks to a chance meeting at a conference and 13 months of waiting) get Warner to agree to detail his digital earnings. But, because the band is unlikely to pay off the nearly $400,000 in "unrecouped" advance money, basically Warner did a slipshod job of it all. What this tells you is that Warner either has no serious accounting system to track this sort of thing or has mastered the art of obfuscating everything and purposely acting like their accounting department is run by six-year-olds. I'm not sure which is scarier.

Now, Quirk is reasonably clear that he's just as likely to attribute all of this to a combination of indifference and incompetence than to malice -- and there's nothing to indicate otherwise. But, you do have to ask how seriously anyone can take any of the ridiculous numbers that Warner Music Group or the RIAA toss around concerning the music industry and "losses" due to "piracy" and such, when it can't even put together an accounting system that can track (let alone accurately count) the most basic information that it is contractually obligated to both track and report. It also should highlight, for any bands who still actually think signing a major record label contract makes sense, how little regard major labels like Warner Music Group actually have for most of the artists on their label. As Quirk notes in discussing the $10,000 error:

When I caught this mistake, and brought it to the attention of someone with the power to correct it, he wasn't just befuddled by my anger -- he laughed at it. "$10,000 is nothing!" he chuckled.

If you're like most people -- especially people in unrecouped bands -- "nothing" is not a word you ever use in conjunction with a figure like "$10,000," but he seemed oblivious to that. "It's a rounding error. It happens all the time. Why are you so worked up?"

So, perhaps, the next time that Warner Music claims that it deserves $22,500 for a "pirated" song, someone will point out that according to Warner Music's own accountants, such numbers are really just a "rounding error" and there's no need to pay them. Somehow, I get the feeling that Warner Music will take a different view on such numbers about then.

Filed Under: business models, music, royalties, tim quirk, too much joy
Companies: warner music group