You hit the nail on the head when you pointed out that it isn't in the record companies' interest to account correctly.
Not only would the record companies have to hire enough competent staff and fix their royalty systems to accomplish this, but they would end up paying much more than they do under the current system, where the burden is on the artist to hire an auditor - and sometimes go to court - to get paid just some of what he is due. When you consider that probably less than 5% of artists ever conduct an audit, it is amazing to think of all of the money the record companies improperly pocket, unchallenged.
There really just isn't any incentive for the record companies to do the right thing.
You are correct that it is challenging to get affiliates in every country of the world to comply with reporting procedures and this does cause errors in the data that management uses to make decisions and on royalty statements. However, I do think that most of the record companies have reasonably reliable information regarding weekly sales figures.
I don't agree with you regarding most lawsuits relating to smaller markets. As an auditor who provides expert witness testimony and litigation support, I focus on the big markets because otherwise I will waste my client's money. Therefore, I know that most (if not all) of the lawsuits are for big money in major territorries.
The trend is to use recordings to drive other sources of revenue, but given the failure rate of 360 deals, the jury is still out on whether this is a viable model. I can assure you that at least some artists (including my clients) are still making money from record sales.
For physical sales of CDs, the record company recognizes a sale on the wholesale level, when it ships the CDs. However, CDs are returnable, so instead of reporting 100% of shipments to artists, record companies hold back some of the units as a "reserve" against returns and liquidate the reserve over time. (As a royalty auditor, sometimes I claim royalties for unreasonable reserves.)
For digital sales, the record company must receive a statement from the DSP (e.g., iTunes) before it knows how many units to report, so that is on a "retail" level. This is one of the reasons I disagree with the record companies' contention that digital downloads are sales and not licensing. (If they were sales, the record company would know how many it sold.)
I hope you are correct that the record companies won't keep obscuring records forever, but I am doubtful. I have been waiting for the public outcry for decades and it hasn't happened yet, despite congressional hearings, etc.
You are correct to suspect charges by affiliates of a record company. As a royalty auditor, I have made many claims for such improper charges, particularly if the arrangement was not at "arm's length."
However, now that WMG is no longer part of Time Warner and UMG is not part of NBC Universal, etc., it turns out that many of the charges against artist royalty accounts are legitimate costs charged by third parties, not affiliates (...although I am always looking for evidence that the third parties give the record companies kickbacks or phony invoices, which does happen but can be hard to prove). The bigger problem with affiliates are the intercompany fees they take off the top of the revenue, not so much the marketing costs.
However, regarding marketing costs charged to artists, a trend that I have noted over the past five years is that recording contracts provide for the deduction of additional types of costs, including wardrobe and third party marketing, not just 50% of independent (radio) promotion charges, which was the standard for decades. If you are negotiating an agreement like this, at least require the artist's approval, so that your auditor can claim any unapproved charges upon audit.
With respect to your statement that "Artists get money out of the profit that their music makes," I just wanted to point out that major recording artists receive sizable royalty advances, and many such artists' records never become profitable for the record company. So, even though I am a strong artist advocate, I still think there are many artists out there who have received more money than they have earned. Bottom line: Most artists who complain about never receiving any money did receive enormous advance payments and are simply unrecouped. Whether the record company is correctly calculating and applying the artist's earnings to his unrecouped account(s) is a separate issue, but it is only relevant if the artist has the potential to recoup.
On the post: So Why Can't Major Record Labels Provide Accurate Accounting To Bands?
Re: Er...
You hit the nail on the head when you pointed out that it isn't in the record companies' interest to account correctly.
Not only would the record companies have to hire enough competent staff and fix their royalty systems to accomplish this, but they would end up paying much more than they do under the current system, where the burden is on the artist to hire an auditor - and sometimes go to court - to get paid just some of what he is due. When you consider that probably less than 5% of artists ever conduct an audit, it is amazing to think of all of the money the record companies improperly pocket, unchallenged.
There really just isn't any incentive for the record companies to do the right thing.
On the post: So Why Can't Major Record Labels Provide Accurate Accounting To Bands?
Re:
You are correct that it is challenging to get affiliates in every country of the world to comply with reporting procedures and this does cause errors in the data that management uses to make decisions and on royalty statements. However, I do think that most of the record companies have reasonably reliable information regarding weekly sales figures.
I don't agree with you regarding most lawsuits relating to smaller markets. As an auditor who provides expert witness testimony and litigation support, I focus on the big markets because otherwise I will waste my client's money. Therefore, I know that most (if not all) of the lawsuits are for big money in major territorries.
On the post: So Why Can't Major Record Labels Provide Accurate Accounting To Bands?
Re: Re: few reasons
On the post: So Why Can't Major Record Labels Provide Accurate Accounting To Bands?
Re: Wholesale vs. Retail Sales
For digital sales, the record company must receive a statement from the DSP (e.g., iTunes) before it knows how many units to report, so that is on a "retail" level. This is one of the reasons I disagree with the record companies' contention that digital downloads are sales and not licensing. (If they were sales, the record company would know how many it sold.)
On the post: So Why Can't Major Record Labels Provide Accurate Accounting To Bands?
Re: Along for the ride
On the post: So Why Can't Major Record Labels Provide Accurate Accounting To Bands?
Re: Marketing Costs
You are correct to suspect charges by affiliates of a record company. As a royalty auditor, I have made many claims for such improper charges, particularly if the arrangement was not at "arm's length."
However, now that WMG is no longer part of Time Warner and UMG is not part of NBC Universal, etc., it turns out that many of the charges against artist royalty accounts are legitimate costs charged by third parties, not affiliates (...although I am always looking for evidence that the third parties give the record companies kickbacks or phony invoices, which does happen but can be hard to prove). The bigger problem with affiliates are the intercompany fees they take off the top of the revenue, not so much the marketing costs.
However, regarding marketing costs charged to artists, a trend that I have noted over the past five years is that recording contracts provide for the deduction of additional types of costs, including wardrobe and third party marketing, not just 50% of independent (radio) promotion charges, which was the standard for decades. If you are negotiating an agreement like this, at least require the artist's approval, so that your auditor can claim any unapproved charges upon audit.
With respect to your statement that "Artists get money out of the profit that their music makes," I just wanted to point out that major recording artists receive sizable royalty advances, and many such artists' records never become profitable for the record company. So, even though I am a strong artist advocate, I still think there are many artists out there who have received more money than they have earned. Bottom line: Most artists who complain about never receiving any money did receive enormous advance payments and are simply unrecouped. Whether the record company is correctly calculating and applying the artist's earnings to his unrecouped account(s) is a separate issue, but it is only relevant if the artist has the potential to recoup.
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