If artists don't feel they are being paid enough, they could delay delivery of their next album--something that would hurt them financially but would also hurt the company because it wants the profits from that album.
To challenge multi-album deals that could conceivably bind artists forever, attorneys pointed to provisions of a longstanding California law that stipulates that entertainers cannot be tied up by a company for more than seven years.
The statute was specifically designed about 50 years ago to free actors from long-term studio deals, but record industry attorneys have adopted it for their purposes.
"Artists looking for better terms who still owe the company five albums after seven years come to me and they say, 'I'll be dead and in my grave before I finish this contract,' " Engel says.
Though the statute is open to wide interpretation, it appears to be a powerful weapon because record companies don't want to test it in court. If they were to lose, it could trigger a wholesale exit of artists. So the companies often try simply to sweeten the deals.
Four years ago, the Recording Industry Assn. of America--the organization that represents most of the major U.S. record companies--asked the California Legislature to extend the duration of contractual obligations for entertainers to 10 years.
Although the lobbying effort failed, it did succeed in securing an amendment that grants record firms the right to sue and recover damages for any product still owed the company by a performer opting to break his or her contract by invoking the seven-year statute.
"Speaking from a company standpoint, I think the seven-year law is very unfair," says Capitol-EMI's Smith. "If I make a deal for a certain amount of records, and I pay the money to get that amount of records, I think the artist is under obligation to deliver those records. But nobody wants to test it. Everybody does their best to avoid it."
One way around the impasse, Smith believes, will be the adoption of one-album contracts for superstars, leaving them free to shop each new album around if they wish, the way an actor or actress can move from studio to studio for each movie.
"We've always had the advantage in this industry of having exclusive rights to artists' recordings for an extended period of time," Smith says. "But those days may be nearing an end--at least in terms of superstars."
In fact, Engel negotiated a one-album deal for the rock group Boston with MCA Records in 1986 and the arrangement worked well enough that the group and the record company just signed another one-album deal.
Despite all the talk about superstar deals, record industry executives seem united in one point: The healthiest way to build a company is to sign and develop new artists rather than to try to throw big bucks after superstars.
Even Virgin's Branson agrees:
"Over the years, Virgin has built a reputation for developing new talent . . . people from out in the streets who we feel have a unique talent: Lenny Kravitz, Neneh Cherry, UB40, the Divinyls, Paula Abdul."
Clive Davis, whose luring to Columbia of Neil Diamond from MCA Records in the early '70s is often pointed to as the first of the high-priced superstar signings, also emphasizes the importance of building new artists.
"Experience has shown that the major-dollar-guarantee deals that people have made--whether it was for Paul McCartney as a solo artist or the Rolling Stones--have lost money," says Davis, who now heads Arista Records. "I've always felt the only way to have a successful company was to sign artists from scratch or to reach out for artists who might be (underachieving) at another label. I've never done it by way of way outbidding other people. . . . Take the Neil Diamond deal for instance. I paid $400,000 an album for 10 albums, which was exactly what other companies were offering."
A&M's Cafaro, whose company lost Janet Jackson to Virgin, believes that sinking millions into superstar deals is counterproductive.
"The time, energy and money spent on these mega-deals detract from new artist development," he says. "Not only do they cause severe morale problems with other artists on the label, they can end up causing the superstar to be viewed more as a profit-and-loss statement on the company's ledger sheet than as a creative human being."
At the same time, most record executives acknowledge that they're not going to sit on their hands the next time a superstar free agent becomes available.
Tony Attanasio, a San Diego attorney who has specialized in sports contract negotiations for 20 years, says he sees a parallel between what is happening now in the record business and what happened in the sports world in the '70s and '80s.
"I heard precisely the same doomsday argument from the baseball team owners back in 1974," says Attanasio, who represents such baseball stars as Oakland pitcher Dave Stewart and St. Louis first baseman Pedro Guerrero. "The baseball owners say, 'Oh, the sky's going to fall. These prices are going to drive us out of business. The players are going to ruin the sport. The fans will stop coming to the games.' I've heard all the arguments, but the fact is, they're just not true. Free-agent deals in baseball have not destroyed the game, and they won't destroy the music industry. . . .
"In our society, the market dictates what an artist is worth. If the fans keep coming to the games and keep buying the records, then the companies will have to pay the artists the amount of money that they are worth. The owners may not like it, but that's how capitalism works."