Company Town : Artists Often Find There’s No Way Out of Their Contracts

Funk superstar Prince is fed up.

Pop singer Anita Baker is irate.

So furious are the two entertainers about the executive turnover at Warner Music Group that last month they filed petitions with the corporation demanding to be released from their recording contracts. They complain that Warner’s “unstable and ever-changing” management structure--where seven top executives have been ousted in 18 months--has made it impossible for the company to effectively market their music.

Warner Music disputes the claims, and sources at the company maintain that the two artists have been trying to get out of their contracts for years and are just exploiting the shake-up in hopes of getting a better deal elsewhere.

But even if Baker and Prince, who is now known by an unpronounceable symbol, are sincere in their complaints, attorneys and executives doubt whether they stand much of a chance of winning their freedom in court. Despite a 50-year-old California law that’s supposed to protect entertainers from being forced into long-term commitments, standard recording contracts generally require a performer to deliver at least six albums before he or she can even consider jumping ship.

Therefore, executives at Warner, Sony and MCA are not much worried that the recent shake-ups in their boardrooms will disrupt product flow or profits. Record executives know that artists--no matter how big they are or how much they complain--are usually locked into extended contracts that will keep the corporate cash registers ringing for years.

“Once an artist signs their name on the dotted line, there is really no way out,” says Los Angeles attorney Donald S. Passman, who represents such acts as Janet Jackson and Don Henley. “Even though artists may be the companies’ most precious assets, when it comes to a dispute, the executive can always pull out that contract and say, ‘Excuse me, you signed this thing and you must live up to it.’ ”

The current status of artists in the record business is similar to that of actors in the 1940s, when a handful of powerful movie studios dominated the film industry and locked entertainers into strict long-term deals.

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Like the studio moguls of old, record company executives argue that without long-term contracts they would have no incentive to underwrite the enormous cost of developing an unknown artist’s career. Although most contracts require artists to reimburse the company for cash advances spent on studio recording, video production, radio promotion and tour support, the record companies say there are many cases in which they never collect.

The standard recording contract offered a new artist usually gives the company options for eight albums at a low royalty rate--typically between 12% to 15% of the suggested retail price. But after the company takes contract deductions for packaging, new-technology allowances, product breakage and promotional giveaways, the artist usually nets less than two-thirds of the established royalty rate.

The record company also typically requires the artist to sign over ownership of their master recordings to all albums, which allows the firm to repackage the material and generate catalog profits long after the artist is dead and gone.

In addition, record conglomerates, which all run their own compact disc plants, rack up huge profits from manufacturing and distribution--profits they do not share with artists, no matter how big their stature.

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And although record executives often promise to devote personal attention to an artist when wooing them to join a label, most companies are very careful that no contract includes a “key-man” clause--a provision that would allow an artist to leave if a particular executive quits or is fired.

In other words, an artist has no legal recourse if a new regime takes over the company and appears to be unwilling or unable to promote the entertainer’s music aggressively.

Maybe Prince and Baker ought to take a tip from British pop star George Michael, who had similar gripes and sued Sony Music four years ago in an attempt to break his contract.

After spending millions of dollars on legal fees and court costs, Michael lost the case. The judge sided with the record company and even suggested in court that the singer may have been oversensitive about how Sony had treated him.

After losing the trial, Michael refused to record for Sony and his career faltered. In fact, it wasn’t until three weeks ago that the singer finally released a new single on DreamWorks, which, in a highly unusual move, teamed up with Virgin Records to buy out the remainder of Michael’s Sony contract for estimated $40 million.

In the U.S., artists such as Metallica, Luther Vandross and Henley have threatened to challenge the system by invoking an obscure California law called the “seven-year statute.” The law, which was enacted 50 years ago to free actors from long-term studio deals, states that an entertainer cannot be tied to any company for more than seven years.

Record companies maintain that the statute would not hold up in court, but they have been reluctant to test it because it could lead to a wholesale exodus of veteran artists. If upheld, artists could attain a free-agency status every seven years comparable to that of professional athletes.

To avoid testing it, companies have often rewritten the contracts of best-selling artists, offering higher royalty rates and other considerations in exchange for additional albums before the seven-year limit is reached. Metallica, Vandross and Henley each settled their cases out of court.

Even if an artist could win a case using the seven-year statute, an amendment to the law secured nine years ago by the Recording Industry Assn. of America, the trade group that represents the big record companies, could make it difficult for them to find a new label. The amendment grants record firms the right to sue and recover damages for any product still owed the company by the performer opting to break his contract by invoking the seven-year statute. Such damages could run into the tens of millions of dollars.

Los Angeles attorney Don Engel says it’s no mystery how record companies have remained so profitable for so long. The secret, Engel suggests, can be found in the fine print of the standard long-term recording contract.

“The contract is written in such a way that the record company almost always has the upper hand,” says Engel, who represented Vandross, Henley and Metallica in their seven-year-statute cases. “I have no problem with a company insisting on full compliance with a proper contract for seven years. What troubles me is that the record companies frequently use every subterfuge they can to lock up artists for more than seven years--which as we all know, is not only grossly unfair, it’s unlawful.”