R.E.M., Warner Records Sign $80-Million Deal


R.E.M., the hottest free agent in the music business, signed a five-album contract Saturday with Warner Bros. Records worth an estimated $80 million--the largest recording contract ever awarded, sources said.

The Grammy-winning band’s deal surpassed the $70-million mark achieved seven months ago by pop diva Janet Jackson as well as other mega-deals by such superstars as Michael Jackson and Madonna, whose six-album pacts included film and joint venture record label components.

The signing was announced unexpectedly at the Anaheim Convention Center on Saturday, where Warner Music executives were gathered for their annual strategy summit. Delighted at the news, thousands of employees leaped to their feet and broke into a standing ovation.


“This is a watershed moment for Warner Bros. Records--an incredible new beginning for the company,” said Steven Baker, president of the Burbank-based label. “R.E.M. embodies everything important about the culture of this company. They are a tremendously hard-working, successful band with integrity and vision. I can’t describe how proud we are that R.E.M. is allowing Warner to continue our association with them.”

The Athens, Ga. rock quartet, which recently delivered the last of six albums under its previous Warner Bros. contract, has been the target of a fierce bidding war for the past two weeks between such companies as DreamWorks SKG, Capitol Records and Sony Music.

Like Hollywood’s movie studios, the major record companies find themselves forced to pay astronomical sums--even at the risk of losing some money on the deals--for the industry’s top stars. For the major companies, the superstars are magnets for new talent and offer the firms clout in distributing their entire roster of artists around the world.

Formed in 1980, R.E.M. has sold more than 30 million albums and has been unusually strong in international sales for a rock group. But the pact is so large, with $10-million advances for each of five albums, that some record industry analysts wonder whether Warner Records can make a profit over the life of the deal. By the time the final album is delivered, the R.E.M. musicians will be nearing 50.

One reason R.E.M. was able to secure such favorable terms from Warner is that the band became free agents at the apex of their careers and the deal was negotiated at a time when the firm, trying to recover from two years of corporate upheaval, could not afford to lose the band.

Warner Music, the largest domestic record company, had the resources to outbid competitors and is the only firm that could offer R.E.M. a sweeter return on future sales of its six-album catalog.


Representatives for R.E.M. and Warner refused to discuss the pact. But sources said the band will be paid a $10-million signing bonus plus a $20-million royalty advance on future sales of its six-album Warner catalog. The band is also guaranteed an estimated $10-million advance per album plus a blue-chip 24% royalty on the retail price of each record sold--about $2.50 per record.

The spectacular size of R.E.M’s deal raises the stakes in future battles for other superstars and is expected to cause the cost of signing potentially hot new acts to skyrocket in the months ahead.

R.E.M’s contract covers five albums of new material. Under the terms of the deal, ownership of the masters to those albums will revert to R.E.M. seven years after the contract ends. The band already had negotiated reversion of ownership rights to its current six-album Warner catalog.

Warner will deduct cash advances from R.E.M.’s portion of the royalties until they are paid off--a standard practice in the industry.

R.E.M. consists of guitarist Peter Buck, 39, singer Michael Stipe, 36, and bassist Mike Mills and drummer Bill Berry, both 37. The band, which has won four Grammy awards, is regularly praised by rock critics for its uncompromising artistic integrity.

R.E.M. avoided many of the trappings of stardom by remaining based in Athens, a small college town about 70 miles east of Atlanta, where the band operates an office with just six employees. The band parted ways two months ago with longtime manager Jefferson Holt.

The surprise announcement Saturday followed an hourlong video presentation of music that the company plans to release in the year ahead.

Following a 10-minute display of music and video footage from R.E.M.’s upcoming “New Adventures in Hi-Fi” album, which is due out in two weeks, the band’s longtime legal advisor, Bertis Downs, walked onto the stage and interrupted a speech by Warner Bros. Records Chairman Russ Thyret. Downs handed Thyret a telegram from R.E.M., which Thyret read to the audience. The crowd broke into a standing ovation.

“It was a complex of many business, personal and intangible considerations that led the band to sign with Warners,” Downs said. “We believe that Warners is the right place for the next phase of the band’s career.”

Downs did not notify Warner Music co-chairmen Bob Daly and Terry Semel until late Thursday night that the band was ready to enter serious negotiations. “I was thrilled to get that phone call and immediately authorized the deal to go forward,” Daly said.

The contract signing followed two 14-hour sessions of negotiations between Baker, Thyret, Downs and attorney Donald S. Passman.

Passman is the Los Angeles lawyer who represented Janet Jackson this year and in 1991 when she announced her unprecedented $40-million, three-album pact with Virgin Records. That deal triggered a series of megabuck pacts during the early 1990s, including her brother Michael, Madonna, Prince, Barbra Streisand, the Rolling Stones, Aerosmith and Metallica.

Analysts say that few of these deals have delivered the profits that the companies were hoping for. But in an industry full of uncertainty and single-hit acts, these superstars are perceived as the closest thing to a sure bet.

Signing R.E.M. is regarded as a victory for the new regime at Warner Bros. Records. The band was one of several top Warner artists who threatened to jump ship in 1995 after a corporate battle that forced the departure of beloved Warner executives Mo Ostin and Lenny Waronker.

When Ostin and Waronker joined DreamWorks last year, the betting was that R.E.M. would soon follow. But tensions at Warner Music relaxed after Daly and Semel replaced ousted music chief Michael Fuchs, which led to recent speculation that R.E.M. might stay put.

Still, record chiefs from DreamWorks SKG, Sony Music, Capitol Records and MCA-affiliated Outpost Recordings submitted proposals last week to R.E.M., which included bids ranging from $35 million to $50 million for a four-album deal, sources said.

R.E.M.’s decision to stay is a coup for Thyret, who worked closely with the band for a decade before being promoted last year to chairman of the label. Downs cited R.E.M.’s strong ties to Thyret and other members of Warner’s domestic and international staff as a key component in closing the deal.

“My joy is only surpassed by my relief,” Thyret said. “The company has been working so hard to get back on course and I think it’s finally all starting to come together. This is the best news we could hope for.”


Money, That’s What They Want

R.E.M.’s contract is the latest in a flurry of megabuck superstar signings. Contract terms are closely guarded secrets, but industry sources speculate that R.E.M.’s deal is worth at least $80 million. Ever since Janet Jackson stunned the pop world in March 1991, when she announced her estimated $40-million pact with Virgin Records, artist attorneys have been elbowing into record company boardrooms to get a piece of the contract pie. These are estimates of the biggest known deals cut so far:


Artist Contract Company and Date R.E.M. $80 million Warner Bros. 8/24/96 Janet Jackson $70 million Virgin Records 1/11/96 Metallica $60 million Elektra Records 1/10/95 Barbra Streisand $60 million Columbia Records 12/13/92 Madonna $60 million Warner Bros. 4/20/92 Michael Jackson $60 million Sony Music’s Epic Records 3/20/91