Lawmakers Take Aim at Music Industry Contracts

State and federal lawmakers are planning to launch hearings into music industry business practices after a series of high-profile lawsuits and newfound activism among recording artists.

Sharp criticism of industry customs is resonating in Washington and Sacramento, where officials are preparing to examine what rock stars such as Courtney Love and Don Henley are calling the “unconscionable” contracts and accounting practices of the Big Five music conglomerates.

Kicking off in Sacramento next month, the state hearings will zero in on California Labor Code Section 2855, designed to protect entertainers from being tied to any company for more than seven years. Musicians lost that protection in 1987, when record companies secured an amendment to the law granting them power to collect damages for undelivered albums.

Recording artists believe the amendment is unfair. So does state Sen. Kevin Murray (D-Culver City), who said he is contemplating legislation to repeal the amendment.

“It’s time the Senate revisit this issue,” said Murray, who will chair the hearings. “In my gut, and most lawmakers’ guts, seven years is the appropriate length of time to limit personal service contracts for everyone--including recording acts. We need to take a look at other industry issues too, such as the current state of contracts and accounting practices and pension plans.”

California lawmakers aren’t the only ones breathing down the industry’s neck. Music companies also are feeling the heat on Capitol Hill, where Rep. Mark Foley (R-Fla.), chair of the House’s Entertainment Industry task force, said Congress also is planning to hold hearings on contractual rights.

Music labels need to end “indentured servitude” of artists in long-term contracts, Foley said. Rep. John Conyers Jr. (D-Mich.), a ranking member of the House Judiciary Committee, agrees, suggesting that a federal seven-year statute may be needed to protect recording acts.

“Even though artists are the creative force behind music, the studios still have all of the power,” Conyers said. “I’m exploring ways that Congress can balance the power between the two groups, so that creators can share more equitably in the fruits of their labor.”

Record companies disagree.

Companies have said artists voluntarily sign “industry-standard” recording agreements and are paid “fair” royalties based on “time-honored” industry accounting practices. California’s seven-year statute is not popular within the music industry, and label chiefs see no reason for the federal government to begin meddling in contract negotiations.

Representatives for the nation’s top record companies declined to comment, but a spokesperson for the Recording Industry Assn. of America, the industry’s lobbying arm, said California’s 1987 amendment was necessary.

“Artists can’t just get a pass on this issue,” the spokesperson said. “There is not going to be sympathy for them when they take multimillion-dollar advances from the companies and then just walk away before they fulfill the obligations in their contracts. Somebody has got to come up with the money to cover damages that the companies incur.”

Attacking Section 2855

Legislative interest in the seven-year statute comes at a time when an increasing number of acts--such as Love and the Dixie Chicks--are embroiled in bitter contract disputes. As the cases wind their way through courts, outraged artists have begun to mobilize against the music establishment, demanding better contracts, health-care provisions and new rules on ownership of creative material.

California Section 2855 was instituted 50 years ago after a legal battle by film star Olivia de Havilland to free actors from long-term studio deals. The law allowed actors, for the first time, to negotiate employment contracts based upon their fair market value--a move that ultimately brought down the Hollywood studio system.

Section 2855 also sanctioned free agency for every other California citizen performing a service job, such as architects, commercial artists, designers, dancers and recording acts.

During the 1980s, attorneys began threatening to invoke the seven-year statute on behalf of artists fighting for better deals in the music industry--a business analysts liken to the old Hollywood studio system. To avoid testing the law, record labels often rewrote the contracts of disgruntled stars, offering large cash advances and higher future royalty rates in exchange for additional albums.

Companies also often told artists that each renegotiation constituted a new contract, with the seven-year clock ticking anew. When trying to sign artists in California, some labels inserted language into the agreement suggesting the deal was subject only to New York law.

About 1985, the RIAA went a step further, launching a crusade to extend the statute to 10 years. When those efforts were rejected, the RIAA came back with a new proposal, asking state legislators to grant music labels a special exemption to the law to “address a vital problem facing California record companies regarding enforceability of contracts with successful recording artists.” Their solution: Let music labels sue recording artists for damages resulting from undelivered albums.

In documents provided to lawmakers in 1987, the RIAA argued that Section 2855 was unfair because the law allowed an artist to walk away from a seven-album recording contract after seven years, regardless of whether the act had fulfilled its contractual obligations.

The RIAA argued that record companies made large investments in an artist’s career based primarily on the promise that the act would deliver a certain number of albums under the contract--typically seven recordings. Industry lobbyists told lawmakers that labels don’t earn money on successful artists until after the fourth album and would be severely injured if the remaining three albums were not delivered.

The RIAA also tried to convince legislators that the primary reason artists didn’t turn in seven albums in seven years was because they were negligent. According to the RIAA, successful artists purposely delivered fewer albums than their contracts required because they chose to devote more time to other career pursuits, such as TV appearances and live concerts.

The problem with those 14-year-old arguments, Love, Henley and other artists say, is they aren’t true.

“The RIAA lied,” Love said. “It’s as simple as that.”

The RIAA spokesperson said the organization provided factual information.

Artists Intend to Lobby

California lawmakers never called a single artist to testify at the hearings. And what the RIAA failed to disclose to the Legislature, Love, Henley and other artists say, was that the companies draft the contracts in their own favor and control the flow of product.

Although companies do spend vast sums of money signing and marketing unknown acts, it’s the rare label that holds on to an act that isn’t successful by its second album. Indeed, the public conglomerates dominating the music business try to tailor their investments to acts that pay off quickly: New Kids on the Block, Hootie & the Blowfish and the Spice Girls.

Music labels typically require acts to spend two years per project touring and making videos and TV appearances to help boost music sales. It would take 14 years, attorneys for artists say, for the average act to complete its obligations under a standard recording agreement.

“To hear the RIAA tell it, it was like the poor little record companies were being taken advantage of by the big, bad, greedy artists--when in fact, it was exactly the opposite,” said attorney Jay Cooper, who testified on behalf of artists’ rights at the Sacramento hearings 14 years ago.

It’s been 14 years since the amendment passed, but no one has ever tried to test it in court.

In fact, no one knows how to calculate the damages for an undelivered album. For example, what if Alanis Morissette left her label after seven years and still owed the company four albums? It’s unclear whether the company would be allowed to base the value of damages on her 30-million selling hit, “Jagged Little Pill,” or her follow-up, “Supposed Former Infatuation Junkie,” which sold just 2 million copies.

These are just a few of the reasons Henley, Clint Black and more than 100 acts in his Recording Artists Coalition intend to lobby Murray to repeal the amendment at the Sept. 5 hearing in Sacramento.

“It’s unfathomable to me how the record companies were able to secure an exemption to single out one class of people, namely musical artists, to be unprotected by California labor law,” Henley said. “How can everybody else be protected but us?”