Dixie Chicks Suing Sony Over Royalties, Accounts

The Dixie Chicks, one of the world’s biggest-selling music acts, sued Sony Corp. on Monday to terminate its contract, accusing the Japanese conglomerate of engaging in “systematic thievery” to “swindle” recording artists out of royalty earnings.

The photogenic country-pop singers contend in the suit that Sony cheated them out of more than $4 million by underreporting sales figures and overcharging for company services. Sony’s “fraudulent accounting gimmicks” were uncovered, the suit says, during a recent Dixie Chicks-financed audit of the company’s financial records.

“We refuse to sit back and silently endorse this behavior simply because this is a ‘standard’ practice at Sony,” the Dixie Chicks said in a statement. “This is about people keeping their word. We’re good for ours and we expected Sony to be good for theirs.”

Sony officials declined to speak about the suit, but in earlier legal papers dismissed the Dixie Chicks’ allegations as a “sham” attempt to escape from its record contract. The Dixie Chicks sent a letter notifying Sony on July 13 that the act would no longer record for the company. Sony responded by suing the Dixie Chicks weeks later, alleging it is owed damages for five undelivered albums, which the company estimates at more than $100 million.

The legal showdown comes just two weeks before the California Senate is set to launch hearings examining record business practices with testimony from such stars as Don Henley and Courtney Love, who is also locked in a legal battle with French music behemoth Vivendi Universal.

Both cases could turn the spotlight on what recording artists allege are the industry’s “unconscionable” contracts and “corrupt” accounting practices, designed to hide profits and bilk artists out of their earnings. Should either act prevail in court, such a ruling could rewrite the economics of the record industry and trigger a wholesale exodus of recording acts from their labels--breaking the major music companies’ decades-long lock on talent.

The Dixie Chicks--Emily Robison, Martha Seidel and Natalie Maines Pasdar--have sold nearly 20 million albums, generating more than $175 million in revenue for Sony since 1997. In its own legal papers, Sony describes the Grammy-winning trio as one of the most popular and commercially successful recording and performing acts in the world.

The Dixie Chicks signed a seven-album deal with Sony in 1997 and released its debut “Wide Open Spaces” collection, which sold about 11 million copies. Two years later, the trio delivered its follow-up “Fly” collection, which sold more than 8 million units.

The singers, however, say they have caught Sony trying to hide money from them with bogus accounting tactics on 30 separate occasions over the last four years.

Sony’s alleged “scheme to defraud” the Dixie Chicks began in June 1998--as soon as the group’s first royalty check was due, the suit says. The company allegedly deducted hundreds of thousands of dollars in producer fees and advances, the suit says, from the trio’s share of the profits and paid them to a Sony executive without ever notifying the singers about the terms of the financial arrangement.

Among Sony’s alleged fraudulent tactics, the suit says the company tried to cheat the Dixie Chicks of earnings on songs they wrote that appeared on their albums and failed to escalate royalty rates as guaranteed in the contract when the group exceeded initial sales expectations.

The Dixie Chicks first complained about royalty under-payments in November 1999 and sought to undertake an audit of Sony’s financial records. According to the suit, Sony stonewalled the trio’s audit request for nearly seven months and ultimately denied the Dixie Chicks access to crucial manufacturing, record club and foreign distribution documents.

Nevertheless, the trio discovered more than $1 million in unpaid royalties based on its initial audit of the incomplete documentation provided by Sony, the suit says. Shortly thereafter, the trio learned that Sony had also withheld nearly $2 million in royalties from the act to account for returns of unsold product, the suit says. The Dixie Chicks also claims to have uncovered more than $1 million in additional royalty shortfalls, including funds never received from Sony’s settlement with MP3.com.

At its core, the suit calls into question the “unconscionable” terms that young artists are required to accept when signing a standard industry recording contract. Like most entry-level artists, the trio had no bargaining power when the contract was drafted, the suit says, allowing Sony to treat its standard offer as non-negotiable.

In an April 16 letter to the trio’s attorneys, the suit says, Sony used one of those controversial contract clauses as a defense for any possible accounting irregularities.

“Even if Sony had a contractual obligation to compensate the Dixie Chicks in this instance,” the letter states, “Paragraph 19.07 of the agreement states explicitly ‘Sony shall not be deemed in breach of this agreement unless such claim is reduced to a final judgment by a court of competent jurisdiction and Sony fails to pay you the amount thereof within 30 days after Sony receives notice of the entry of such judgment.’ ”

In other words, even if the Dixie Chicks catches Sony failing to pay proper royalties to them, the act still has no legal right to break its deal. Under the contract, a recording act must sue at its own cost to get a judgment against the company, and if it succeeds, the company has 30 days to pay it before the act can consider walking. As a result, companies have been known to stall artists’ royalty payments for years.

“We got tired of having to beat down the doors and send letter upon letter every time Sony breached our contract,” the Dixie Chicks said. “It threatened to take us away from doing what we love, making music.”