BMG Music Group Expecting Record Profits, Simplifying Royalties

[JackSpratts]

By LYNETTE HOLLOWAY, NYT

BMG announced an overhaul of its accounting practices for royalties yesterday, a move that it said would assuage concerns that performers are being shortchanged on their earnings.

But while some artists and their representatives applauded BMG for its lone stand among the music labels, they said the industry still needed to change other accounting methods and better compensate performers for their work.

BMG, a unit of Bertelsmann, said that beginning next year it would eliminate contract deductions it typically takes off the retail price of a CD for items like packaging, new technology and free goods for retailers. Instead, BMG will calculate the royalty rate on the lower wholesale price.

The new method will not change the amount of the royalties. But the label hopes that by simplifying its confusing practices, it will engender good will from performers who have long suspected the labels of cheating them by loading all sorts of unfair charges into the deductions.

"This will be part of a series of moves designed to change the relations with our artists — one where they will become our business partners," said BMG's chief operating officer, Michael Smellie.

"If you've got a partner," Mr. Smellie said, "the first thing you want to do is make sure you can communicate with them as transparently as possible."

He said the new policy of fewer deductions should streamline the accounting process and result in faster payments of royalties to artists. BMG also plans to increase the royalty rate for digital downloads as well as grandfather in earlier artists whose contracts made no mention of online sales.

"We have established that everyone will get paid," Mr. Smellie said. "It is now clear that some of our older artists will share in online income even if it wasn't clear that they were supposed to receive them."

The company plans to hold meetings with artists and their managers in the early part of 2003 to demonstrate how the new policy will be carried out. Eventually, the label would like to cut the length of its recording contracts in exchange for a share in other revenue sources like commercial sponsorships and film deals.

BMG's move comes at a time the music labels are facing pressure from lawmakers in New York and California over their contracts with performers.

Reaction from artists and their representatives was positive, but muted. "BMG's leadership and candor is refreshing, well appreciated and helpful toward creating a fair and equitable new business model," said L. Londell McMillan, a Manhattan-based entertainment lawyer whose clients include Prince and Stevie Wonder. "We're anxious to meet and work with BMG to determine the substance and implementation of its new policy. At the end of the day, this is a penny-rate business. We need more substance in pennies for the artists rather than mere form adjustments."

Mr. McMillan is also the lawyer and co-founder of the Artist Empowerment Coalition, a nonprofit group of artists, musicians, performers and songwriters, whose goal is to reform the relationships between artists and the music companies.

One member of the coalition is the singer Roberta Flack, who says she has been cheated out of royalties. "What we're hoping it will do is spark a fire so that the change will become extremely broad and cover all of the recording industry's unfair practices," Ms. Flack said. "This change represents a change for those who can't record anymore. We would love to get a royalty check retroactively. If something like this had been around when I signed my contract in 1969, I'd probably be getting myself a nice little royalty check."

BMG also announced yesterday that it was on track to increase its global market share to 10 percent and achieve a record operating margin, after enduring huge losses in recent years. It is expected to post profits this year of more than $100 million, according to a person close to the company.

The turnaround has been accomplished in part by cutting nearly $200 million in costs, by eliminating 1,200 jobs in the last year, and by solid sales of CD's by artists like Elvis Presley, Christina Aguilera and the Foo Fighters.
http://www.nytimes.com/2002/11/21/bu...ia/21MUSI.html

- js.