Montell Jordan, Others Accuse Labels Of Accounting Fraud

California Senate listens to complaints from artists, lawyers, advocates.

Long before Michael Jackson began his eyebrow-raising attack on Sony, a
coalition of influential artists initiated a more civilized crusade against
the record industry, and on Tuesday that battle raged on.

Representing the Recording Artists Coalition — which includes No Doubt,
Beck and others (see “Courtney Love, Don
Henley, LeAnn Rimes Testify On Artists’ Rights”
) — and similar
action groups, several music attorneys and a few artists faced off against
major-label representatives in a hearing with the California Senate
Committee in Sacramento.

Montell Jordan, Sam Moore of legendary soul duo Sam & Dave, and attorney Don
Engel were among those who accused record companies of fraudulent accounting
practices, mainly underpaying artists royalties, according to wire reports.

Jordan testified that despite selling 2 million copies of his 1995 single
“This Is How We Do It,” his label claims he stills owes them money.

Moore told the committee, organized by artist rights advocate Kevin Murray,
that late in his career he learned his retirement fund would be only $67 a
month because his record company never reported income to his pension fund.

Engel was harsher, likening the practices of the major labels to those of
Enron and WorldCom and estimating they underpay 10 to 40 percent on every
royalty.

Murray, who authored the bill to repeal an amendment to the California labor
code that allows musicians to have longer contracts than any other workers
in the state (see “Beck, Deftones, Others
Rally For Bill That Could Change Recording Contracts”
), told the
committee many contracts only require the record company pay an artist what
they are owed if they are found at fault in an audit.

Together, the artists and their representatives suggested the music industry
develop a standard set of accounting rules.

The labels, however, denied any unlawful activity and argued that contract
details are part of the negotiation process and therefore can not be the
same for all artists.

Steven Marks, senior vice president of business legal affairs for the
Recording Industry Association of America, which represents the labels,
explained the uniqueness of the music business by releasing an economic
analysis that showed fewer than 5 percent of signed artists produce a hit.
He claimed the industry loses an average of $6.3 million on every album that
fails.

“A glaring misimpression exists that record labels are high-profit, low-risk
companies uninterested in paying artists their fair share,” Marks said,
according to Reuters. “That’s simply not reality. It is no accident
that many of the higher-profile accounting and other financial disputes that
have arisen over the years have been resolved with new contracts, not a
parting of the ways.”

The RIAA also unveiled on Tuesday a study recently completed by Michigan
State University professor Steven Wildman that shows record contracts
reflect terms agreed to by all parties. Of the 500 contracts between 1994
and 2000 studied, lawyers represented artists in their negotiations in all
but one of the cases.

The study also showed that deals renegotiated after hit albums tended to be
more financially rewarding to artists.