By Tim Quirk12/3/09
Below is an article sent out by Rock and Rap Confidential this week. It's a letter from Tim Quirk, VP of Music Programming for Rhapsody - i.e. someone intimate with the money flow of digital royalties to SoundExchange and the major labels as his company pays them - who was shocked by what Warner Brothers claimed was the five year digital earnings of his former band Too Much Joy. We re-post it here--editor
My Hilarious Warner Bros. Royalty Statement
I got something in the mail last week Id been wanting for years: a Too Much Joy royalty statement from Warner Brothers that finally included our digital earnings. Though our catalog has been out of print physically since the late-1990s, the three albums we released on Giant/WB have been available digitally for about five years. Yet the royalty statements I received every six months kept insisting we had zero income, and our unrecouped balance ($395,277.18!)* stubbornly remained the same.
Now, I dont ever expect that unrecouped balance to turn into a positive number, but since the band had been seeing thousands of dollars in digital royalties each year from IODA for the four indie albums we control ourselves, I figured five years worth of digital income from our far more popular major label albums would at least make a small dent in the figure. Our IODA royalties during that time had totaled about $12,000 not a princely sum, but enough to suggest that the total haul over the same period from our major label material should be at least that much, if not two to five times more. Even with the band receiving only a percentage of the major label take, getting our unrecouped balance below $375,000 seemed reasonable, and knocking it closer to -$350,000 wasnt out of the question.
Five Year Digital Royalty Statement for Too Much Joy
So I was naively excited when I opened the envelope. And my answer was right there on the first page. In five years, our three albums earned us a grand total of
What the fuck?
I mean, we all know that major labels are supposed to be venal masters of hiding money from artists, but theyre also supposed to be good at it, right? This figure wasnt insulting because it was so small, it was insulting because it was so stupid.
Why It Was So Stupid
Heres the thing: I work at Rhapsody. I know what we pay Warner Bros. for every stream and download, and I can look up exactly how many plays and downloads weve paid them for each TMJ tune that Warner controls. Moreover, Warner Bros. knows this, as my gig at Rhapsody is the only reason I was able to get them to add my digital royalties to my statement in the first place. For years Id been pestering the label, but I hadnt gotten anywhere till I was on a panel with a reasonably big wig in Warner Music Groups business affairs team about a year ago
The panel took place at a legal conference, and focused on digital music and the crisis facing the record industry**. As you do at these things, the other panelists and I gathered for breakfast a couple hours before our session began, to discuss what topics we should address. Peter Jenner, who manages Billy Bragg and has been a needed gadfly for many years at events like these, wanted to discuss the little-understood fact that digital music services frequently pay labels advances in the tens of millions of dollars for access to their catalogs, and its unclear how (or if) that money is ever shared with artists.
I agreed that was a big issue, but said I had more immediate and mundane concerns, such as the fact that Warner wouldnt even report my bands iTunes sales to me.
The business affairs guy (who I am calling the business affairs guy rather than naming because he did me a favor by finally getting the digital royalties added to my statement, and I am grateful for that and dont want this to sound like Im attacking him personally, even though its about to seem like I am) said that it was complicated connecting Warners digital royalty payments to their existing accounting mechanisms, and that since my band was unrecouped they had to take care of R.E.M. and the Red Hot Chili Peppers first.
That kind of pissed me off. On the one hand, yeah, my bands unrecouped and is unlikely ever to reach the point where Warner actually has to cut us a royalty check. On the other hand, though, they are contractually obligated to report what revenue they receive in our name, and, having helped build a database that tracks how much Rhapsody owes whom for what music gets played, Im well aware of what is and isnt complicated about doing so. Its not something you have to build over and over again for each artist. Its something you build once. It takes a while, and it can be expensive, and sometimes you make honest mistakes, but its not rocket science. Hell, its not even algebra! Its just simple math.
I knew that each online service was reporting every download, and every play, for every track, to thousands of labels (more labels, Im guessing, than Warner has artists to report to). And I also knew that IODA was able to tell me exactly how much money my band earned the previous month from Amazon ($11.05), Verizon (74 cents), Nokia (11 cents), MySpace (4 sad cents) and many more. I didnt understand why Warner wasnt reporting similar information back to my band and if they werent doing it for Too Much Joy, I assumed they werent doing it for other artists.
To his credit, the business affairs guy told me he understood my point, and promised hed pursue the matter internally on my behalf which he did. It just took 13 months to get the results, which were (predictably, perhaps) ridiculous.
The sad thing is I dont even think Warner is deliberately trying to screw TMJ and the hundreds of other also-rans and almost-weres theyve signed over the years. The reality is more boring, but also more depressing. Like I said, they dont actually owe us any money. But thats whats so weird about this, to me: they have the ability to tell the truth, and doing so wont cost them anything.
They just cant be bothered. They dont care, because they dont have to.
$10,000 Is Nothing
An interlude, here. Back in 1992, when TMJ was still a going concern and even the label thought maybe wed join the hallowed company of recouped bands one day, Warner made a $10,000 accounting error on our statement (in their favor, naturally). When I caught this mistake, and brought it to the attention of someone with the power to correct it, he wasnt just befuddled by my anger he laughed at it. $10,000 is nothing! he chuckled.
If youre like most people especially people in unrecouped bands nothing is not a word you ever use in conjunction with a figure like $10,000, but he seemed oblivious to that. Its a rounding error. It happens all the time. Why are you so worked up?
These days I work for a reasonably large corporation myself, and, sadly, I understand exactly what the guy meant. When your revenues (and your expenses) are in the hundreds of millions of dollars, $10,000 mistakes are common, if undesirable.
I still think he was a jackass, though, and that sentence continues to haunt me. Because $10,000 might have been nothing to him, but it was clearly something to me. And his inability to take it seriously to put himself in my place, just for the length of our phone call suggested that people who care about $10,000 mistakes, and the principles of things, like, say, honoring contracts even when you dont have to, are the real idiots.
As you may have divined by this point, I am conflicted about whether I am actually being a petty jerk by pursuing this, or whether labels just thrive on making fools like me feel like petty jerks. People in the record industry are very good at making bands believe they deserve the hundreds of thousands (or sometimes millions) of dollars labels advance the musicians when theyre first signed, and even better at convincing those same musicians its the bands fault when those advances arent recouped (the last thing $10,000-Is-Nothing-Man yelled at me before he hung up was, Too Much Joy never earned us shit!*** as though that fact somehow negated their obligation to account honestly).
I dont want to live in $10,000-Is-Nothing-Mans world. But I do. We all do. We have no choice.
The Boring Reality
Back to my ridiculous Warner Bros. statement. As I flipped through its ten pages (seriously, it took ten pages to detail the $62.47 of income), I realized that Warner wasnt being evil, just careless and unconcerned an impression I confirmed a few days later when I spoke to a guy in their Royalties and Licensing department I am going to call Danny.****
I asked Danny why there were no royalties at all listed from iTunes, and he said, Huh. There are no domestic downloads on here at all. Only streams. And it has international downloads, but no international streams. I have no idea why. I asked Danny why the statement only seemed to list tracks from two of the three albums Warner had released an entire album was missing. He said they could only report back what the digital services had provided to them, and the services must not have reported any activity for those other songs. When I suggested that seemed unlikely that having every track from two albums listed by over a dozen different services, but zero tracks from a third album listed by any seemed more like an error on Warners side, he said hed look into it. As I asked more questions (Why do we get paid 50% of the income from all the tracks on one album, but only 35.7143% of the income from all the tracks on another? Why did 29 plays of a track on the late, lamented MusicMatch earn a total of 63 cents when 1,016 plays of the exact same track on MySpace earned only 23 cents?) he eventually got to the heart of the matter: We dont normally do this for unrecouped bands, he said. But, I was told youd asked.
Its possible Im projecting my own insecurities onto calm, patient Danny, but Im pretty sure the subtext of that comment was the same thing Id heard from $10,000-Is-Nothing-Man: all these figures were pointless, and I was kind of being a jerk by wasting their time asking about them. After all, they have the Red Hot Chili Peppers to deal with, and the label actually owes those guys money.
Danny may even be right. But theres another possibility one I dont necessarily subscribe to, but one that could be avoided entirely by humoring pests like me. Theres a theory that labels and publishers deliberately avoid creating the transparent accounting systems todays technology enables. Because accurately accounting to my silly little band would mean accurately accounting to the less silly bands that are recouped, and paying them more money as a result.
If thats true (and I emphasize the if, because its equally possible that people everywhere, including major label accounting departments, are just dumb and lazy)*****, then theres more than my pride and principles on the line when I ask Danny in Royalties and Licensing to answer my many questions. I dont feel a burning need to make the Red Hot Chili Peppers any more money, but I wouldnt mind doing my small part to get us all out of the sad world $10,000-Is-Nothing-Man inhabits.
So I will keep asking, even though I sometimes feel like a petty jerk for doing so.
* A word here about that unrecouped balance, for those uninitiated in the complex mechanics of major label accounting. While our royalty statement shows Too Much Joy in the red with Warner Bros. (now by only $395,214.71 after that $62.47 digital windfall), this doesnt mean Warner lost nearly $400,000 on the band. Thats how much they spent on us, and we dont see any royalty checks until its paid back, but it doesnt get paid back out of the full price of every album sold. It gets paid back out of the bands share of every album sold, which is roughly 10% of the retail price. So, using round numbers to make the math as easy as possible to understand, lets say Warner Bros. spent something like $450,000 total on TMJ. If Warner sold 15,000 copies of each of the three TMJ records they released at a wholesale price of $10 each, they would have earned back the $450,000. But if those records were retailing for $15, TMJ would have only paid back $67,500, and our statement would show an unrecouped balance of $382,500.
I do not share this information out of a Steve Albini-esque desire to rail against the major label system (he already wrote the definitive rant, which you can find here if you want even more figures, and enjoy having those figures bracketed with cursing and insults). Im simply explaining why Im not embarrassed that I owe Warner Bros. almost $400,000. They didnt make a lot of money off of Too Much Joy. But they didnt lose any, either. So whenever you hear some label flak claiming 98% of the bands they sign lose money for the company, substitute the phrase just dont earn enough for the word lose.
** The whole conference took place at a semi-swank hotel on the island of St. Thomas, which is a funny place to gather to talk about how to save the music business, but that would be a whole different diatribe.
*** This same dynamic works in reverse I interviewed the Butthole Surfers for Raygun magazine back in the 1990s, and Gibby Haynes described the odd feeling of visiting Capitol records offices and hearing, a bunch of people go, Hey, man, be cool to these guys, theyre a recouped band. I heard that a bunch of times.
**** Again, I am avoiding using his real name because he returned my call promptly, and patiently answered my many questions, which is behavior I want to encourage, so I have no desire to lambaste him publicly.
***** Of course, these two possibilities are not mutually exclusive it is also possible that labels are evil and avaricious AND dumb and lazy, at the same time.