Pop diva Janet Jackson is expected to sign a four-album contract today with Virgin Records worth an estimated $80 million--an unprecedented fee that analysts say could set the stage for another round of music industry mega-deals.
The pact is the biggest ever awarded, surpassing the $60-million mark shared by such superstars as Michael Jackson and Madonna, whose six-album deals included film and joint-venture record label components.
The 29-year-old entertainer has been the target of a ferocious industry bidding war since her Virgin contract expired last year. Jackson is so hot that sources said Walt Disney Co. President Michael Ovitz met with Jackson's representatives three weeks ago, hoping to woo her with a huge offer that included film opportunities. Jackson starred in John Singleton's 1992 movie, "Poetic Justice."
But executives at Disney as well as at Sony, PolyGram, Bertelsmann, Time Warner and DreamWorks dropped out of the bidding because they believed their companies could not make enough money under the terms sought by Jackson.
Industry reaction to the deal was mixed. Analysts and executives agreed that Jackson is worth a hefty price but many said the deal she sought went too far.
"A deal of this size is a huge risk," said Harold Vogel, entertainment industry analyst at Cowen & Co. "It's true that an artist of Janet Jackson's stature adds prestige to a roster and functions as a magnet to draw other acts to the company. But just like in the movie business, the price of these music industry bidding wars just keeps escalating and tends to sap the profitability of the companies who participate."
Jackson's pact comes at a juncture in the record business when sales are flat and many retail record chains are in severe trouble. But competition for market share among the big six record conglomerates is fierce; several large entertainment companies, including Disney, want to become major players in the music industry, and a flurry of new labels has arrived on the scene--several managed by powerful industry veterans.
The spectacular size of Jackson's deal raises the stakes in the battle for other superstars such as rock act R.E.M., whose contract with Warner Bros. Records runs out this year. Analysts also expect the price to sign potentially hot new acts to skyrocket in the months ahead.
One reason Jackson was able to secure such favorable terms from Virgin is that she is the label's best-selling artist and her deal was negotiated at a time when Virgin's parent company, EMI Music, is perceived as a takeover target in entertainment circles, sources said.
The firm also recently signed a $12-million, two-album deal for the international rights to music released by pop singer George Michael, who is under contract in the United States to DreamWorks. EMI and DreamWorks reportedly coughed up an additional $40 million to buy out the British star's contract from Sony.
Even if EMI Music doesn't reach the auction block, the firm could not afford to lose one of its best-selling artists in the United States, where the company ranked fifth last year in the album market share race. Jackson's attraction is that she is young and has mastered a dance-pop style that helped push the combined sales of her last three albums near the 30-million mark.
Representatives for Jackson and Virgin refused to discuss the pact, which was negotiated by Virgin Records Chairman Ken Berry, EMI Music Chairman James Fifield, the singer's attorney, Donald S. Passman, and her manager, Roger Davies.
But sources said Jackson will be paid a $35-million advance upon signing and guaranteed an estimated $5-million advance per album plus a 24% royalty on the retail price of each record sold--about $2.50 per record.
Jackson's new deal covers four albums of new material plus a greatest hits compilation. Under the terms of the contract, ownership of the masters to those albums will revert to Jackson seven years after the contract ends.
Sources said the agreement also requires Virgin to allocate about $25 million in video production, marketing and promotion costs--a huge amount by industry standards. Virgin will deduct all cash advances from Jackson's portion of the royalties until they are paid off.
Sources at Virgin said the company plans to dramatically expand Jackson's presence on the international front, where compact disc sales are still booming.
Companies that dropped out of the bidding said they would have had to sell more than 50 million Jackson albums over the course of the contract to break even. But several entertainment attorneys disagreed, saying Virgin could break even after selling about 25 million. Jackson's last Virgin album, "janet.," has sold nearly 10 million copies since its 1992 release.
Jackson stunned the pop world in March 1991 when she announced her estimated $40-million, three-album pact with Virgin Records. Although the pact triggered a series of huge deals, hers was widely considered to be the shrewdest pact ever negotiated.
Not only did she exact substantial advances and a 22% royalty rate, it also contained an unprecedented clause allowing her to bow out after one album--if Virgin Records was sold to another company, which it was. Her new contract does not have such a contract option, sources said.
Jackson's 1991 pact set the stage for several other multimillion-dollar contracts by stars including her brother Michael, Madonna, Prince, Barbara Streisand, the Rolling Stones and Aerosmith.
Analysts say that few of these deals have delivered the profits that the companies were hoping for. But in an industry full of uncertainty and single-hit acts, these superstars are perceived as the closest thing to a sure bet. The superstars also provide a record company with leverage in the retail market for other offerings.