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Group Tops Charts but Claims Bankruptcy

Music: The dispute over profits between TLC, record firm, is familiar in industry.


It was a bittersweet victory, singer Lisa "Left Eye" Lopes recalls, when rhythm-and-blues/rap sensation TLC stepped onstage to pick up two Grammy awards in February.

Winning the prestigious honor marked a milestone in the swift rise of the hot trio, whose "Crazysexycool" last year ranked as the nation's second-biggest album. But it also confirmed some of TLC's worst suspicions about the music business.

Lopes says her Atlanta act, which filed for bankruptcy protection last year after a bitter contract dispute with its record company, plunged even deeper into debt simply by performing at the ceremony.

Tens of thousands of dollars will be deducted from the group's future royalty earnings to reimburse its record company for expenses incurred by TLC, its dancers and road crew to play at the event.

"I hope we go down in history for being something more than just another famous act that got ripped off," said Lopes, whose group is awaiting a final decision from a federal judge in Atlanta on its bankruptcy claim. "It's hard to believe that a group can sell 14 million records and still be treated so badly. But guess what? This is a cutthroat business full of greedy individuals who take advantage of naive young artists."

TLC's predicament shines a light on a harsh side of the music business. Industry critics say it illustrates just how little power artists actually wield over their careers. Although record companies often upgrade the contracts of best-selling artists in exchange for additional albums, they have no legal obligation to do so. Once an act locks itself into a long-term pact, it is almost impossible to get free.

However, many record industry executives argue that without low-paying, long-term contracts they would have no incentive to underwrite the enormous costs of developing an unknown artist's career. At the same time, they contend they try to negotiate contracts that are fair and lucrative for the artist.

Representatives for Arista Records and LaFace Records, the companies that distribute TLC's music, insist that the group has been paid properly under the terms of its contract, which both characterize as a "fair, industry-standard agreement."

"These girls are certainly not living in impoverishment," said Roy Lott, executive vice president and general manager of Arista Records, a division of German entertainment behemoth Bertelsmann Music Group. "This bankruptcy case is nothing but a ploy to break their contract."

LaFace and Arista executives suggested that the group has no desire to resolve the dispute but is hoping to use its bankruptcy claim to ultimately land a better deal elsewhere. They said the group was out of line at the Grammys by running up a $200,000 tab at the Four Seasons Hotel, including a $22,000 tab at the gift shop.

Even by industry standards, TLC's case stands out. After five years, Lopes says, the trio has received less than 1% of the estimated $175 million in revenues that the group's music has generated around the world. Analysts say that's about 40 times less than the profit that has been divided among the management, production and record companies that represent TLC.

TLC signed a contract in 1991 that pays the group about 7% on the sale of each album--or about 60 cents after the company takes contract deductions for packaging, promotional giveaways and other costs. However, like most acts, TLC is not paid a single penny until after the company is reimbursed for cash advances spent on studio recording, video production, radio promotion and tour support. Analysts say that breaks down to about 20 cents per album that the three TLC members get to split as profit.

Typically, an unknown act is required to sign a deal that gives the company options for eight albums at a low royalty rate--between 11% to 15% of the suggested retail price. Most artists pay about 6% of that royalty to the people who manage their careers and produce their records.

TLC is paid only 7% because the trio signed an agreement with Pebbitone Inc., an Atlanta company that managed the group and hired the producers to write and record their music. Pebbitone was founded by singer Perri M. Reid, who at the time was married to the owner of LaFace Records.

Reid discovered the trio--Lopes, Tionne Watkins and Rozanda "Chile" Thomas--when they were teenagers in Atlanta. Acting as their manager, Reid advised the trio to sign a production and publishing deal with Pebbitone and then negotiated her own deal with her husband's label. Under that agreement, LaFace was required to pay Pebbitone a 15% royalty each time a TLC album was sold.

"When you first start out, you are so trusting. You feel lucky just to get your foot in the door," said TLC member Thomas. "But the bigger you get, the more hands want to pick your pockets. We know our producers helped us create these records, but we're tired of watching everybody cash in on our success but us."

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