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MUSIC & MONEY: THE FLIP SIDE

Incubus Sings the Blues About Its Relationship With Sony Label

The Calabasas band questions the company's accounting and says it has been underpaid. But industry execs say firm's profit has been fair.

March 18, 2003|Jeff Leeds | Times Staff Writer

So you wanna be a rock 'n' roll star? Better buy a good calculator.

That's the lesson of Incubus, a rising star on Sony Music Entertainment Inc.'s rock roster and the latest act to learn that music business math is getting tougher as the ailing record industry fights to protect its bottom line.

By last October, the Calabasas band had sold 2 million copies of its hit album "Morning View." So the quintet did what successful musicians have done for years: They asked their label for better contract terms and a multimillion-dollar advance before recording again.

Sony Music, its profit plunging, said no.

The refusal touched off a brawl that went public in January when Incubus sued Sony Music in California, demanding to be released from what the band says is an onerous contract. The Sony Corp. unit, in turn, sued Incubus in New York to try to force the band to deliver four albums owed under the agreement.

For The Record
Los Angeles Times Wednesday March 19, 2003 Home Edition Main News Part A Page 2 National Desk 2 inches; 70 words Type of Material: Correction
Rock music accounting -- A graphic accompanying a Business article Tuesday about the finances of rock group Incubus incorrectly attributed a cost estimate to Sony Music executives. The information came from industry sources outside Sony. The sources estimated that Sony's share of the cost of music videos, radio promotion and other marketing expenses for the band was about $13 million, while band management placed these costs at about $7 million.

The band and its manager, former Sony Music executive Steve Rennie, are coming to terms with the harsh realities of music industry compensation. Sony Music has paid Incubus $4.25 million for three hit albums and a series of other products since 1996. For each band member, that has amounted to about $121,000 a year -- a salary a junior recording executive, not a chart-topping rock star, would expect to make. And if Incubus' albums don't continue to sell briskly, it won't get a penny more from the label.

For Sony Music, the profit on Incubus' roughly $76 million in sales in the last seven years has been $35 million, or 46% of the total, industry sources estimate. The company declined to comment for this article.

Whatever Sony Music netted from Incubus, it wasn't enough. The company's operating profit for the first nine months of its fiscal year was down 77% from the year-earlier period. In fact, all five major record conglomerates are suffering from widespread piracy and sky-high expenses. And as a result, artists are seeing their demands for more lucrative contracts turned down as recording companies contend with the financial damage.

"When there's a lot of money around, everyone gets a piece," said Fred Goldring.

"When there's not, everybody starts fighting over the same dollar," added the veteran music attorney, who represents such acts as Alanis Morissette. "That's what's happening now."

Executives at several record labels said privately that it's only sensible for a company to take a tough stance in the contract renegotiation talks that frequently take place when a band has established itself, as Incubus has in recent years. The dismal music marketplace makes it increasingly hard for labels to gauge whether the money they wager on an act -- even an established star -- will ever pay off, the executives say.

That argument doesn't fly with artists and their supporters. State Sen. Kevin Murray (D-Culver City) introduced legislation last month to reform recording industry business practices, promising to reprise a political battle that ended with a similar bill's defeat a year ago. In New York, an artists' coalition is preparing to hold a concert series this year to raise awareness about musicians' complaints.

Last year, Clint Black, Don Henley and other artists publicly excoriated the companies for their business practices, including what they see as deceptive accounting that renders royalties nonexistent for all but the very biggest names.

Indeed, some observers believe the industry's health depends as much on contractual reform as on increased sales. Artists "demand large advances because experience has taught them they will never see real royalties," said attorney Londell McMillan, who represents such acts as Prince and DMX and co-founded the Artist Empowerment Coalition, an advocacy group. "If we worked together, we could save the business."

Incubus' manager, Rennie, called the compensation system for artists "a false promise."

"They don't get paid," he said.

Labels retort that bands make plenty from publishing, concert ticket sales and tour sponsorships. Rennie declined to disclose what Incubus has earned from those sources since 1996, though he said the band does make far more on the road than from CD sales.

Record executives also argue that their labels earn fair profits considering that they risk hundreds of millions of dollars each year on unknown acts -- most of which fail -- and bear the cost of operating massive marketing and manufacturing machines.

When times were good, labels were usually quick to keep winners happy by offering generous terms in renegotiated contracts and offering rich advances for future work. For instance, Sony Music paid Incubus $4.25 million in advances, or about 5% of the group's gross sales to date, after its second Sony album, 1999's "Make Yourself," sold more than 2 million copies.

But these days, even when a relatively young act like Incubus scores on the album charts, companies often refuse to give when it comes to rewriting contracts. In any case, contract arithmetic can be brutal.

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