Wed November 20, 2002
By Derek Caney
NEW YORK (Reuters) - BMG Entertainment, the record label home of Britney Spears, Elvis Presley and Outkast, said on Wednesday it will simplify the way it accounts for royalty payments to artists, although the actual amount of royalties will not increase.

BMG, the music unit of Bertelsmann AG, said it would eliminate certain deductions for packaging and other items, in hopes of smoothing tensions royalty rates have caused between artists and record labels in recent years. It will be the first of the five major labels to make the changes.

U.S. royalties are typically paid as a percentage of the suggested retail price, with deductions for packaging, new technology manufacturing costs and others. Under BMG's new structure, the royalty rate will be based on a lower wholesale price, but will eliminate standard deductions.

The actual amount of royalties paid to artists will remain unchanged.

BMG Chief Executive Rolf Schmidt-Holtz criticized the previous royalty structure as inefficient and confusing.

"We are committed to doing what we can to foster and maintain strong relations with our artists and hope the changes announced today help them see clearly that our dealings are clear, unambiguous, and demonstrate our respect for the creative process," he said in a statement.

Jay Cooper, an entertainment attorney with Greenberg Traurig who represents Sheryl Crow among others, said BMG's royalty changes were a step in the right direction.

"Anything that makes contracts simpler is something artists are in favor of," he said. "But this is not going to put any more money in artists' pockets. So in that respect, it's status quo."

The other major labels -- Universal Music Group, a unit of Vivendi Universal,; EMI Group Plc ; Sony Music and Warner Music Group, a unit of AOL Time Warner Inc. -- have also been looking at ways of simplifying their contracts with artists, said a record industry executive who requested anonymity.

"No one is denying that there are archaic clauses in these contracts," the executive said. "But it's naive to think that attorneys for artists aren't sophisticated enough to use the standard deductions as chess pieces in their own negotiations for their artists."

Cooper disagrees. "Nowhere in the standard recording contract does it spell out what artists get when they sell a record," he said. "You usually have to go to the accounting department for that. It's frustrating, so anything that makes it easier to get to the bottom line is a positive."

A BMG spokesman called the changes a step toward a possible overhaul of recording contracts. The label is considering offering shorter-term contracts in exchange for participation in artists' tour revenue, sponsorship and film deals.

"These are terms that are worth discussing," said Cooper, the entertainment attorney. "I have done deals that include such terms. Certainly we're willing to discuss such things in a limited way. But when labels talk about sharing in these revenues, it would almost certainly include an investment on their part."

Universal, Sony and Warner declined to comment. EMI was not immediately available for comment.

If just one record label completely redefined the whole contract royalty thing and offered an excellent deal to artists - they would reap the benefits as artists flocked to work for/with them.