1. As a result of Labels’ and Studios’ scheme, the vast majority of artists never receive a royalty payment.
134. Labels and Studios contract with Artists to pay a royalty for the sale or distribution of each recording. According to the contract, the Artist must pay for all of the production costs of the recording, and typically pay 50% of the independent promotion costs charged by Trans World, (as well as 50% of the costs of videos and 50-100% of tour costs). This is called "recoupment." The artist does not receive any royalty money until the recording company has recouped the costs that the Labels and Studios fraudulently conspire with Trans World to inflate.
135. It usually takes two or three years before even a successful artist receives his or her first royalty payment. As Sheryl Crow stated in a response to a question from Congresswoman Bono at a May 2000 U.S. House Judiciary Committee hearing, she did not receive any money until after her record had sold "three or four million copies." Very few records ever sell this many units. As an example, in 1999, nearly 39,000 recordings were released, but only 3 singles and 135 albums -- 0.35% -- were certified as selling three million units, and notably, many of these records had been selling over a number of years before finally reaching the three million unit sales mark in 1999. The vast majority of royalty artists never receive a royalty payment.
2. Labels and Studios thus breach their contracts with artists by fraudulently conspiring with Trans World.
136. Labels and Studios all require that artists enter into contracts which prevent artists from auditing manufacturing records and shipping records. As a result, there is no way to know how many copies were produced, or what “cost of goods sold” actually is; as well as how many copies actually shipped, how many of them were actual credits or returns. In this way, Labels and Studios conspire to conceal their fraudulent scheme.
137. Labels and Studios also conspire to coerce artists into long-term contracts, and then breach those contracts, in order to pirate from Artists the ownership of the Artists’ original compositions. As Ann Chaitovitz, Director of Sound Recordings, American Federation of Television and Radio Artists, testified before the California State Senate Select Committee on the ENTERTAINMENT INDUSTRY HEARINGS ON RECORDING ARTIST EXEMPTION TO SEVEN YEAR STATUTE (LABOR LAW SECTION 2855 (B)) on September 5, 2001:
Another offensive provision of recording artists’ contracts is the requirement that the artist transfer ownership in the sound recording to the record company. A very few artists are powerful enough to negotiate contracts providing that ownership of their sound recordings shall revert to them at some time in the future. New artists do not have the clout to negotiate such a provision and, thus, are required to transfer ownership of their sound recordings to the record label. This is true although the artist actually pays to produce the sound recording, with the record company acting like a mortgage bank that provides a loan to the performer to finance the recording in the form of an "advance." That advance is "recouped" by a record label when it deducts the advance from royalty payments owed to an artist for sales of that recording. However, unlike a bank which grants a mortgage to a homebuyer, the record company maintains ownership of the work even after the artist has "paid back" the advance. Imagine the absurdity of the bank still owning your house after you have paid off the mortgage!
138. Ultimately, artists -- some of them in their 60s and 70s, who are authors of hugely successful songs that we all enjoy, use and sing – live in total poverty, never having been paid anything, and deprived of their ERISA funds. Artists who have generated billions of dollars for an industry die broke and un-cared for.
139. By fraudulently conspiring with Trans World to conceal inflated expenses that eliminate or substantially reduce the artists’ royalties, Labels and Studios breach their fiduciary duties to the rightful owners, originators and performers of original compositions.
140. This is piracy.
141. Finally , I also learned that recent changes in the marketplace, including changes to accounting regulations to control off-balance sheet transactions, made the kickback schemes on which Trans World depended more difficult to conceal. Without the off-balance sheet kickbacks, Trans World would be insolvent.
