California to Vet Music Biz Books

Questionable accounting practices were at the heart of the collapse of energy conglomerate Enron and telecommunications giant WorldCom. Apparently, they are also rampant in the music industry—or at least pervasive enough to command the attention of California state legislators, who have scheduled a second hearing to examine the situation.

Tentatively planned to be held in Los Angeles on September 24, the hearing would continue a probe begun in late July. At the first hearing, representatives of the Recording Industry Association of America (RIAA) left without using their allotted time to defend themselves against allegations of fraud in the distribution of artists' royalties, saying they had not had sufficient time to prepare.

State Senator Martha Escutia (D-Norwalk), chair of the Judiciary Committee, ordered the second hearing because "a lot of serious questions were raised but were not answered." Escutia said she wanted "to hear the answers to those questions before I decide whether there is a problem and, if so, the extent of that problem . . . Quite a few people testified at the last hearing that the accounting practices of the record labels were cheating recording artists out of their royalty earnings." One widely publicized study of the industry's record of royalty payments found 8999 underpayments in 9000 accounts, with only one case of overpayment. An RIAA representative told the LA Times that, second time around, his colleagues will "make sure the hearings are productive."

In a related development, proposed legislation to repeal an exemption in California's Labor Code for recording artists from a general seven-year limit on employment contracts has been withdrawn by its author. On August 15, acting at the suggestion of artist groups, Senator Kevin Murray (D-Culver City), chair of the Senate Select Committee on the Entertainment Industry, withdrew a bill he had introduced in January that might have freed them from what many claim is a state of indentured servitude.

In 1987, claiming that many of its contracts require many years to yield profits, the recording industry won an amendment to the Labor Code, giving it the right to extend recording contracts beyond the limits placed on other industries. The amendment also gave the industry the right to sue artists for undelivered material. The exemption to the so-called "Seven-Year Statute," and shoddy accounting, have been at the heart of the long-running animosity between artists and industry executives. The Recording Artists Coalition (RAC), an artists' organization, has staged several benefit concerts to raise awareness about the problem and money to correct it. RAC founding member Don Henley has spoken before the US Congress about oppressive contracts in the music business.

The RIAA and various artists' groups have been negotiating privately over the issue without making much progress. Murray told reporters that recording artists had requested that he rescind his repeal bill, which had been stalled in the state assembly, because they were making headway in an effort to expose a longstanding pattern of royalty underpayments, and preferred a more expansive bill that would address health care and retirement issues. Murray said he would introduce a bill next year covering those issues and recording contracts as well. RAC co-counsel Jay Cooper called a broader legislative package "a good idea" and praised Murray's decision to withdraw the narrower bill.