The long-simmering issue of record industry accounting practices came to a boil yesterday (Sept. 24) as artists and label executives faced off during a daylong California Senate committee hearing in L

The long-simmering issue of record industry accounting practices came to a boil yesterday (Sept. 24) as artists and label executives faced off during a daylong California Senate committee hearing in Los Angeles. State Sen. Kevin Murray (D-Culver City), who along with Sen. Martha Escutia (D-Norwalk), called the hearing, said he is considering introducing legislation next year that would penalize labels that account improperly.

"The music business needs a more transparent accounting process," Murray said. "One suggestion is to create penalties, and one is to create or clarify that the right to pay royalties to recording artists is a fiduciary relationship. Even if what (the record labels) say is true [about their accounting being accurate], you have a lot of angry [artists] out there who don't feel taken care of."

Leading the charge yesterday was Recording Artists Coalition founder Don Henley, who has been the most vocal artist rights activist on accounting practices, the seven-year statute and the work-for-hire issues. "There is no penalty for negligence for underreporting," said Henley, who was accompanied by Eagles bandmate Glenn Frey. "The argument can be made that this is not a place for lawmakers ... but I say to you today, if this is a matter of instituting some kind of higher fiduciary responsibilities or any fiduciary responsibility at all, then we believe there is a place for lawmakers in this. ... You have a right and a duty."

The debate stems from artists' claims that as a result of underpayments, it has become the "industry standard" for artists to audit record companies to ascertain how much they are owed -- a luxury only top-selling artists can afford, leaving many midlevel acts without any means of being properly compensated. The recording industry contends that artists are properly paid and that audits and litigation are tactics used to negotiate better deal terms.

The record companies, who were highly criticized for leaving an earlier hearing on accounting practices early in order to catch planes home, brought out their big guns to combat the accusations. "It is offensive and malicious to malign an entire industry based on stereotypes, innuendo and myths," Recording Industry Association of America president Cary Sherman said.

Testifying on behalf of the labels, economist Linda McLaughlin presented a study that found that from 1991-2001, the major U.S. labels realized about $50 billion in sales of CDs and other formats. Profits for the labels and their sister distribution and manufacturing companies amounted to about $5 billion. Artist income, according to the study, was $10 billion -- indicating that artists make more money than the record labels.

Because each major label handles royalty accounting differently, top executives from Warner Music Group, BMG, EMI, Sony and Universal Music Group addressed their specific practices. "While listening to [the artists'] panel, it is sometimes hard not to think that we may be fiddling while Rome burns," Warner Music Group senior VP Paul Robinson said. "This royalty reporting debate, however well-intentioned it may be, is distracting all of us from the very pressing need to band together on ... piracy, which is taking a huge toll on the record business."

UMG senior VP of finance Charles Ciongoli said artists' representatives routinely use audits as a means of negotiations. While he conceded that "we do make mistakes," Ciongoli also said total incremental payments to artists who audit and formally settle are 4% of the earned royalties. Additionally, he said, only about one of every 1,000 artists a year actually requests an audit. UMG issues about 80,000 royalty statements to artists annually, Ciongoli said.

Country star Clint Black testified that since releasing his first album in 1989, he has sold more than 20 million albums, yet in 1998 -- about a year after he initiated an audit -- RCA Records claimed he still owed them money. "I'm not an accountant, [but I made] $150 million for the record company," Black said. "I could not find anyone in my organization to explain to me how that could be possible [that I owed them money]."

Black settled his claim in May and said he's about to audit RCA again to find out if he is still being underpaid royalties. "I think we have all come to the conclusion that the only ones that can make the record companies accountable to us are you today," Black said to the Senate committee.

Kathryn Crosby, widow of Bing Crosby, testified that her husband signed a record deal in 1943 that assured him a 15% royalty rate. "He died in 1977, and I was handed a huge mess," she said. "I trusted the people at MCA [Records]. They told me everything was being done the way it should be done until I found that they were paying according to a contract that was written in 1947 and was never signed [by her husband]. They were paying me a 7% royalty. I can tell the difference between 7% and 15%."

Other artists at the hearing included Ruben Blades, Tom Waits, Walter Ward, Steve Vai, and Kevin Richardson of Backstreet Boys.

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