Artists and labels are headed for a face off Wednesday (March 30) in Sacramento as the California State Assembly holds the first hearing and vote on repealing an amendment to the state’s “Seven-Year Statute” following February’s re-introduction of the Free Artists From Industry Restrictions (FAIR) Act.
Held by the Assembly’s Committee on Labor and Employment, sources from both sides expect the vote to pass. If it does, the bill would then move to the Assembly’s Committee on Arts, Entertainment, Sports, Tourism and Internet Media for an April 19 hearing and vote.
Assembly Bill 2926 builds on California Labor Code Section 2855. Enacted in 1944 after the judgment in actress Olivia de Havilland’s lawsuit against Warner Bros. Pictures, 2855 limits personal services contracts for state residents to seven years.
In 1987, however, the law was amended, with the major labels’ support, to allow record companies to sue for damages (including potential lost revenue) if an artist attempts to leave after seven years but before delivering the required number of albums in a contract.
Last March, the FAIR Act (AB 1385) was introduced by Assemblymember Lorena Gonzalez, D-San Diego, but was pulled when she left office to become head of the California Labor Federation (CLF). Assemblymember Ash Kalra (D-San Jose) introduced AB 2926 on Feb. 18 with some additional stipulations, including how renegotiations would play into the bill.
“I think there’s an opportunity for us to reimagine [the artist and label] relationship that’s empowering to both sides,” Kalra tells Billboard. “Right now [labels] have leverage at the end of that seven years and this is about rebalancing that leverage so that artists are also empowered.”
He also adds that labels don’t need the exemption: They can sue if they feel like they are owed money. “That’s what the court systems are for.”
The Music Artists Coalition, an advocacy group started in 2019 by several artists and executives including Don Henley, Dave Matthews, Maren Morris, and managers Irving Azoff, Coran Capshaw and John Silva, are supporting the bill (Azoff and Henley were also behind a failed 2001 effort to repeal), as well as the Black Music Action Coalition and Songwriters of North America (SONA). SAG-AFTRA is behind the effort too, as a number of provisions apply to actors.
The artists’ side argues that for 35 years, acts have not been allowed the same rights as other California employees working under a personal services contract, including actors and athletes, because of the 1987 exemption. “Why should recording artists receive worse treatment than every other California citizen?” Azoff says.
AB 2926 comes at a time when the three major record companies— Sony Music Entertainment, Universal Music Group and Warner Music Group— experienced double-digit growth in 2021 over 2020. Recorded music revenues in the U.S totaled a record $15 billion in 2021, up 23%, according to the Recording Industry Association of America, in large part due to soaring streaming revenue. Labels are disproportionately benefitting from that growth and need to pass more on to the acts, artists reps say.
Mitch Glazier, chairman/CEO of the RIAA, which advocates for the record labels, says that labels still need the exemption because artists divide their time between recording and touring — the duration of which often depends upon the success of the record — and setting the contract terms by time instead of productivity would be bad for both sides. “It’s not like a film where it takes nine months or a sports contract where you have a season and then the season is over,” he says. “We do [contracts] by number of albums and we give the artist most of the input on the timeline.” Contracts are enforceable, he continues, “but it’s important that we are able to be flexible with the artists on a timetable that works for them with all the other aspects of their career.”
Acts including Metallica, Henley and Courtney Love have challenged the existing statute by suing their labels to avoid paying the damages it sets out. Warner Bros. Records sued Avenged Sevenfold when the rock act attempted to leave after seven years while undelivered albums remained on its contract. All of those cases were settled out of court.
WHAT’S AT STAKE FOR BOTH SIDES
Glazier says AB 2926’s passage could result in new artists from California getting lower royalties and advances on their initial contracts because the labels know they would be unable to recoup on undelivered albums. “[They’re] going to say, ‘How much do I actually think I can be guaranteed in the amount of time before [the artist] can just walk away and not deliver?’” he says.
Passage of the FAIR Act would most likely give the biggest boost to artists who are on a label for seven years and presumably achieved at least some success during that time. Big labels generally drop artists who aren’t profitable by then and acts who do very well often renegotiate their contracts well before they expire, receiving more favorable terms — usually in exchange for adding more albums to their existing contracts. If this law makes it easier for artists to leave, it will give them more leverage in these negotiations.
Creating a more level playing field is the goal, says BMAC co-founder/co-chair and artist manager Willie “Prophet” Stiggers. “We’re not trying to create an opportunity for artists to come in and rob record companies of millions of dollars in advances and never deliver product. What we’re trying to do is create an equitable industry where artists are not bound to anything that the regular California citizen isn’t bound to.”
Artist representatives also point out that the industry has changed substantially since 1987 in ways that lower labels’ expenses. While manufacturing, breakage and inventory costs have all decreased as streaming becomes the dominant delivery method and more and more artists with an already developed fanbase are signed off of social media, they say the contracts need to better reflect that.
“[An artist] is not even getting a record deal unless [they have] a streaming business happening, so record companies’ risks today are less than they were 20 years ago,” Stiggers continues. “How record companies generate income has changed, but how you pay the artists hasn’t. With hip-hop, you could put out two or three mixtapes and even though they are owned by the record companies, [they] don’t count toward [the artist’s] album commitment because that’s at the discretion of the labels.”
Glazier counters that the labels have grown more flexible. “The contracts have changed to evolve with the industry,” he says. “Artists have lots of choices today and the competition between all labels with majors and indies is higher than ever and royalties and advances are higher than ever. The contracts that are signed today are very diverse and highly customized.”
The legislation also comes at a time when labels are re-examining their relationship with artists, especially legacy acts. Last year, Sony Music Entertainment began waiving unrecouped debts for artists and songwriters who signed with the company before 2000 and have not received any advances since then. Warner Music Group followed suit in February with a similar program. UMG will address the issue in its annual report, out Thursday, but has instituted various unrecouped balances programs for legacy artists since 1989.
Not all labels believe the record company exemption should continue. Brett Gurewitz, who runs California-based indie rock label Epitaph and is also the guitarist for Bad Religion, says it is time for artists to be treated the same as other employees in California. His label typically signs artists to two-record deals and having an artist not fulfill the contract within seven years “has never come up,” he says. While he believes it is reasonable for a label to recoup advances paid on any albums not delivered within the seven years, “it’s impossible to prove lost profits, because who knows what the recordings would have done.”
Calculating potential damages from undelivered albums is extremely difficult, which is likely one reason the provision has been challenged in court only a handful of times, sources says. It involves having an economist evaluate a marketing plan for unreleased albums, look at revenue from past releases and trying to produce an educated estimate of lost potential revenue.
NEW ADDITIONS TO AB 2926
While the main intent of the bill — to no longer allow labels to sue for damages on undelivered albums if an artist wants to leave after seven years — remains intact, AB 2926 has some significant additions to its predecessor AB 1385.
Most significantly, the bill now says that if an artist “willingly renegotiates” an existing contract with a label, a new seven-year period would start on the execution date of the renegotiated deal, but only if certain criteria is met.
Among the criteria are that a new royalty account that is not cross- collateralized with the artist’s existing royalty account begins with the new contract. Also, the bill stipulates that the renegotiated contract “does not add more than one additional album to the delivery obligation of the existing contract before the renegotiation.” The previous bill did not address renegotiations.
The new criteria “were pretty good indicators of a real renegotiation and not just moving a period from one sentence to the other,” says artist attorney and MAC co-founder/board member Jordan Bromley. “We wanted to put some protections on renegotiations [that] would actually benefit the recording artist.”
Glazier says the new “one additional album” limit hurts the artists as much as the labels. “We think there’s a lot of detriment on both sides and that it’s never a good idea for either side to take any term that should be negotiated and stick it into a statute.”
The new bill also says that an artist may terminate their original deal if the label does not exercise its option for more releases within nine months after the commercial release of a music product option. However, it does not define music product—which could be a song or an album. AB 1385 stipulated that the label must exercise its option within six months of delivery or the initial commercial release.
These new stipulations go too far, says an independent label owner opposed to the bill. “It should be left to the free market to decide how these contracts should work,” he says. “When you have the legislature getting involved in very specific issues like option duration terms, it makes me very alarmed.”
If the FAIR Act passes the Committee on Labor and Employment as expected, and the Arts Committee on April 19, an Appropriations Committee hearing follows. If the bill passes all three committees, it would go to the assembly floor for a vote — and, if it passes, move to the state Senate.
Both sides have met at least three times since Gonzalez introduced legislation in 2021 and say they are open to more discussion. While they are on opposing sides now, the artists and labels have successfully worked together on other California legislation, including successfully pushing a music-business exemption in 2020 for Gonzalez’s AB 5 legislation, which limits the use of independent contractors.