It’s fairly shocking to see how dedicated major labels are to screwing their own artists.
One former major label executive pointed Digital Music News to ‘institutionalized policies’ towards shady accounting and hidden charges under the banner of ‘cost reduction,’ and we keep seeing evidence of that. Which might explain why so many artists are now suing their major label parents for millions, and even threatening to put them out of business.
Which brings us to Kenny Rogers, who recently sued EMI-owned Capitol Records on a litany of accounting offenses. The centerpiece of the lawsuit – whether Capitol should pay a much higher percentage on digital sales – is controversial. But the rest just seems like a laundry list of shady accounting and obfuscation. And with that, here’s a list of the various offenses, as listed in a complaint filed by attorneys for Kenny Rogers in the US District Court of Middle Tennessee (Nashville).
“Capitol Records has consistently failed to properly and accurately account to and pay Kenny Rogers… as set forth in the royalty agreements…”
(1) In April of 2007, Kenny Rogers attempted to audit Capitol Records. However, because of a “purposefully complex and opaque royalty payment system,” coupled with an inability to receive any documentation on digital sales, it took Rogers’ auditing firm nearly two years to complete the process. “The accounting firm was unable to complete an initial audit report until March 9, 2009,” the complaint read.
(2) That audit uncovered a number of payment issues, which Capitol Records promised to resolve in 2010. By 2011, Capitol told Rogers that they were “still ironing out a few things,” then the two employees assigned to the issue left the company (most likely laid off).
(3) The case was then passed to an attorney, who told Rogers in January of this year that he would “promptly try to resolve the Rogers audit.” It was not resolved, leading to the lawsuit.
(4) Capitol Records systematically put a portion of Rogers’ royalties into a “suspense file,” for reasons that were not articulated. Rogers only found out about this file through the multi-year audit.
(5) Capitol refused to share any settlement amounts from lawsuits involving Napster, Kazaa, Audiogalaxy, Grokster, or BearShare. The label also refused to share what those settlement amounts were.
(6) Capitol sold Kenny Rogers classics through record clubs, but did not pass those royalties on to the artist.
(7) Capitol Records provided inconsistent royalty statements to Kenny Rogers, based on the use of different royalty calculation and processing systems. One report would show royalties for certain albums in certain periods, while another report would not reflect those royalties.
(8) Capitol provided ‘free goods’ in foreign markets, but did not pay royalties on those freebies (as designated by the artist contract).
(9) Capitol charged Kenny Rogers for international taxes, even through they were receiving foreign tax credits.
(10) Capitol charged Rogers for 100 percent of video costs, even though the contract called for a 50 percent charge.
(11) Capitol charged more than $50,000 of inappropriate or mysterious expenses to the Kenny Rogers account, and never explained what these charges were.
(12) Capitol Records did not offer any accounting (or royalties) on foreign broadcasts.
(13) Capitol offered improper accounting on sales within a number of foreign countries.
(14) After the findings of the audit, Capitol did not implement any changes to fix the issues discovered.
Capitol Records “vetted applying policies…at its highest corporate levels, and analyzed the financial consequences of its misconduct in terms of additional profit to be made by avoiding its contractual obligations…”
Full Lawsuit Filing