The Various Ways In Which Capitol Records Screwed Kenny Rogers

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

13 Responses

  1. dedicated much?

    This is very funny:

    Kenny Rogers

    “Named one of the top 100 websites of all time by Yahoo!”

    Imagine how awful Yahoo employees bookmarks are, if they think this is one of the top 100 websites of all time…

  2. Spoken X Digital Media Group

    The digital music industry while still inside its infancy has inherited the twenieth century trait of atmosphere of treating the artist–creator like unwanted, wild animals next to their full plate of food. . . : I make it and you take it ! But don’t be surprised when there’s a full fledge slaughter in the midst of the feast–meal. . . X

  3. cstephen84

    Keep in mind that these are allegations made by Kenny’s attorney in the lawsuit complaint. Lawyers (I am one) often throw in the proverbial “kitchen sink” at this stage of legal proceedings. However, no doubt some of these may very well be true so it will be interesting to follow this case, although it may very well be settled at some point so that we will never know what is true and what is fiction.

    Steve

    http://musicrowlawyer.com

  4. marvin the martian

    Sounds like a legal admin / A & R admin issue. Can you imagine how many different contract variations exist within any given major label? And how are the spends and royalty payouts supposed to be accurately tracked for every single one, decade after decade?

    This is not to excuse EMI/Capitol who are a mere ghost of their former selves. But it is to say the so-called major label system is so process laden and erradically managed that it’s no wonder they can’t act in a competent and honorable way.

    Seriously – who the hell would sign with these guys at this point?

    • G. Ziemann

      “And how are the spends and royalty payouts supposed to be accurately tracked for every single one, decade after decade? …the so-called major label system is so process laden and erradically managed that it’s no wonder they can’t act in a competent and honorable way.”

      This assumes that at one time they tried to “act in a competent and honorable way.” The record label accounting hall of mirrors has been going on for at least a half-century, they like it that way and there is no compelling reason for them to change it. For every artist that raises a fuss and initiates a lawsuit, there are another thousand or so that don’t. Last I heard, there was a five-year waiting list for audits.

      “Seriously – who the hell would sign with these guys at this point?”

      The same people who always would — 20-year-olds who have no idea that this is the way things work.

      • Seth Kelle

        “Seriously – who the hell would sign with these guys at this point?”

        The same people who always would — 20-year-olds who have no idea that this is the way things work.

        And Dave Lowery…and the marjority of unsigned and indie artists if given the chance.

        Does that make it the right decision? Maybe not…but it’s still reality.

  5. Buck

    I’ve worked intensively on royalty audits for the past year and a half (for artsits much more relevant than Kenny Rogers) and can say that these issues come up every time. None of these practices are uncommon at all.

  6. Visitor

    Artists-Wow!

    More industry label facts that make the indie route more $ane totally!

    A MUST READ

  7. @ValdisKrebs

    How the recording industry screws musicians, and the RIAA ignores this form of “theft”

  8. dangude

    I suppose Capitol’s litigation costs will be paid out of Roger’s “suspense file.” furthermore anyone attempting an audit will be kept in…you guessed it…the “suspense file.”