Majors settle Canadian class action suit. When The Canary Croaks Pay Attention - how many royalties staff is enough ?
Entertainment companies should pay attention to the recent Canadian class action settlement by the major record companies that was announced recently. Universal, Sony, EMI and Warner settled the suit prior to judgment for Can$45million. The case was to do with unpaid audio and video mechanicals on compilation releases.
While the case itself was focused on a scheme unique to Canada (and most people therefor think.....this doesn't mean much to me) everyone who is involved in the exploitation of rights and payments to rights owners in any industry, should in my opinion, pay attention.
I think this case could be the proverbial canary in the coal mine for the entertainment industries when it comes to paying people what they are owed.
[Canary In The Coal Mine? - In pre-gas quality monitoring device days, miners would take birds down into mines with them. When the birds fell over it told the miners the air was bad and it was time to get out.]
One of the dirty secrets in many entertainment companies? They don't have enough resources allocated in the departments charged with setting up and paying royalties or other payments with the result that many people either don't get statements, get statements that are often barely correct, get paid late or not at all. The result is that there are millions and millions of dollars sitting in many major media companies, collection societies and unions that is owed to third parties and is either paid out very late or in some cases not at all.
In the Canada case there was a scheme that allowed the majors to put out compilations and secure licenses to use the musical compositions after release. Well, you can guess what happened, the labels weren't religious in complying with the post release licensing and payment scheme, hung onto money and got sued (Chet Baker's estate being one of the named parties).
Is there a deliberate "go slow/no pay" policy? In a few cases, probably. But, the truth is actually pretty complex and in many instances understandable. Being understandable may not make it excusable. Contractual and statutory/collective bargaining agreement obligations are legal obligations and I think there will be more cases where people who have payment obligations will lose because not many people want to hear you say you have the time and resource to exploit but not to pay correctly and on-time. The Canadian case was a small one. The big cases are inevitable, in my opinion, and could bring down companies.
So is this a case of the cigar smoking fat cats in their hot tubs deciding to screw with the little guys? Not exactly although in some cases I suspect there is at a minimum a willful lack of desire to tackle the problems. I am sure if the execs' bonus was linked to the solving of some of these problems they would get sorted a lot quicker and wouldn't be annoying problems that cost lots to fix and are stuff you never want to hear about as you are busy with trying to generate income.
So what are the reasons this situation exists in most major entities collecting revenue from one source or another?
1. Scale of the Problem: If you are a major company your obligations may run to thousands or tens of thousands of accounts every period (usually every six months). You have to set up accounts, input data, print reports, check reports, generate checks and send stuff out. You also have ongoing audits and questions to deal with. In short, a massive workload.
2. Systems: With more computing power in your phone that put man on the moon you would think much of this is easy. Not so fast. With many entertainment companies being the results of numerous mergers dating back decades many companies are saddled with legacy manual or totally crap computer systems that barely work, and sometimes cannot talk to each other. Also they are dependent on the data that goes into them. Garbage in is still garbage out.
3. The Royalties Staff: These are usually the one set of people in the equation you should not be pissed at. In my experience they are usually very hard working, underpaid, under appreciated and are saddled with one of the most thankless and boring jobs anywhere. They could tell management how to fix much of it if they were listened to AND given the resources.
Unpaid money can be stuffed in lots of places:
1) Slow or no paying people who have signed contracts - royalties departments simply cannot keep up with workload and the loudest barking dog always gets fed first. There are lots and lots of accounts accumulating a few dollars here and there. THey fall off the payees radar who then never chases.
2) Bad Paper: Payments held because paper isn't complete or with the right people. The hold-up may be legal or elsewhere but cash is collected as exploitation rolls out. Money is then sat on until stuff gets sorted or people scream or sue. If nothing happens the snowball continues to roll down the hill.
3) Royalties don't know where to send the money: When you have thousands of people to pay with contracts going back 50 or more years you lose track of people. Their money just sits. This is much more common a problem than people think. Not everyone knows they should still be getting payments from years back. Move house a few times and you see what happens. This is actually an easy problem to fix when people are as findable as they are today. I don't suggest an ad in the paper asking people who think they are owed money to contact a company but just sitting or tasking one person once in a while won't get it fixed either.
4) Black Box - this is the name given to types of income which often isn't directly attributable to any particular payee (such as non feature performer income/blank tape/disc levy income or even "marketing" fees running into millions that are allocated to an entire catalogue and not to the individual titles that make up the catalogue ). Collection societies can often have tens of millions of dollars sitting in bank accounts. Much of that money can and should be allocated to payees. How hard do they try to figure out who should get it ?
5) Bad record keeping: Merge companies a few times, deal with paper going back decades, don't send the right data to the right people, hope your busy people don't screw up in where they code or file stuff, have systems that date back years, have systems that don't communicate with each other properly and you make a tough job even tougher.
Just another day in royalties.......
Pity the royalty payee? Not so fast in all cases. There are a few things you can do to help yourself get paid.
1. Keep Your Data Up to Date - Make sure royalties know where you have moved to.
2. Check Your Statements - Once bad data is in the system it will get used each and every time. Read your statements, understand what they say and ask questions.
3. Be nice to royalties - they are the people that choose which of the many files they have to pick up. If they like you they will genuinely try to help you.
4. Don't Take Shit - Consider a lawsuit quicker than you might normally. The upside? You get attention and go to the top of the pile and less of the "we will get back to you in six months". The downside? They go into litigation mode and dig in. In many cases companies are getting much harder to negotiate with as revenue dries up so you may actually have less to lose in terms of goodwill and what you could get in settlement than in years gone by.
What is the conclusion? The proverbial buck in these issues stops at board level where insufficient resources are allocated to address the issues of too few staff and inadequate computer systems.
That is easy to say but, how much is enough ? How quick must you fix 50 or more years of legacy hangover? Must you spend ten hours to send out paper that shows nothing is payable? Are you obliged to get it right at any and all cost? What is a reasonable and good faith effort and what amounts to deliberate or de facto wrongfully hanging onto the cash.
These are probably questions judges and juries will end up answering for all of us.
Click here to read the Canadian settlement docs:
http://www.harrisonpensa.com/Legal_Services/Class_Action/Cases/Pending_Lists_New
In 2008 the California Supreme Court case handed down a leading case focusing on obligations and fiduciary duties in connection with royalties payments: Download PDF file of City of Hope v. Genentech. This is a must read for anyone involved in paying or collecting royalties.
