How’s this for kicking someone when they’re down? No– this isn’t a blog about NY’s recklessly randy governor Eliot Spitzer, although one can be sure that there was some celebrating last week among the radio promotion chiefs of the various major labels, who were put under investigation by Spitzer several years ago for having paid money to persuade radio stations to add their records (NO! Say it ain’t so!)

But this blog is about screw-ups– the kind that end careers, torpedo once solid companies, and drags an industry into the abyss. Ring any bells? That’s right, kids. This is about the biggest record company screw-ups of all time.

Don’t blame me– it’s not my topic. It actually comes from a recent article in Blender recounting the 20 biggest blunders in record company history (see the link below), which is a little like trying to reduce the history of Chicago Cubs baseball down to the five most disappointing moments. There are really too many to count.

The article manages to nail a few inarguable mistakes (Decca Records passing on the Beatles; Sony deciding to drop from the roster both Alicia Keys and 50 Cent), a couple of minor miscalculations (sure, Berry Gordy sold Motown for $60 million when he should have gotten $600 million, but what’s an extra zero or two to a gazillionaire) and a few debatable decisions (the lawsuit against Napster, and the RIAA’s campaign against digital piracy). It also leaves a few doozies out. But then, how could it not?

My personal favorite (because I happened to be working at Jive Records at the time) was BMG’s failure to include a standard inducement clause in their contract with NSYNC, which allowed the group to leave the label after their first album, and re-sign with BMG-distributed Jive Records. The subsequent multi-platinum success of that group, and Justin Timberlake’s solo project, created an exorbitant price for Jive/Zomba several years later, when BMG was forced to purchase the company for over $3 billion dollars. That expenditure left BMG in a deep financial hole that eventually led to the merging of BMG Records with Sony Music, and the recent sale of Zomba Music to Universal.

It’s hard to say why the record labels make so many dumb mistakes. Most of the people working at labels are smart, music-loving, ambitious people who believe sincerely in what they’re trying to do. The rest are cynical corporate sharks that devour anything or anyone in their path. But even those people are not stupid. Somehow the pressure of chasing trends, trying to predict the unpredictable, and package that which is too ephemeral to be packaged, seems to lead to a collective abandoning of good common sense that is annoying when you’re on the inside, and embarrassing when you’re observing from the outside. Maybe it’s all those late nights, it’s hard to say for sure.

But unfortunately, the madness shows no signs of abating. I had lunch this week with a friend who created an online social networking site– not surprisingly, our discussion eventually turned to YouTube and the recent controversy between a coalition of top artist managers and the major labels. After delaying way too long, the labels finally came to an agreement with YouTube almost a year ago on a revenue-sharing plan that was supposed to compensate artists (and the label) for the use of their content. Now, top managers like John Branca and Irving Azoff are threatening to sue the labels, as their superstar clients have yet to receive any money, or even accountings, from that deal.

Of course, record labels not paying artists doesn’t qualify as a record company mistake– that’s more like business as usual. What struck me at my lunch meeting was my friend’s comment that the managers and artists were waiting for the proverbial Godot. From his insider vantage point, he was quite confident: there is neither YouTube money, nor will there be– at least not any of real significance.

It appears that in their desire to reach an agreement with a company that had become a powerful marketing partner, the labels managed to negotiate a revenue-sharing plan that amounts to next to nothing. This seems somewhat incredible, given that YouTube and similar sites were entirely constructed upon illegal content. One would think that the labels had a pretty strong bargaining position, given that YouTube was inarguably in blatant violation of the copyright laws. And yet, somehow the major labels managed once again to snatch defeat from the jaws of victory, and give away the artist’s work for pennies. If you can’t win a bargaining session with someone who is on the verge of being shutdown for copyright violations, there may be no hope left. Already, the labels are starting to blame the lack of artist royalty payments on “legal costs” that have outweighed the actual income.

And that’s the moral of this story. Unfortunately, there is only one winner in this endless succession of record industry screw-ups. The artists? They’re always the losers. The record companies usually eventually feel the pain as well– just ask all the people waiting for their pink slips over at EMI. The only people that come out as winners in these situations are the lawyers. If a label signs a million-dollar buzz- band that flops, you can be sure that the lawyer got his or her percentage, and has long since moved on to the next big thing. Labels agree to a bad revenue-sharing plan? That’s okay. It still took months and plenty of legal eagles to get there. The cost of record company screw-ups is very high, because it usually comes with an hourly price tag.

Of course, one day soon, we won’t have the labels to kick around anymore. But have no fear. You can be sure that we’ll always have the lawyers.

For the full article from Blender on the Top 20 Record Company Screw-Ups visit:

Blender Article March 2008

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