Labels Owe $50 Million

Thousands of artists to receive back royalties.

BY WARREN COHEN

June 10, 2004

The world’s major record labels are being forced to pay $50 million in back royalties to nearly 10,000 recording artists, from Elvis Presley to P. Diddy. The payback comes after a two-year investigation by the New York Attorney General Eliot Spitzer, which found that the labels avoided paying many artists’ their due – often simply out of an unwillingness to locate them.

“They never gave us anything approaching a defense - it was more a shrug of the shoulders," says Spitzer. “We're demanding they live up to their obligations."

Record executives privately grumbled that Spitzer inflated the amount of unpaid royalties by including money the labels are set to pay each quarter but hadn't yet processed. “Of course we know where our major artists are," scoffed one executive. But Spitzer disagreed. “Even for the well-known artists, the companies were simply not doing what was appropriate to make payments."

Many of the artists on the list are no longer living: The biggest cash payout of $229,723, went to the estate of R&B performer Tommy Edwards, who had a Number One hit in 1958 with “Its All in the Game.” But those who are alive say they’re relieved to be paid – no matter how small the amount. “I'm glad somebody's finally blowing the whistle and people are seeing a little bit of justice," says Darryl Hall of Hall and Oates, which recovered $8,750. Hall says the sum won’t affect his life much, but “for a lot of artists, $8,000 means a lot. Whatever they're getting, it's a good thing."

Adds Chuck Negron, who will split $70,988 with his two band mates in Three Dog Night, “When entertainers get ripped off, it goes far beyond a mistake."

Record companies have always had an edge in prior royalty disputes. Hiring an attorney to audit a record company's financial books can cost up to $150,000; some audits take up to a few years to complete. For many smaller artists, it's not worth it. “Literally millions of dollars were never going to be paid because artists lacked the financial resources to recover that money," says attorney Bob Donnelly, who helped spark the Spitzer investigation. “To recover $10,000 or less, it's impossible for many to hire a lawyer or accountant, and record companies relied on that fact."