The Truth About Michael Jackson and Sony Agreements: Guess how many times Michael had to Audit them?

When Michael Jackson appeared in Harlem with Al Sharpton’s National Action Network for their Music Industry Initiative, on July 6, 2002, he blamed and described the recording industry itself as racist and denounced the injustice of the music industry against artists, dead and alive.

Tabloids jumped immediately on the bandwagon and there was no shortage of media coverage of the outburst, which spectacularly backfired on him.  Most media accounts dismissed the episode as just one more example of Michael Jackson’s notoriously bizarre and eccentric behavior.  The usual mockery headlines tried to convince readers that what was happening, was not just a black-and-white issue.

Actually, there was more than a black and white issue for him: it was about big businesses and a questionable distribution of wealth.

Wendy Day, founder of the artist advocacy group Rap Coalition said: ‘MJ’s problem is like racism: when you’re not the person being oppressed, you tend not to see it.’

With the speech in Harlem Michael was trying to let people know how the music industry was hopelessly corrupt.

Since the beginning of Sony/ATV, the partners agreed to acquire additional music catalogs in order to expand the company. The MJ Trusts borrowed about $270,000,000 to support the purchase of additional catalogs at Sony/ATV, and to support various other working capital needs.

Sony provided the lenders of the Michael Jackson Trusts, a credit enhancement for which Sony received additional payments of about $9,000,000 annually. The purchase of the new catalogs was delayed, while Sony directed the money in other directions. From Court documents, it comes out clear that in 2002 Michael was in negotiations to take back from Sony the licensing of the distribution of his master recording catalog and decided not to renew his recording contract with them.

He also wished to buy out Sony’s 50 percent stake in their joint venture, Sony/ATV. Sony balked. And it was the beginning of a whole series of shading episodes to destabilize his finances, a peculiarity which distinguished Michael Jackson during the last decade of his life.

Michael was more politically savvy than what people gave him credit for.  Prince, putting the word ‘slave’ on himself in his struggle with Warner Music, didn’t reach out. He made race an issue to some degree, but he didn’t exploit black consciousness. Michael reached out to the black community successfully, as evidenced by the enthusiastic presence during his rallies.

But it only took a couple of comments from the few “insiders” to trigger the usual media war against him. Media trashed Michael Jackson, pictured him a star of bizarre behaviors and had made him a joke in the English-speaking parts of the world.  And who was behind the Media headlines knew very well.

  • Media said that Michael was upset that his last album “Invincible” had sold only 2 million copies and that he was desperate to save his career.

FALSE: despite the problems, Invincible went to number one across the world. Michael received many awards for his achievement. During an interview, in October 2001, Michael Jackson said in response to a comment that he had another number 1 hit, “It’s a great honor…we worked very hard on it. I feel blessed that the fans accepted it the way they did and I am very honored. I really am. I don’t take anything for granted. Every time there is a number 1 album or song I feel excited as if it was the 1st one. So I am very happy about that”. Worldwide sales figures listed for the album is anywhere from 8 million to 13 million. It went to Number 1 in eleven countries, including the US. If that’s a flop then I bet a lot of artists wish they had more flops.

Invincible (2001)

USA : 2.500.000 – Canada : 140.000 – Mexique : 75.000 – Argentine : 30.000 Japan : 225.000 – Singapour : 25.000  – South Korea: 80.000 – Australia : 170.000 – New Zeland : 15.000  Europe : 2.220.000 – UK : 400.000 – France : 575.000 – Germany : 325.000 – Spain : 125.000 – Italy : 175.000 – The Netherland : 100.000 – Sweden : 50.000 – Finland : 16.700 – Austria : 25.000 – Switzerland : 60.000  – Portugal :20.000 – Norway : 50.000 – Danemark : 20.000 – Belgium : 75.000 Turkey : 200.000 – Worldwide Estimation : 7.100.000

  • Media said that Michael went crazy and that speech was nothing more than a way for him to get more attention.

FALSE: 7 weeks before Michael’s Harlem speech he was with President Clinton at the Democratic National Committee benefit concert and the press said he was a role model.

Why is it that when he decided to expose Sony that he became, all of a sudden, “a freak”?

However, Michael had many reasons to act that way. Looking into Court documents we found out that he put Sony under audit several times.

Just to refresh the public’s memory,  at the beginning of the new millennium, it was not just Michael Jackson having problems with record companies. Many artists joined forces with the Artist Empowerment Coalition (“AEC”), a new activist organization rallying recording artists to put an end to what they believed was unfair business practices. In 2003 in New York City there was a benefit concert hosted by AEC.

Artist such as Roberta Flack, Faith Evans, Stevie Wonder, Tony Bennett and Hezekiah Walker invoked throughout the evening the names of those musical greats who, after huge recording successes, woke up one day and were unable to scrape together two nickels.  Blues legends like Billie Holiday and Bessie Smith were denied royalties and died indigent.

The main conflict had to do with a complex equation of copyright laws, publishing rights, royalty formulas, and expense recoupment —how money is paid out.

The paradox for artists was that while they’re obligated to pay back most of the costs for recording and promoting an album, labels retained control of the master recordings, which is essential to generating ongoing income from minims and greatest hits reprints. Record companies contend that they couldn’t exist without assets like masters. But the upside-down logic was not lost on Orrin Hatch (R-Utah), a sometime songwriter and a member of the U.S. Senate  Judiciary Committee. He observed the practice of the record business: “bank still owns the house after the mortgage is paid?” — a point artists have been making for years —


murray[1]With the battle between artists and record companies AEC was taking its case to the legislature of New York State (the center of the music business) and on the other side they had the help of California Democratic state senator Kevin Murray; and a bill was introduced to repeal the music business’s exemption to California’s seven-year contract rule.

The little-known labor code allowed record companies to sue for damages if an artist did not complete an agreed upon specified number of albums regardless of how long that might take. Music industry execs predicted dire consequences for the California economy and foresaw fewer artists signings. But Murray was unmoved, calling the seven-year rule “a well-paid form of indentured servitude that gives record companies unfair control of artists.”

The debate over the seven-year rule inspired Murray to hold two additional hearings on the recording businesses accounting practices before the California Senate Selected Committee on the Entertainment Industry. For once the record companies were on the hot seat.

“UNDERPAYMENT OF ROYALTIES TO RECORDING ARTISTS AND PRODUCERS IS A PERVASIVE, CONSISTENT POLICY. THESE AREN’T ACCOUNTING ERRORS. THEY’RE SYSTEMATIC, OUTRIGHT THIEVERY.”

MJ believed that Sony, beside the Venture Agreements with them,  methodically diverted  revenues from him and his companies  in connection with the reproduction, the use and exploitation of his musical assets, misguiding  such revenues as “profits” instead of “royalties” by removing the royalties from the pool of revenues upon which MJ royalties were calculated and  purposely reducing the royalties and his “Net Receipts“.

irs85

An example is subparagraph 11.02 of Michael Jackson’s 1985 recording agreement which provides that Sony would credit  MJ’s account an amount equal to the portion of the foreign tax credits attributable to MJ’s royalties after a final audit by the IRS.

Once the IRS completed its audit it became evident that Sony did not allocate to Michael Jackson a portion of the available tax credit.

 

On July 15, 2001, there was another of the many amendments to the agreement between Sony Music, its affiliates and Michael Jackson companies – all heading to the main CBS recording artist contract dated December 31, 1990, and the joint –venture between them dated January 1st, 1991.

  • It was apparently to resolve an issue related to the Foreign Royalty. The agreement states that upon the release of the Studio Album (which I assume it would have been Invincible)  and any album released as reissued version of any previously released album controlled by the Jackson Recordings Division (MJ controlled his Masters from “Off the Wall”) on and effective from January 1, 2002, and concerning to all other audio, phonograph records derived from master recordings was modified by deleting the figure “twenty-three percent (23%)” and substituted by the figure “twenty-five percent (25%)”. In few words, it was an increase in royalties percentage of outside the USA.

Their move was that before and immediately after the release of Invincible, Sony placed in the market 4 reissues of MJ’s back catalog. There was a difference of 2% on royalties to be received by MJ starting in January 2002.

  • There was a partial audit settlement: Sony Music recognized and credited $3,000,000 to MJJP’s royalty account. The audit period in controversy was through December 31, 1999, and there was still pending other claims on Sony Music for wrong payment of the mechanical royalties.

However, once read the intricate pattern of Sony/ATV operating agreement, I cannot avoid noticing that MJ’s incomes balance was in negative, regardless of adjustments made at the recording artist agreement level.

  • MJ also returned back to Sony the equipment listed under their “End User Sales Agreement” dated as of August 20, 1995, and they credited $300,000 to MJJP’s royalties account.
  •  There is also a change in the definitions of MJ Recording Agreement.

Note: Michael Jackson recording artist agreement is a document that I found always “sealed” in all the legal documents I got into. Which doesn’t surprise due to the sensible and reserved content.
Any comment in its regards is an assumption and a speculation. Having read many books commenting some of the definitions of his agreement with Sony my assumption is that – just before the realize of Invincible – MJ expressed the desire to end the recording contract with them and no longer produce albums under Sony label. Then after the “Mottola war,” it was formalized in 2002. You can read in full HERE: 2001 amend JV

News of 2002 said that Rev. Al Sharpton was aware that MJ was in negotiations with Sony but didn’t know if they had turned “hostile or not.” In fact, the issue was “hostile“: MJ had to use the conflict of interest due to Mr. Branca representing him and Sony found in the Interfor investigation in order to partially close his recording artist contract with them and have Mr. Branca out of the picture.

interfor

Unfortunately –  having a multitude of contract/agreements intersected with each other –  neither Sony and Mr. Branca were out of MJ’s life for good. In fact, the hard fight to destabilize MJ  financially was officially on “screen”.

mjj audit sony 2004 2009

audit

The last Sony audit was ordered subsequent to Michael Jackson’s death and performed by Gelfand Rennert. It brought to the attention a miscalculation related the USA digital download royalties for $3,376,000 and foreign digital downloads for $3,341,000 USD.

During a deposition held in connection with Quincy Jones lawsuit,  Mr. Branca declared that he didn’t remember if MJ was entitled to proceed of digital download calculated as license fees or as retail sales, and added that nobody ever won that kind of claim with a record label. At the sarcastic question “ was the position that Jackson took in communicating with Sony that they were entitled to the several millions of dollars for digital downloads?”  he answered that usually auditors take those positions and every artist would love to prevail on that, but none has and actually is the true.

To make a long story short, on February 24th, 2014 Sony settled the overall claim of $27,400,000 with about $6,000,000 and there was zero allocation for the digital licensing claim. That’s the way music industry audit works. 

quote-remember-the-press-is-a-business-newspapers-and-magazines-are-in-business-to-make-money-michael-jackson-85-65-29[1]

Sources:

  • What Really Happened to Michael Jackson The King of Pop by Leonard Rowe  
  • Court Document Quincy Jones lawsuit against Sony, MJJP and Doe 1 (Cohen Dec1. 1 10.) (Cohen Decl. 11 11.)
  • Court Documents Prescient Transitional lawsuit against MJ Trusts
  • Vibe Magazine, May 2003
  • http://via.library.depaul.edu/
  • http://brooklynworks.brooklaw.edu
  • https://www.villagevoice.com/
  • www.chartsinfrance.net

 

 

 

 

 

 

5 Comments on “The Truth About Michael Jackson and Sony Agreements: Guess how many times Michael had to Audit them?

  1. Thanks for this very informative information. Most fans are not aware of Michael’s business agreements with Sony and how things unfolded. Michael was not as naive as most people think he was. Sometimes it is best to be quiet and speak out when it is time. I think that’s what he did. Was happy to see that the artists enlisted and received the support of the “AEC” activist organization. It is good to have information like this, not only for fans of artists but to educate everyone. It is also so sad that Michael had to die in order for us to find out these things. Good that there are people like you who are willing to do the “real” research.

  2. Michael was right always! He felt and known very well their dishonesty and Sony’s conspiracy(TM). Oh, so sad that such people lives on and have such jobs in the media to say lies! The most sad thing is taht some idiots believe those lies. The tabloids were expected to exploit the situation unfavorable to MJ, as they did, and still do so around where there are some followers just as they are in wrong thinking and attitude. But any man with a healthy, educated mind, with some culture can analyze and think reality on view. Thanks for the excellent research and done professionally. Love Michael endless! I know, Michael was a genial, smart, strong, noble man! Michael is my model in life! Thank you again. LOVE

  3. Thank you for your research,I didn’t know that he had so many problems with Sony. This man was smart.

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