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.’

By examining the documents of the many financial procedures conducted against Michael, at this point, we can give a sequence of the facts that happened “behind the headlines” quite accurately:

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

Since the inception of Sony/ATV, the partners agreed to acquire additional music catalogs in order to expand the company. The MJ Trust 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 to the MJ Trust, a credit enhancement for which Sony received additional payments of about $9,000,000 annually. The purchase of the additional catalogs was delayed, while Sony directed the money that MJ borrowed in other directions, one was the merging its recorded-music division with Bertelsmann’s BMG. And from Court documents, we also clearly understood 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 and proceed 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. It Was a FALSE statement: despite the problems, Invincible went to number one across the world, and Michael received many awards for his achievement. During an interview, in October 2001, Michael Jackson said in response to the comment that the Invincible album was number 1 worldwide and 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 between 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. It was a FALSE statement: 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. First of all looking into Court documents we found out that he had more than one audit against Sony and started auditing them since at least 1999.

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 is 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: the bank still owns the house after the mortgage is paid? — a point artists have been making for years–

With the battle between artists and record companies AEC was taking its cause 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 the 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.

murray[1]  Senator Kevin Murray

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 Select Committee on the Entertainment Industry last fall. 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, use and exploitation of his musical assets, misguiding  such diverted revenues as “profits” instead of “royalties” by removing such disguised royalties from the pool of revenues upon which MJ royalties were calculated and  purposely reducing the royalties and his “Net Receipts” of it.  (Subparagraph 11.02 of Jackson’s 1985 recording agreement provides that Sony would credit Jackson’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), but once the IRS completed its audit it became evident that Sony did not allocate to Michael Jackson a portion of the available tax credit.

irs85

On July 15, 2001, there was another of the many amendments to the agreement between Sony Music and 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 1991. It was apparently to resolve an issue related to the Foreign Royalty. The agreement states that upon the release of the Studio Album (as such term is defined in the 2001 Recording Agreement) and any album released hereafter which is a reissued version of any previously released album acquired or controlled by the Jackson Recordings Division (MJ controlled his Masters from “Off the Wall”) on and effective January 1, 2002, with respect to all other audio only phonograph records derived from master recordings acquired or controlled by the Jackson Recordings Division, subparagraph 7.02(c) of the Joint Venture Agreement was  modified by deleting the figure “twenty-three percent (23%)” contained therein and substituting the figure “twenty-five percent (25%)” therefor.

And with the above paragraph, we understand why just before and during the 4 months 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. So it would have been much better for them to release everything before such date and keeping a lower royalty rate.

There was also a change in the definitions of MJ Recording Agreement and we can read that there was a partial Audit settlement, where Sony Music had to credit $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 and audits against Sony Music in connection with the payment of mechanical royalties.

With that occasion,  MJ returned back to Sony the equipment listed under their “End User Sales Agreement” dated as of August 20, 1995, and they had to credit another $300,000 to MJJP’s royalty account.

You can read in full HERE: 2001 amend JV

News of 2002 said that Rev. Al Sharpton knew 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 Branca representing him and Sony and the Interfor investigation in order to partially close his recording artist

interfor

 contract with them and have Branca out of the picture. Unfortunately having a multitude of contract/agreements intersected with each other, neither Sony and Branca were out of MJ’s life for good. Contrary –  starting in 2003 –   the hard fight to destabilize MJ  financially was officially on “screen”.

That just confirms that the definition of Michael Jackson and Sony’s relationship was definitely the opposite of what it ought to have been.

Going through the Court documents we found out that Michael placed Sony under audits from 1999 up to 2009. It was already a story of incorrect royalty rates, failure to report royalties, failure to account for ancillary income and improper deduction of foreign income taxes.

Here an example:

mjj audit sony 2004 2009

audit

The last audit to Sony was ordered subsequent to Michael Jackson’s death and performed by Gelfand Rennert.

Then the probate court accepted as valid a “will” that Mr. Branca found in his office (a document that should not have been in his hands, because Michael Jackson ordered him for the first time in 2003 and with a final note in 2006  –  once he settled the unpleasant issue of the UCC1 –  to prepare all documents regarding him and his activities in possession of his law firm ready to be delivered to his new lawyers while sending all new communications to Allan Whitman).letter

The audit brought to the attention a miscalculation to Sonys benefit for digital download royalties of $3,376,000 USD for domestic digital downloads and of $3,341,000 USD for foreign downloads.

During a deposition held in connection with Quincy Jones lawsuit,  Mr. Branca declared that he did not remember if MJ was entitled to proceed with digital download calculated as license fees as distinct from retail sales, however, added that nobody ever won that kind of claim with a record label.

He was also be questioned if “it was the position that Jackson took in communicating with Sony that they were entitled to the several millions of dollars for digital downloads?” The answer was that usually Auditors take those positions and every artist would love to prevail on that, but none has.

To make a long story short, Mr. Branca had to admit that he authorized this audit report to be sent directly to Sony and ultimately settled for about 6 million of dollars as executor of the Michael Jackson estate on February 24th, 2014. The overall claim was for $27,400,000. and the settlement was for about $6,000,000 lump sum and there was zero allocated to the digital licensing claim. That’s mean less than 25 cents on the dollar.

That’s the way music industry audit works and concerning the good nature of the agreement with Sony …well …things you do for a good customer don’t you, Mr. Branca?

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

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