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Industry Analyzes Mariah Carey Deal
submitted by: Lisa D.
source: Billboard
Date: February 1, 2002
By MELINDA NEWMAN
LOS ANGELES - Many industry observers are calling the dissolution of Mariah Carey's superstar deal with EMI the natural evolution of today's economic realities. They also question if such deals are viable in a world where artists' careers appear to have shorter and shorter shelf lives.
"The Mariah Carey deal was the last gasp of the large-money deals that were predicated upon a growing music industry," J Records president/COO Charles Goldstuck says. "With the outlook for the next few years being flat to down, deal-making has to be responsible."
Another label head who spoke on condition of anonymity agrees: "We were coming to this place anyway because of what's going on in the industry and the economy."
Last April, Carey inked a deal with EMI's Virgin label that was rumored to be worth between $80 million and $100 million, including a $21 million signing bonus and complete creative control for Carey. The deal, approved by former EMI Recorded Music chairman/CEO Ken Berry, quickly went south as Carey's first album for the label, the soundtrack to the movie box-office disaster Glitter—in which Carey also starred—never got its feet off the ground. To date, the project has sold 506,000 copies in the U.S., according to SoundScan, and only 2 million units worldwide. (In many of these deals, sales outside the U.S. are where many labels hope to realize their profit.) Carey was also unable to market the project because of a nervous breakdown that required hospitalization.
Looking to cut the company's losses, Berry's successor, Alain Levy, bought Carey out of the multi-album deal for an additional $29 million in January. EMI is taking a loss on the project of $54.3 million,which includes marketing and other costs. (Billboard, Feb. 2). EMI, Virgin, and Carey's attorney—Don Passman—declined to comment for this story.
IT HAS HAPPENED BEFORE
While it's the latest case of a superstar deal being so publicly scrutinized, Carey's contract is not the only example of an artist pact that industry observers say has not paid off for record companies. Warner Bros. reportedly paid R.E.M. $80 million to re-up with the label in 1996 (Billboard, Sept. 7, 1996). Since then, the group's sales have declined in the U.S. (Warner Bros. declined to comment on this.)
In 1992, RCA nabbed ZZ Top from Warner Bros. for a reported $30 million. (That figure was falsely inflated, according to RCA Label Group chairman Joe Galante, who made the deal when he was president of RCA's pop division.) The band's album releases on RCA to date have included Antenna (1994)—which sold 649,000 units, according to SoundScan—Rhythmeen (1996, 310,000 units sold), and XXX (1999, 140,000 units).
Last year, Arista renegotiated its pact with Whitney Houston for $100 million, even though Houston still had albums remaining on her existing contract. While a date has not been set for Houston to enter the studio to begin recording her first album of new material since her 1998 disc My Love Is Your Love, Arista president/CEO Antonio "L.A." Reid says, "Whitney and I are in preliminary discussions about a new album and have already started listening to songs."
As Galante says, "You can make artist development mistakes all day long, but it can take just one of these kinds of deals and you won't be able to recover. You can have seven bands that all go platinum, and you can be wrong on a deal this size and it erases all the good you did with the seven platinum acts. You can take a deal like we did with ZZ Top and still survive, but when you're talking $45 million-$50 million, that's very, very hard."
SUCCESS IS STILL POSSIBLE
Yet some deals have made sense, executives say, such as Columbia re-inking Aerosmith in the mid-'90s after the group's successful run at Geffen, especially since Columbia retained Aerosmith's catalog from the band's previous stint at the label. Industry observers say that Virgin will—if it has not already done so—make money on its long-term deal with Janet Jackson, which was rumored to be between $50 million and $70 million (Billboard, Jan. 27, 1996).
One issue labels say they have to examine is the timing of such huge pacts. Historically, these deals are made when an artist is at the top of his or her power, and can, therefore, command top dollar. However, the artist may have already peaked commercially. These deals need to be done earlier in an artist's career, says Kedar Massenburg, Motown Records president/CEO. "I'd do a superstar deal after the second album, if the first two sold 10 million each," he says. "If you wait much longer, it's too late. It's rare that you have artists that will sell that much for that long." Or as one label head puts it, "If someone has already sold 100 million records, what are the chances of them selling another 100 million?"
DEALS NEED TO BE DONE DIFFERENTLY
Label heads point out that file-sharing, CD-burning, and bootlegging are also increasingly cutting into album sales, and many of these superstar deals have not reflected the decrease in sales that can result. Galante says, "In 2000, you had eight albums sell at least 5 million, and last year you had zero."
Not one executive that Billboard interviewed expects big deals to completely disappear, partly because labels will use them to add marquee value and global market share. But many say such deals will be structured differently. "I'd give an artist more on the back end," Massenburg says. "Instead of giving an artist $20 million, I'll give them $10 million and a better profit split on sales."
Attorney Fred Goldring—whose firm represents Alanis Morissette, Destiny's Child, and Will Smith, among others—says superstar artists may now flex their muscles to ask for shorter deals and not just bigger bucks. "The successful artists who can will be doing one-, two-, or three-album deals at most to maintain their flexibility in an ever-changing environment. At the moment, our clients, and most major artists, can't afford not to be in business with record companies."
While there has been some confusion in the consumer press, Goldring notes there is not any correlation between Carey's buyout and artists' current attempt to repeal an exemption in California state law that allows recording acts to be held to a contract for longer than seven years.
"The two events [are] not in any way connected," Goldring says. "The Mariah Carey buyout was strictly a business decision on the part of EMI; they were buying out of what new management determined to be a bad deal to save themselves even more money in the future . . . The seven-year statute is a much deeper issue. Simply put, the question [in the latter matter] is, 'Do recording artists deserve the same treatment under employment laws which govern every other kind of employee?' "
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