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    You Didn’t Read Your Contracts!” –Record Exec. Jheryl Busby

    ATLANTA – While over 10 million people watched BET with a sense of pride and joy, witnessing the ups and downs of legendary group New Edition (NE), one thing stood out: we still have a long way to go in saving Black artists from self-destruction and financial struggles.

    “Mike, you made the mistake all artists make when they first started out…,” then MCA Records executive Jheryl Busby sadly tells an angry New Edition Michael Bivins. “You didn’t read your contracts.”

    Starting out as childhood buddies from the projects of Boston, selling millions of records, to mega world-wide stardom as young adults, their financial result remained the same when their manager delivers a check for $1.67 to four hollering and angry moms, still struggling in the projects. We have all heard this story too many times, but hopefully, given the millions who watched this wonderful BET biopic, we can look at the Top 10 Music Business Things we learn from the New Edition Story:

    1.     Hire A Good Attorney
    2.     Read Your Contract
    3.     A Cash Advance is Just A Loan
    4.     Know How Royalties Are Calculated
    5.     Don’t Just Dance and Sing, Be A Songwriter
    6.     Understand Whether You Are Signed To A Label or Middle Man
    7.     Hire A Good Manager
    8.     Parents Just Dont Understand (The Music Business)
    9.     Get Your (Music Business) Education
    10.     Unity Is Just As Important As Talent!

    #1 Hire A Good Attorney

    Although there may have been an attorney involved, the movie seems to depict an anxiousness to get a contract.  And, obviously, NE being so very young that a contract is put before the five members of the group, and no where present is an attorney.

    You have to have an attorney review, negotiate and draft the contract.  I always say “inspect what you expect”, meaning have an attorney inspect it, along with you, so it meets your expectations later.  An artist who does not hire an attorney and tries to represent himself, has a fool for a client.

    #2 Read Your Contract

    Most artists, if honest, will tell you that they never read their contract until they got a poor royalty statement or they decided they wanted to leave their label.   You MUST read your contract.  And, read it day one.  Although the movie did not depict it at great length, it is doubtful that the NE parents really thoroughly read the contract or had the professional expertise to understand their contract.  Nowadays, with so much information available on line and so many great books, like “All You Know About the Music Business” (Donald Passman’s book) or my book, “This Business of Urban Music” (Random House) both available on Amazon, etc., the artist and the parents have so many things available to help them understand a contract. Reading your music industry contract is fundamental!!!

    #3 A Cash Advance Is Just A Loan

    When an artist signs a recording contract, there is usually a cash payment given to the artist.  The artist thinks this money is free and sort of like a signing bonus for a professional athlete.  Please be clear it is not.  It is what is called an advance and that advance has to be paid back before an artist receives a dime.  After NE’s album goes platinum, MCA holds a big celebration meeting, and NE’s manager begs the label to front some money to get the boys out of the projects.  No discussion is shared on how that money is paid back:  trust me, any monies advanced to get cars, houses and clothes, would just be an an advance or loan and would need to be repaid before the artist or NE saw any type of royalty check.

    And, once the artist actually puts out an album, the label will demand to see their investment or advance paid back.  For instance, using a hypothetical: if an artist sells a million records at $10 each, this adds up to $10 million.  Here’s the catch.  If the artist contracted and earned their net royalties at $.60 per record, then the record company owes the artist $600,000 from the $10 million earned from record sales.  Although the record company and the artist agreed to this royalty split, the record company still wants what they have spent to even make the album happen, i.e. the studio time, advances, clothing, etc.

    Although the artist earned $600,000 from album sales, the label deducts this from the “unrecouped” $2 million they initially spent.   Thus, the artist still owes the record label $1.4 million.  As a result, the artist goes to record their second album with a $1.4 million unrecouped debt.  The recoupment will travel with the artist from album one to album two and so on until the artist is fully recouped.  And, of course, like we saw in the movie, the artist will need another advance to maintain their lifestyle and this loan just continues to grow. (Note, this is a hypothetical, but most likely, without seeing NE’s contract, this is how they kept selling millions of records and being told they would not receive a substantial royalty check).

    #4  Know How Royalties Are Calculated (NE got a $1.67 check)

    There were many things that disturbed everyone with the movie, but the most disturbing scene is watching the mothers of NE angry and outraged about a check they received for less than two-dollars (i.e., $1.67) after having the hottest record out at the time.    Here is how that happens under a standard contract, which is nothing to call standard or acceptable.

    A new artist like New Edition probably had a 12 percent ‘all-in’ royalty.  An all-in royalty rate means that the artist must pay the producer a royalty out of the artist’s 12 percent.  The producer royalty is generally around 3 percent, unless the individual is a superstar producer who commands even higher (like a Babyface, Quincy Jones or Diddy).

    Assuming for purposes of this illustration that the artist hired an average producer who charges the 3 percent, this leaves a 9-percent net royalty for the artist, who initially received 12 percent.  From this 9-percent royalty, the following deductions are made:

    25 percent for packaging (wrapping the album, etc.)

    25 percent for the record company’s reserves

    15 percent for “free goods” (i.e., giveaways)

    15 percent CD (new technology) deduction for a CD; and

    10 percent for damaged or destroyed goods

    Thus, the 12-percent all-in royalty is in actuality a 3.29 percent royalty after all deductions broken down as follows: 12 percent minus 3 percent (for the producer royalty) X .075 (for packaging) X 0.90 (discounting damaged goods for 90 percent of sales) X 0.85 (for “free goods” given away) X 0.85 (CD rate) X 0.75 (for reserves kept by label).  Unfortunately, at the end of the day, the artist will receive approximately $0.65 cents for each $19.99 CD sold instead of the deceiving $2.39 (12 percent of $19.99).  (We get this figure by dividing $19.99 by 3.29%, equaling 0.65 cents). And, as stated, even if the artist sells 1,000,000 (one million) copies or platinum, at .65 cents a record, the label would only the artist about $650,000 (and of course, all expenses would come out of your royalty check before you see a dime as an artist and clearly they label would say they spent well over $650,000 to record your album, i.e., millions spent). (We flush this out in my book in more depth, but wanted to give you a quick overview, given the outrage to the financials in the movie).

    Now, think about New Edition: the money spent on the apartments, the photo-shoots, the clothes and multiple outfits, food, tour buses, hotel rooms, etc.  All of those expenses are deducted out of their royalty checks.  Thus, $1.67 was all that was left after the label recouped their initial investment from all members of the group.  And, we didn’t mention the marketing, videos and street teams hired that all get charged to the royalty account. It is very important an artist understands how royalties are calculated to be profitable.

    #5 Don’t Just Dance & Sing, Be A Songwriter

    In the music industry, everyone wants to dance and sing, but ask anyone who knows: the real money is in the publishing game, i.e., being a songwriter.   Many of the early hits of NE were penned by other writers and initially they did not know the income associated with being the songwriter vs. the singer.   As a young artist, learn how to write your own music or co-write with someone.   We all know when Michael Jackson died his publishing catalogue was estimated at $2 billion.  And, Prince’s is probably in the same ballpark if not more, given the vault of songs he left at Paisley Park.   Learn the publishing game and learn what a mechanical license, synchronization license and folio license is as a songwriter (which I will explain in another article).   Also, understand how lucrative music is when used on television, in a film, played at radio or digitally downloaded.   Imagine if NE owned Candy Girl, Is This The End or Mr. Telephone Man, the annual income could be in the millions.

    #6 Know Whether You Are Signed To the Label or The Middle Man

    “Who the hell is Fast Break Productions,” NE member Mike Bivins angrily asked MCA’s Jheryl Busby (played brilliantly by artist Tank) when Bivins discovered that the group’s white manager Gary Evans (played by Michael Rapaport) had secretly set up a deal with Evans’ company Fast Break Productions being the middle man.  Fast Break, a production company, had NE signed and the production company was then directly signed to MCA.  In essence, all monies ran through Fast Break; Evans took his cut off the top and they manage the recording budget for the group and most likely, got producer points and a royalty on top before the group saw a dime.

    In record industry circles, often a small indie or production company, headed up by a manager or producer, will find the talent and deliver the talent to the bigger record label (Arista, EMI, MCA, Sony, Warner Bros., etc.).  In this scenario, the middle man (producer/manager) is getting a budget or fund cut to them and they in turn sign the artist to their production company.  The record label may have you sign what’s called a “Letter of Inducement” which is a way of binding you to the parent record label in spite of the middle man.  Make sure you are clear as to whether you are signed to MCA or Fast Break Productions (the middle man) and what that means financially to you as an artist, i.e., less money and less power.

    #7 Hire A Good Manager 

    A manager makes or breaks an artist.  New Edition tried to use Gary Evans, a different manager after starting with Ronnie Devoe’s uncle Brooke Payne.  The decision backfired and they struggled tremendously as the so-called experienced Evans ended up ripping them off and not having their best interest at heart.  Payne stepped back in and the 33 year run of the group seals his legacy as one of the best managers ever in the game.

    A good manager has the relationships, understand the business, knows how to push the artist and most importantly, makes sure the artist maximizes his or her success.   It is an under appreciated job, but if done right, he or she is the quarterback to the whole machine.   His fee could range between ten percent to twenty percent, depending on his experience and relationships.  Require the manager to give you accountings and update you on financials and always have checks and balances.

    #8 Parents Just Don’t Understand (The Music Business)

         The New Edition parents were not bad parents.  They loved their boys and did everything they could do.  However, they obviously, based on the movie portrayal looked at the boys as their tickets out of the projects and hope for a better life. But, they didn’t realize the music business is just that a music “BUSINESS” and they needed a lot more guidance.  If you are a parent with a child coming into this BUSINESS of Music, you have to surround yourself with the right advisors.   Some of the best managers or supporters of child stars in the industry have been mothers (like Usher’s Mom and Brandy’s Mom for example), but they both surrounded themselves with an incredible team of advisors.  Although not often credited, Mathew Knowles created Beyonce’s success, along with her mother and he was a very smart business man, or Destiny’s Child doesn’t become one of the top selling groups of all time under his management.

    #9 Get Your (Music Business) Education

    While no one would ever question the street smarts of New Edition or the talent of New Edition; one thing is clear: they were not educated on the music business.  In today’s social media age, read everything you can read, get your education and stay on top of music industry trends, business contracts, and other developing trends.   Michael Bivins seemed like he had a good business head after Jheryl Busby started teaching him the business and he tried throughout the movie to guide the other members on understanding more off-stage than just on the stage.  There is no reason why an artist in today’s internet age should not know everything there is about being a business man (or woman) in the music industry and having a full education on the dos and donts of the music business.  Read everything.

    #10 Unity Is Just As Important As Talent

    This goes without saying: in business, you have to be united and partners to make money together.  You cannot run a business if the partners are divided, fighting and challenging each other.  You have to understand each individuals’ gifts and talents and how they contribute to the whole for purposes of making the group a success.   Bobby had the dance moves and singing, Ralph had the lead vocals, Ricky had the slickness, Ronnie had the model looks and was the glue, and Mike had the business sense and street sense to keep it business.  Then along came Johnny Gill, who brought the group a grown and sexy vibe that the bubble-gum group lacked.    With all of this they had to learn unity and how to survive as a group for the good of the business.

    Once they understood unity was the key to good business, they became the businessmen they are today!!!

    There are so many other things we could share about the wonderful BET biopic, but these Top 10 Reasons are enough to tell you the words Jheryl Busby’s character told New Edition, “Welcome to the Music Business!!!!


    James L. Walker, Jr., based in Atlanta is a professor, TV legal analyst & Author of “This Business of Urban Music”. He is email is: [email protected]

    Twitter: @jameslwalkeresq