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FROM THIS EPISODE

Where are the Scales of Justice?

This is Celia Hirschman with On the Beat for KCRW.

Last month, the UK newspaper Financial Times outlined the salary and bonus packages for five of the Warner Music Groups- top executives, totaling over $21 million. What did these executives do to earn such extraordinary compensation, during one of the most difficult periods of the music business? Warner executives delivered to its investors, an expected savings of $250 million, achieved primarily by firing or laying off 1600 employees and dropping 93 musical acts.

There-s nothing wrong with adjusting one-s business model, to reflect a more contemporary economic climate.

But to be compensated so lavishly for the misfortunes of so many, is just another example of the highly imbalanced world of the major label business.

Even more astonishing, is that according to documents filed with the US Securities and Exchange Commission, last year-s total executive compensation was more than 3 times higher than Warner Music-s $7 million operating income for the 10 months prior. In other words, Warner Bros paid their 5 highest executives more than 3 times the annual operation budget to make the cuts.

And, we should call it an advance on services to be rendered.

Warner Music was privatized just last year, so this is compensation based on the promise of a far bigger future, not results garnered to date.

Up until five years ago, the music business was a great business to be in. The benefits made most young adults drool with excitement. Business was carried out in luxurious boardrooms, in nightclubs, on cell phones,and at recording studios. Everyone affiliated wore a mantle of being hip and cool. Meals and entertainment easily fell into business expense accounts. Most executives in the music business found that their social life revolved around the business and its associates - there was little time for family life or balance.

But about five years ago, the record business changed dramatically.

The shift was caused by a number of factors, including limited playlists on commercial radio airwaves, rising marketing and promotion costs, consumers- demand for lower prices, fear of illegal downloading and piracy, and so on and so on.

Did the record business adjust to these new financial paradigms? Certainly not proactively. Since most major label contracts run for 6 or 7 album cycles, a contract may stay in enforcements for well over a decade. Therefore, what labels promised in a signed contract in say, 1997 might lock them into delivering on services for many years to come. Consider the point that major labels often sign young bands for a fraction of their potential worth, to see if the first couple of records might deliver a financial upside.

With each subsequent release, the contract calls for higher and higher escalations of compensation. If the artist can-t meet a profit and loss statement by the end of the marketing cycle for album two, the label rarely has the passion to insure an investment for album number three. More and more, the answer is drop the artist, hold onto the catalog and hope someother label is more fortunate marketing them.

In this highly voilatile world of the music business, where luck, persistence and talent meet on the road to success, it-s discouraging to see that executive cost cutting is valued far more than spotting and nuturing talent. Some where we-ve forgotten what business we-re really in.

This is Celia Hirschman with On the Beat for KCRW.

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