R.E.M.,WARNER RECORDS SIGN $80 MILLION DEAL
GRAMMY-WINNING BAND WILL PRODUCE FIVE ALBUMS UNDER LARGEST RECORDING CONTRACT EVER.
R.E.M., the hottest free agent in the music business, signed a
five-album contract Saturday with Warner Bros. Records worth an estimated
$80 million--the largest recording contract ever awarded, sources said.
The Grammy-winning band's deal surpassed the $70-million mark
achieved seven months ago by pop diva Janet Jackson as well as other
mega-deals by such superstars as Michael Jackson and Madonna, whose
six-album pacts included film and joint venture record label components.
The signing was announced unexpectedly at the Anaheim Convention
Center on Saturday, where Warner Music executives were gathered for their
annual strategy summit. Delighted at the news, thousands of employees leaped
to their feet and broke into a standing ovation.
 
"This is a watershed moment for Warner Bros. Records--an incredible
new beginning for the company," said Steven Baker, president of the
Burbank-based label. "R.E.M. embodies everything important about the culture
of this company. They are a tremendously hard-working, successful band with
integrity and vision. I can't describe how proud we are that R.E.M. is allowing
Warner to continue our association with them."
The Athens, Ga. rock quartet, which recently delivered the last of six
albums under its previous Warner Bros. contract, has been the target of a
fierce bidding war for the past two weeks between such companies as
DreamWorks SKG, Capitol Records and Sony Music.
Like Hollywood's movie studios, the major record companies find
themselves forced to pay astronomical sums--even at the risk of losing some
money on the deals--for the industry's top stars. For the major companies, the
superstars are magnets for new talent and offer the firms clout in distributing
their entire roster of artists around the world.
Formed in 1980, R.E.M. has sold more than 30 million albums and has
been unusually strong in international sales for a rock group. But the pact
is so
large, with $10-million advances for each of five albums, that some record
industry analysts wonder whether Warner Records can make a profit over the
life of the deal. By the time the final album is delivered, the R.E.M. musicians
will be nearing 50.
One reason R.E.M. was able to secure such favorable terms from
Warner is that the band became free agents at the apex of their careers and the
deal was negotiated at a time when the firm, trying to recover from two years
of corporate upheaval, could not afford to lose the band.
Warner Music, the largest domestic record company, had the resources
to outbid competitors and is the only firm that could offer R.E.M. a sweeter
return on future sales of its six-album catalog.
Representatives for R.E.M. and Warner refused to discuss the pact. But
sources said the band will be paid a $10-million signing bonus plus a
$20-million royalty advance on future sales of its six-album Warner catalog.
The band is also guaranteed an estimated $10-million advance per album plus a
blue-chip 24% royalty on the retail price of each record sold--about $2.50
per record.
The spectacular size of R.E.M's deal raises the stakes in future battles
for other superstars and is expected to cause the cost of signing
potentially hot
new acts to skyrocket in the months ahead.
R.E.M's contract covers five albums of new material. Under the terms
of the deal, ownership of the masters to those albums will revert to R.E.M.
seven years after the contract ends. The band already had negotiated reversion
of ownership rights to its current six-album Warner catalog.
Warner will deduct cash advances from R.E.M.'s portion of the royalties
until they are paid off--a standard practice in the industry.
R.E.M. consists of guitarist Peter Buck, 39, singer Michael Stipe, 36,
and bassist Mike Mills and drummer Bill Berry, both 37. The band, which has
won four Grammy awards, is regularly praised by rock critics for its
uncompromising artistic integrity.
R.E.M. avoided many of the trappings of stardom by remaining based in
Athens, a small college town about 70 miles east of Atlanta, where the band
operates an office with just six employees. The band parted ways two months
ago with longtime manager Jefferson Holt.
The surprise announcement Saturday followed an hourlong video
presentation of music that the company plans to release in the year ahead.
Following a 10-minute display of music and video footage from R.E.M.'s
upcoming "New Adventures in Hi-Fi" album, which is due out in two weeks, the
band's longtime legal advisor, Bertis Downs, walked onto the stage and
interrupted a speech by Warner Bros. Records Chairman Russ Thyret. Downs
handed Thyret a telegram from R.E.M., which Thyret read to the audience. The
crowd broke into a standing ovation.
"It was a complex of many business, personal and intangible
considerations that led the band to sign with Warners," Downs said. "We
believe that Warners is the right place for the next phase of the band's
career."
Downs did not notify Warner Music co-chairmen Bob Daly and Terry
Semel until late Thursday night that the band was ready to enter serious
negotiations. "I was thrilled to get that phone call and immediately authorized
the deal to go forward," Daly said.
The contract signing followed two 14-hour sessions of negotiations
between Baker, Thyret, Downs and attorney Donald S. Passman.
Passman is the Los Angeles lawyer who represented Janet Jackson this
year and in 1991 when she announced her unprecedented $40-million,
three-album pact with Virgin Records. That deal triggered a series of megabuck
pacts during the early 1990s, including her brother Michael, Madonna,
Prince, Barbra Streisand, the Rolling Stones, Aerosmith and Metallica.
Analysts say that few of these deals have delivered the profits that the
companies were hoping for. But in an industry full of uncertainty and
single-hit acts, these superstars are perceived as the closest thing to a sure
bet.
Signing R.E.M. is regarded as a victory for the new regime at Warner
Bros. Records. The band was one of several top Warner artists who threatened
to jump ship in 1995 after a corporate battle that forced the departure of
beloved Warner executives Mo Ostin and Lenny Waronker.
When Ostin and Waronker joined DreamWorks last year, the betting
was that R.E.M. would soon follow. But tensions at Warner Music relaxed after
Daly and Semel replaced ousted music chief Michael Fuchs, which led to recent
speculation that R.E.M. might stay put.
Still, record chiefs from DreamWorks SKG, Sony Music, Capitol
Records and MCA-affiliated Outpost Recordings submitted proposals last week
to R.E.M., which included bids ranging from $35 million to $50 million for a
four-album deal, sources said.
R.E.M.'s decision to stay is a coup for Thyret, who worked closely with
the band for a decade before being promoted last year to chairman of the label.
Downs cited R.E.M.'s strong ties to Thyret and other members of Warner's
domestic and international staff as a key component in closing the deal.
"My joy is only surpassed by my relief," Thyret said. "The company
has been working so hard to get back on course and I think it's finally all
starting to come together. This is the best news we could hope for."
* * *
Money, That's What They Want
R.E.M.'s contract is the latest in a flurry of megabuck superstar
signings. Contract terms are closely guarded secrets, but industry sources
speculate that R.E.M.'s deal is worth at least $80 million. Ever since Janet
Jackson stunned the pop world in March 1991, when she announced her
estimated $40-million pact with Virgin Records, artist attorneys have been
elbowing into record company boardrooms to get a piece of the contract pie.
These are estimates of the biggest known deals cut so far:
 

Artist            Contract     Company and Date
R.E.M.            $80 million  Warner Bros. 8/24/96
Janet Jackson     $70 million  Virgin Records 1/11/96
Metallica         $60 million  Elektra Records 1/10/95
Barbra Streisand  $60 million  Columbia Records 12/13/92
Madonna           $60 million  Warner Bros. 4/20/92
Michael Jackson   $60 million  Sony Music's Epic Records 3/20/91