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