How a Rock Band's Lawsuit Could Upend Record Deals Everywhere

This story first appeared in the Aug. 23 issue of The Hollywood Reporter magazine. To receive the magazine, click HERE to view original article.

A coming trial between Avenged Sevenfold and Warner Bros. Records may dissuade or embolden hot artists looking to escape their contracts.
What's a record label actually good for? That is a question implied in a lawsuit between Warner Bros. Records and Avenged Sevenfold, a heavy metal band from Huntington Beach, California, that is scheduled to go to trial this year and has the potential to upend the music industry.

The dispute dates back to 2015, when the act notified its label that it was terminating the contract it signed in 2004, citing the "seven-year rule," which bars personal service contracts lasting longer than seven years. The law has its roots in a pro-labor statute put on the books after the Civil War to prevent long-term contracts from becoming the means for involuntary servitude. The modern version of the rule was famously tested in entertainment in 1944, when Olivia de Havilland used the law to break her contract with Warner Bros after the studio repeatedly suspended her for turning down roles. An appeals court decision helped bring an end to Hollywood's old studio system.

But the seven-year rule has not decimated the record business because the major labels successfully lobbied in the 1980s for an important change after Olivia Newton-John won a "seven-year" battle with MCA Records. Music contracts are generally denominated in deliverables (in Avenged Sevenfold's case, they agreed to record five albums and a couple of live ones for Warners), not length of term. The recording industry successfully convinced California lawmakers that labels invest so much up front in their artists, they should be able to recover the "lost profits" of uncompleted albums from acts who don't fulfill their contractual commitments.

Although artists like Courtney Love and bands like Thirty Seconds to Mars have invoked the seven-year rule in disputes with their labels, those matters settled before they reached trial.

Avenged Sevenfold, which won best new artist at the MTV Music Awards in 2006 and has put out four well-received albums with Warners, could in December become the first musical act to test the law before a jury. The stakes are huge for both the band and the music industry: If it loses, Avenged Sevenfold could face a verdict between $5 million and $10 million. If it wins, the outcome could embolden other acts with contracts older than seven years — which on Warners' roster includes major recording artists Red Hot Chili Peppers and Green Day ­­­— to exit their current deals.

"We've realized this battle is bigger than just us," says Avenged Sevenfold singer Matt Sanders (known professionally as M. Shadow). "We're fighting so that all musical artists have the same rights everyone else has. It's not like we wanted to be here, but we are down for the fight."

Avenged Sevenfold intends to steer the label's drive for lost profits around by asking what a record label does for its artists in this day and age. "The trial will include a referendum on how ineffective WBR is in promoting rock records," says the band's attorney, Howard King.

In the old days, labels performed three critical tasks: The first was talent scouting and overseeing artistic development. Second was promotion. Third was distribution. Digital networks and streaming services such as Spotify and Apple Music have now democratized the emergence of new acts and enabled music to reach consumers without too much cost. Record labels have in some respect enjoyed the lesser expenses of this era and have also cut A&R staff.

Heavily reliant on pop stars and older legacy artists, labels are now largely about that second task of promotion. But some don't believe labels are especially wonderful in that regard either.

Bob Lefsetz, a music industry analyst who will be testifying at trial as an expert on behalf of the band, says that some record labels still enjoy relationships that serve them well in the realms of pop and hip-hop. But Lefsetz adds, “If you are not in one of those two niches, does that behoove you to be with a label? You are giving up a big percentage of revenue and tying yourself. The only reason you’d do that is if they can promote you. And if you look at their relative reach, it’s de minimis.”

King is arguing that there would not have been much (if any) profit for Warners to lose on a fifth Avenged Sevenfold album. "We believe a jury will conclude they can't prove any damages," he says. He says the band's most recent album, The Stage, which it put out in October 2016 under Warners' rival Capitol, "has been a commercial disappointment. WBR would have lost money had that been delivered to them for marketing."

According to several insiders in the Warner Bros. camp, none of whom wanted to comment publicly on a pending legal matter, the feeling is that the case wasn't something the label could have avoided, and instead, provides an opportunity. They blanch at the notion that the lawsuit amounts a punitive act over a band whose very moniker evokes vengeance, but acknowledge it does provide an opportunity to dissuade any other acts from attempting to sit out the clock on their deals or use the seven-year rule as leverage for a renegotiation.

On Aug. 11, the judge allowed Warners to assert claims from its worldwide affiliates in a decision that could double or triple the potential liability that Avenged Sevenfold is facing. And the label is being allowed to seek its attorney fees — already amounting to more than $1.5 million in another sign of just how seriously the record label is treating this fight. At trial, expect a rare look at industry financials and testimony from key executives. The label will take the straightforward approach of using past commercial success to infer future profits. But when Sanders and other Avenged Sevenfold members appear before a jury to challenge their former label's worthiness, an entire industry may regard its mortality. As Lefsetz notes, there's significant precedent at stake: "A lot of this stuff has never been litigated."

This story first appeared in the Aug. 23 issue of The Hollywood Reporter magazine. To receive the magazine.

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Tags:  Warner Bros Records, Avenged Sevenfold   

Red Baron    August 29, 2017