Fat Joe (“Joe”) recently stated that after 20 years, he still has not recouped his advance, despite selling millions of records. He says it’s like a Ponzi scheme and the major labels use” funny” accounting.
While Joe may have a point, I would not use the term Ponzi scheme which is typically when the offending party pays old investors with new investors’ money.
The way it works is the major label gives the artist an advance. The advance is like a loan. The label has to recoup it (and their other expenses like advertising and promo) before the artist can receive more royalties. To get to the bottom of it an artist would often have to do an expensive audit of the label. Some people in the music business believe that the major labels engage in “Creative Accounting” to inflate costs making it harder to recoup.
Joe stated on Instagram: “They asked me independent or major label and I said major record labels are a Ponzi Scheme…. At the end of the day, You could bring a scientist who won the Nobel Peach Prize to do the accounting and they can’t figure it out. So its robbery, all the way through.” v
Although the Nobel Peace Prize has nothing to do with accounting, the information provided by major labels is complex and difficult to analyze or confirm.
Joe goes on to say: they own your shit. That’ why I say it’s a Ponzi scheme. I sold two million records and still ain’t recouped. [2001’s] J.O.S.E sold two million records. When I get my statement from the major label 20 years later, I still owe them money.”
Joe then went on to describe his better experience as an independent artist:” “I put out an album independently on Empire and get distribution. My album might sell 250,000, 300,000 records. I make millions of dollars off of it. What’s the difference?”
There are several differences. When a new artist signs with a major label he or she probably needs the label to establish them with an expensive marketing and promotion campaign. Assume the new artist does well. When the major label deal expires (which could take a very long time), a successful artist can go independent with a distribution deal and usually make more money.
It is very difficult to recoup when you are signed to a major label. An artist will not usually receive more money from the label unless and until the label decides to do another album and give the artist another advance.
As Joe experienced, I recall another situation where a major label claimed they had not recouped an advance from a platinum selling artist. The artist questioned it and planned on doing an audit. The label came back and said, “why don’t we just do another album, and we will give you another advance?” That settled the dispute.
