Collecting Assets

I’m currently in the middle of reading Richard Branson’s autobiography Losing My Virginity and just ran across the following rather interesting passage:

With this background in mind, Simon and I developed three key aspects of our negotiation for Virgin Records when dealing with bands. We never formally articulated them to each other, but our negitiations over Mike Oldfield taught us the following general principles.

We set out to own copyright for as long as possible. We tried our hardest never to agree to a deal where the copyright reverted to the artist because the only assets a record company has are its copyrights. We also tried to incorporate as much of an artist’s back catalog into our contract, although this was often tied up with other record labels. Beneath all the glamor of dealing with the rock stars, the only value lay in the intellectual copyright of their songs. We would thus offer high initial sums but try to tie the artist in for eight albums. Over the live of Virgin Records, we prided ourselves that we had never lost a band. We never lost a band because we always renegotiated their contracts after a few albums, although ironically Mike Oldfield was one case where I was too slow to renegotiate and I almost lost him. The vital thing with a new band was if you built them up, it would often be their third or fourth album that would be the most valuable. The last thing we wanted was to lose them after a couple of albums only to see them become successful with another record label. One good example of this was the Human League, who had made two albums, each of which had sold progressively better, but who then broke into the big time with their third album, Dare, which sold over two million copies. After we signed the artist up, we would soon try to extend the contract, and although we might give away two or three percentage points in royalties, it was a small concession in comparison with the potential of adding another two albums onto the end of the contract.

Right from the start Simon and I tried to position Virgin as an international company, ad the second thing we always insisted on was incorporating worldwide rights to the artists’ copyright in our contracts. We would argue that there was less incentive for us to promote them in Britain if they then used their success here to sell well overseas.

Our last negotiating point was to ensure that Virgin owned the copyright of the individual members of the band as well as the band themselves. It was sometimes difficult to define a band; for example, the Rolling Stones included Mick Jagger, Keith Richards, Bill Wyman, and Charlie Watts, but a number of other people came and went. The record industry finally defined the Rolling Stones as “Mick Jagger plus two others.” Some bands split up and players in them became individually successful. Genesis is perhaps the prime example, as Peter Gabriel and Phil Collins both became bigger stars outside Genesis than they had been within the band. We had to ensure that Virgin didn’t sign a band only to be left with an empty shell while the lead guitarist went on to succeed as a solo artist on another label.

Lately I’ve been listening a lot to Robert Kiyosaki’s You Can Learn to Be Rich CD series. In it he talks a lot about how the poor and middle-class spend their money and time collecting liabilities while the rich spend their money and time collecting assets. He makes a very strong case for assets such as businesses, paper assets (for example, stocks and bonds), and of course, real estate.

After reading this passage, it hit me: this is the same kind of stuff I saw happening with my old job at DS. The owner — who I always considered a damn good business man — would spend a ton of time and some money collecting articles.* The preferred method was to get the articles for free from the writers (for a long time that was the only way we got articles), or to pay them what I considered to be a pittance. (After doing the math and figuring out the ROI I realized that it was a great business model, even though it involved what I believed was the exploitation of writers.)

(* Note: Although I always saw him as a pretty good businessman — most of the time, though sometimes, to his own detriment, he became the proverbial “Capitalist Pig” — and did my best to observe what he was doing and how he did things/thought about things, that didn’t change the fact that I neither liked him nor respected him as a person. Judging from what I’m reading, it looks like this guy took a few lessons from Branson himself — who seems like a bit of a jerk from his book — although Branson seems to have quite a bit more people sense than the DS guy ever had.)

I always wondered why it was so incredibly important to him [the DS guy] to keep the copyright. Now I understand: he was collecting assets. The problem was that he wasn’t asking for copyright for a year or two (as I had seen in other content-based sites I had worked for), he was asking for copyrights in perpetuity. Among small-time writers, within writing guilds and in writers’ unions, this practice is considered totally onerous, since it basically states that the writer’s story is no longer the writers and can never again be. In Branson’s case, at least the artist would receive residuals and eventually, one day, the possibility of gaining copyright of their own work(s). In this case, no royalty was ever offered to the writers**, and the publisher would keep control in perpetuity.

(**The only time royalty was offered was to a company who wrote a number of pieces for him, but required that they be paid something like $250/year for each article in perpetuity. Although I think royalties or copyright control are fair to an extent in this situation, in this case the writing company was taking advantage of that guy’s weak position at the time.)

For the record — and this I know will be of interest to certain people I know rather well — the passage continues with the following:

The only other great truth we found was that if we wanted a band, we had to sign it almost no matter how high the bidding went. An artist on another label was just that: nothing to do with us. Part of the secret of running a record label [Editor’s Note: Or any other business] was to build up a great sense of momentum, to keep signing new bands, and to keep breaking them into the bit time. Even if a high-profile band lost us money, there would be other intangible benefits, such as attracting others to sign with us or opening doors to radio stations for our newer bands

Although there are a number of lessons here on how to conduct business fairly and honestly — especially in the “what not to do” and “how not to take advantage of people” camps — the lesson I want to focus on is this: collect assets.

Here’s a little exercise for you: Do you know what an asset is? Can you tell the difference between an asset and a liability? If you can, on a sheet of paper write down all your assets and all your liabilities. Are you maximizing your assets? Can you turn some liabilities into assets? (Hint: a house, unless you’re renting it out, is not an asset. Same with a car.)

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