The torrent of technological and economic changes that have reshaped the industry over the past decade means that showbiz pros and stars are earning fewer dollars and more dimes — and the dimes are flowing in from an ever-increasing array of sources that span international borders and a multitude of distribution platforms.
This puts ever more pressure on business managers — the custodians of these individuals’ private wealth and personal affairs — to make sure the coin is accounted for and maximized.
This is especially true in the music business, where radio is being usurped by such streaming services as Pandora and Spotify, and where online downloads of digital singles from iTunes have vastly diminished purchases of CD albums from brick-and-mortar retailers.
“There’s so much money coming from so many different places, and if you don’t have an expertise in each area, you won’t be able to count money and you won’t be able to maximize the clients’ profits,” says David Bolno, a partner at Nigro Karlin Segal & Feldstein.
The pros at NKS&F saw the writing on the wall a number of years ago and decided to create several departments to service their music-industry clients. One, the royalty division, is a six-person unit of the firm’s 70-person audit group.
Plus, with sales of recordings declining, musicians are becoming more entrepreneurial and creating their own revenue streams, necessitating additional fiscal oversight.
The firm WG&S, whose clients include Metallica, maintains a satellite office in San Rafael, Calif., where members of the band reside, to provide support for their multitude of business interests, which include a record label, a magazine, a fan club and direct-to-consumer marketing of recordings and merchandise.
In situations like these, “our role is really as the outsourced CFO and back-office financial operations,” says Eric Wasserman, WG&S managing partner. “We support all of the collections, the paying of the bills, the royalty or profit reporting on the businesses, the financial reporting to the client and then support all the tax compliance.”
Andrew Meyer, a partner at Freemark Financial, dealt with a similar dynamic when helping facilitate a YouTube deal for a high-profile director that gave him capital and creative freedom, but no studio-like infrastructure. “About 40 people in our firm can provide not only the accounting, but also budgeting,” Meyer says. The firm’s work, he adds, is partly about figuring out how to run companies efficiently “and get as much of that money up on the screen as possible.”
With the business and its players more scattered than ever across the world, residing and working in multiple jurisdictions, tax matters can get thorny. Typically, filmmakers are being drawn away from L.A. to take advantage of production incentives in such states as Louisiana, New Mexico and Georgia, plus other locales around the globe, creating a maze of multi-jurisdictional tax obligations for business managers to sort through.
“We need to be intimately familiar with the taxes both in the country of residence and the host country (our clients) are working in,” says Peter Mainstain, senior partner and co-founder at Tanner Mainstain Blatt Glynn & Johnson.
One of Mainstain’s clients is a U.S. subsidiary of a European TV and film production company that in turn has set up its own subsid in Canada to produce content for Canadian TV. Another is a dual citizen of U.S. and Canada married to a U.S. citizen who has set up a Canadian company to take advantage of Canuck content rules, which provide both tax credits as well as subsidizes.
“We do have tax treaties with many countries, so there is some measure of relief, but not always,” says Mainstain.
Endorsement deals are another changing arena. A growing source of income for celebrity clients, they also often involve cross-border issues.
“Initially (only major) companies would want to align with a big celebrity,” Meyer says. “Now smaller companies are willing to cut big checks and give big equity positions, but it requires a lot more due diligence, examining multiple years of financial statements understanding the strengths and weaknesses of the company.”
And it’s all for the clients’ protection. “The last thing we want is for our clients to associate themselves with a company that does a nosedive,” Meyer says.