It's daylight Robbie: a record label's lament

Music firms can't afford to pay big stars, and they can't afford not to

Robbie Williams is a lucky man. Not only does he have half the country's population drooling over him, he is being courted by some of the largest record companies in the world.

Along with Kylie Minogue he is one of the bright spots at EMI, the British music group which has had more upheavals than the Irish football team, and he has completed four best-selling albums for the company. But the contract is up for renewal, and rival record companies BMG and Universal are slavering like teenage groupies.

However, the time is not ripe for a big bidding war in the music biz as global sales are plummeting. Last week, EMI reported profits of £150m, half the amount of the previous year. This was largely due to illegal piracy of its music, an issue crippling the industry. Yet EMI is understood to have offered Robbie a £40m contract to keep him on board.

At first glance, it is hard to see how EMI can justify this figure, especially when other costs are so high. On top of the artist's fees, the record company has to pay for promoting his image, developing his rec-ords and sending him on tour. Herds of spendthrift fans are needed to make it worth while.

Pop Idol judge Pete Waterman, the man who brought us Rick Astley, recently hit out at "greedy" pop stars. He signed Kylie on his PWL record label in her "I should be so lucky" days. He said the expense of turning the former soap actress into a pop star nearly led to the company going bust, as at the time it had £9m of debts. EMI was able to pick her up for a song.

Recording contracts can also turn into an expensive embarrassment. Take EMI's recent blunder when it signed Mariah Carey in an estimated £70m deal. Her first album for the company, Glitter, only sold two million copies. She then appeared to have a nervous breakdown, and EMI had to give her a pay-off of around £20m. She has now signed for Universal.

High-profile musicians are notorious for being unpredictable. "The bigger the artist, the less control you have over them. If they decide they want to go and find themselves for a couple of years, you can't stop them," says Patrick Wellington, media analyst at Citigroup.

The potential pitfalls mean record companies are heading in a different direction. EMI's new chief executive, Alain Levy, has told investors that it will avoid over-spending on big stars and instead will try to nurture home-grown talent. Because unknown acts cannot negotiate telephone-number contracts, they will be very lucrative for the record company if they become superstars.

But there are other benefits from signing a big artist; it isn't just a question of turning a profit. "It not necessarily due to the commercialisation of a product. It can be to add to the prestige of a label or to attract other artists or investors," says Keith Harris, chairman of the Music Managers Forum, the trade body that represents the brokers who negotiate contracts on behalf of the stars.

The complexities of deciding which stars will be hits, which flops, and how much money to pay them makes signing a record deal a big gamble. "It's a lot like doing a bet on the racecourses, because you can be an expert but sometimes you are not going to win," says Chris Morisson, who manages pop bands Blur and Gorillaz (both EMI acts).

To try and reduce the risks, the headline amount of a recording contract is not immediately paid out of the record company's bank account like an extravagant wager. Pop acts have to wait before the money rolls in.

"They don't get a big cheque upfront," explains a spokes- person for Universal Music. "The contracts are all different, with different clauses and delivery deadlines, so it is impossible to compare like with like."

Often the stars will get a small proportion of the deal as an advance, but the rest of the cash is paid over time, and will depend on the success of the album. "In a £20m deal, the first album might be worth £1m, and if that goes well, the next could be £5m. Then if that goes well, the £14m would be paid," says Mr Harris.

It is the minutiae of these contracts that can lure or repel big artists when they're the subject of a bidding war among the record companies. While Robbie's contract is being negotiated, Mr Levy has a tough job to balance the risks of the star going loopy or becoming unpopular, with the lucrative prospects of another four best-seller albums.

Ultimately, stars like Robbie and Kylie can be as financially desirable to the record companies as they are physically desirable to their fans. Or not as the case may be.