Meredith Fannin
Meredith has long blonde hair and blue eyes. She has fair skin and is wearing a black long sleeve top with puffy sleeves. She is standing by a red brick wall smiling.
As the founder of Darkwave - a firm that specialises in the accountancy and financial side of music - Meredith Fannin is well-versed in knowing just what an artist needs to get the books balanced. With the recent launch of their Darkwave Business Management sector, Meredith shares her insights for what you need to know from 1 July to 30 June and beyond. She chats with Jessica Dale for this week’s VMDO Spotlight interview.
To start out, can you please tell us a bit about yourself and how Darkwave came to be?
I started out in 1999 in an accounting firm called Smith Reid that just happened to specialise in music. I was brought in as a graduate accountant and the person that I was taking over from was their music person. First day, I get there and I get a stack of royalties statements… because back then there were no CSV files, there was nothing electronic. You got the statements in the mail and then you had to transcribe them into spreadsheets and then work out band splits and managers splits from all the royalty statements that came in. Early on, that was my introduction into how it all worked, how the money flowed, the different splits between band members, managers, producer points; all those sorts of things that I learnt first. From there I went into more tax, and working out how that worked in music, in particular, but also a lot of film and sport as well. There was a lot of international tax as well because a lot of clients were large bands, and a lot of people in sport were Australian cricketers, and things like that, so they had a lot of overseas tax issues. That was basically what my early learning was; international tax, royalty accounting, and basically dealing with all the intricacies of the music accounting side of the business, and just how that differed between different bands and different artists. I learnt there were different ways that different managers preferred to work, and their agreements were slightly different based on the dynamic between the band members.
Smith Reid was in Balwyn in the eastern suburbs of Melbourne, and it was sold to another public company called Investor Group. They were essentially buying up accounting firms, and then created this six-figure accounting firm in Australia, which had various divisions and was all in-house. They did insurance, loans, finance, everything. As they kept on consolidating and getting bigger and bigger, I ended up becoming a manager and in that role I was doing a lot of HR and not so much servicing clients (laughs). I didn’t really enjoy that part of it so I left and went somewhere else, and as soon as I left, people just started calling ‘Where have you gone?’, ‘What are you doing?’. I’d gone to work at a different firm that didn’t really do entertainment and things like that. People then began to ask ‘Have you thought about setting up your own thing?’ I thought about it, a few different family things were going on at the same time. I spent time setting Darkwave up at the same time as working somewhere else – because it was a different part of accounting that they were doing – so that’s how Darkwave was born. The reason it’s called Darkwave is that, because I had worked somewhere that did a lot of consolidations, there were always name changes and things like that. One thing that was always common was that the accounting firms either had the word ‘accountancy’ in them, or the surnames or of the partners, or they were street name the firm was in. I was like ‘Nah, I’m going to call it something completely that’s none of that!’
It’s much cooler!
(laughs) So that’s how it came to be! It’s was like, well what sort of music do you like? I tend to like Nine Inch Nails and The Cure; we’ll call it Darkwave. So that’s how it came to be. It started off as just me and then it grew really quickly. Within a year, my partner, who I actually worked with at an accounting firm and he’d gone off and done a CFO role at a large organisation, he came across again and went back into public accounting with me, and we started hiring staff and just kept on growing from there.
On that first day that you started in the role where royalty statements were effectively dumped on you, was there anything in your training that prepared you for that or was it just coming into it totally blind with traditional accounting differing so much from music accounting? Is there anything that prepares you for that and how does music accounting differ?
Well, we knew how to use Excel, so that was a plus! (laughs) But apart from that, really what you get taught at university is very much theoretical and a lot of it is tax-based, it’s corporate, it’s law, or management accounting where it’s more about widgets and price-per-unit sort of thing. From that perspective, it was completely different. But the manager that was there, he was excellent at explaining things. So he went ‘Right, this is how it works, this is how it all flows’. He had all these charts set up for each artist about where all of the contracts were and how that flowed through all of the different countries, and what all the deals were. He was really helpful at explaining it all to me, as a junior. You pretty much learnt as you went.
Generally, how does music industry accounting and business management differ from traditional accounting in other industries? Are we hugely different? Are we a little bit the same? I imagine there’s a lot of crossover but then we have some specific things as well.
In the end it’s the same in terms of the top-level stuff like how it should be structured. All of that part is the same because that’s all part of the accounting standards. But what is completely different is certainly the royalty side, things that you can claim, and some of the tax structuring can be different depending on what sort of entity it is. Then it has quite a lot of similarities with the film industry in terms of there’s a lot of contractors in those industries, there’s a lot of people that flow in and out. There is quite a lot of similarity there, but certainly the way that royalties work, in particular, is different in the music industry to every other industry.
You’ve recently launched Darkwave Business Management which, as I understand, acts as a virtual CFO for your clients. Can you tell us a little bit about this, what the service is and how it helps people?
Basically, it’s an all-in service. The Virtual CFO will do everything from the traditional bookkeeping side to more of the high-level business management side. So things like making sure all the worldwide structures are right, making sure the flow of money is where it should be, making sure that everyone is getting paid on time and being able to do more informative reports on different divisions and different earnings per income stream, so that people can see where they’re making money, where they’re losing money, who they’re paying the most to; how that essentially is all fitting together. And then it’s all about just trying to, in some ways, have an overview so you can show it to artists and say, ‘this is everything; this is what you’ve got in assets, this is what you’re actually making, this is how it all works’. So it’s very much about keeping the creative people informed as to how their money is tracking. What we’ve found, especially during and after COVID, is that there was much more interest from the artist as to how their money was flowing and who was getting what and why. A lot of the time, they were very much like ‘Well, if I’m doing a tour and I’m netting $3 million, how come I’m only seeing $40,000 of that? Where’s it all going and is there anything we can do to improve that?’ And they started to become way more interested in the bottom line and how that impacts them. Most artists realise that they’ve got a limited timespan where they’ll earn a lot of money. Their career might go for 50 years, but usually there’s some albums that do better than others, royalty streams tend to dry up a little bit, some people get a lot of syncs, others don’t. So it’s more about looking at when they’re making a lot of money, and how how do they make sure that they’re getting the most out of that as possible to make sure that they can then continue to work. Then if other things aren’t as successful, that’s fine; they’ve already generated enough money where they’ve got money set aside in passive investments and they own their own home and things like that, so they’re already set up. Then they’re not always kind of going ‘Well, I need to do an album because I need to keep generating income at a certain level’. That’s really quite stressful and the creative process doesn’t really work that way! And you can’t really dictate what’s going to be hugely financially successful and what’s not. You just never know.
Just as an overview, how does a business manager differ to an accountant and a bookkeeper, but then how does it differ again from a regular artist manager?
The business manager is more concerned with the financial side, so it’s more about the handling of the money, the setting up of the structures, looking at things like different bank accounts that they might want to look at. Generally there’s a network … well, we have a network of lenders and insurance people and things like that. Some accounting firms have it so that they just have a person in-house that does all of that, whereas we tend to have a network because we look at it and, especially, say for personal financial planner, what might work for one artist doesn’t mean that the same person is going to connect with someone else. So we have a network; ‘there’s all the people that you can choose from, why don’t you meet with a few and see which ones you connect with and which ones you don’t’. It’s also being able to have someone there to be on the artist’s side. Someone they can approach independently of their manager, or each band member can ask that person independently to say ‘Why is this the way it is? Is there anything we can do here? Why am I only getting paid X amount? How does this work?’ Then they can ask those questions and have somebody they can ask those questions to who doesn’t have any conflicts with any other parts of the business, so to speak. So that’s basically the role of the business management.
But then, an accountant, a lot of the time they’re a tax accountant that will do the compliance at the end of the year and work out to make sure that the way it’s set up is as tax-effective as possible, that they’re claiming everything they need to. And then the bookkeeper is essentially just making sure there’s receipts for everything and everything reconciles, and that everything’s where it should be. Business management pulls all of that together into one. Generally the way we’ve worked is that we all have tax backgrounds first, which then helps in terms of looking to set things up from business management. You know what the end-game is in terms of how you want it to look for tax, and then you can work backwards and go ‘OK, well if that’s the case, this is what entity we should buy, this is how this should flow’. Whereas sometimes others that don’t have a tax background will advise ‘just do this and ask questions later’, and then later the tax accountant will be like ‘What did you do it that way for?’ It’s just not their area, and they don’t know what they don’t know.
Is there a difference in how fees are charged between a full business management service and more standard accountancy?
Australian accountants have typically charged a fixed monthly fee for service for business management, although this landscape is changing. In the US, many business managers charge a percentage, usually 5% on income streams. Historically this has come from the US managers not wishing to manage the money/accounting side of the artists affairs. In some instances, the manager takes a reduced rate of 15% commission due to outsourcing the business management side to a third party. It is common for hybrid models to exist with fees charged on a percentage for certain work and other work on a fixed rate. Regardless of the method, anyone considering engaging a business manager should fully understand what the fees are, what work is covered under that fee arrangement, if there are any on-costs or additional charges and the cycle of the engagement. Equally important from a cybersecurity and financial security and general accounting and payroll compliance perspective is ascertaining if the business manager outsources work to a third party or offshores any part of it to a related overseas entity.
How does the experience differ for a self-managed artist, versus someone working with a management team? How does that experience look?
We find, with the self-managed artists, they typically have more of a vested interest in how it’s going to look. From that perspective, they’re very into finding out and asking. For example, we use Xero; they’ll say ‘Why do you use Xero?’ Whereas if it’s someone that’s [a managed] artist, they’ll go ‘OK’. (laughs) It’s that they’ll ask more questions, which is good, because you’ve got the response, and the response to that question is ‘At the moment, it’s the best product around for creators because we can do things like code by tour, all your receipts can go in there, it’s got full access, it’s got multi-currency, it’s got all these things that make the reporting from the business management side as easy as possible.’ They will ask more questions, which is good, whereas sometimes the [artists] that are with managers will sort of go, ‘Well, I don’t have to worry about that, someone else is taking care of that for me’. And then usually we’ll find that, if they have had that sort of relationship they’ve stepped away from… people will come to us that have been with a manager and say, ‘I don’t know what my structure is, I don’t know if my tax returns are up to date, I don’t know how much money I’ve made, I don’t know where it’s gone’. So a lot of the time we then spend time telling them, ‘Look, this how it’s worked’… a lot of the time they were so busy they just didn’t pay much attention. We’re finding now that there are a lot more artists that are either interested in co-management, where they have a manager but want to be involved in these sorts of decisions as well and want to be across it, and then the independent ones that have very much chosen their own team – their own accountant, their own lawyer, who they want to work with as a publicist, who they want to do their distribution through and all these sort of things. They’ll have worn a lot of the different hats and know who they want to work with. And a lot of it is down to personal preference.
What do you think is a good starting point for artists when it comes to choosing their team?
I think it’s good to talk to a few different people. Generally, most artists, if they’re just starting out, the first people they’ll have contact with – certainly if they’re getting any sort of distribution deal or looking at a management deal – they’ll normally contact a lawyer first to look over the management deal or the distro deal. Then normally the first thing they’ll do is then engage a tax accountant that will help them with when they’re setting up as a trader. They’ll say ‘How does this work? What do I need to do? How do I keep a record of my income and expenses, what can I claim?’ A lot of the time, at that stage, they might have part-time jobs and things like that, so then it’s about ‘How does this fit in with my part-time work? How does this work?’ It’s all about taking them through and guiding them on the basic things about how to keep records and what they can claim, so that they know and can get an understanding and feel for how that works. Then as their career progresses, they’ll look at things like ‘Should I be an entity? Am I doing a lot of touring? What are the risks? What are the tax implications?’ and all those sort of things. Basically, that’s where it starts and it all grows from there. We find, normally, if they’ve got a manager, the manager will sort of introduce [all that]. They’ll say, ‘Why don’t you set up meetings with a few different people’ and then a lot of the time it comes down to personal preference. Sometimes it’s a referral from another artist that’s used their services before. It can vary.
Is there a particular marker for when someone should be engaging a business manager? Is it a certain financial point? A certain amount of work? Do you think there’s a particular point they should?
If they’re looking at it and they go, ‘I don’t want to do this myself’, usually it’s at that point! (laughs) A lot of the time, it’s gradual. They’ll be tax clients first. They’ll be doing a lot of these things themselves, and then they’ll be like, ‘I’m busy touring’ and then they’ll usually have one or two options. Sometimes the manager will say, ‘Well, we can do all of that in-house’, and then they’ll go, ‘Ok, that’s great’. Then sometimes the manager will say, ‘Well, you can use my accountant’ but sometimes there can be conflicts doing it that way. Then sometimes they’ll say, ‘Just appoint someone and see how you go’, and a lot of the time it just grows organically from there.
But definitely, I’d say if they’re doing, in particular, a lot of touring, that normally flags that they could use a business manager just because of the number of invoices that come through and they’re so busy touring that they can’t actually deal with that stuff themselves or they don’t want to. They look at it and they’re like, ‘Well, there’s other things that I’d prefer to do…’
When someone’s like ‘OK, yes, I’m ready to start working with a business manager’, are there particular questions or background checks… What should they be doing to help minimise risk in that situation?
So there’s a couple of things they can certainly do. One is just to check their credentials, especially business managers. Anyone can really call themselves a business manager – there’s not an association of business managers! – but there are accounting bodies, so you can always check to see if somebody is a CPA or a Chartered accountant or a Public accountant. There’s three different websites for those. I’m a Chartered accountant and on ours you can just search people’s names and they’ll come up. CPA, I believe, you’ve got to email them and they’ll say yes or no, and the Institute of Public Accountants is also public so you can just search through the names.
The other thing to do, particularly if they’re doing any sort of tax work – everything from business activity statements (BAS), payroll, super, income tax – there’s a Tax Practitioners Board. There’s two different types; there’s BAS agents and tax agents. Tax agents can do everything from GST to PAYG, withholding, and all sorts of tax structuring, whereas a BAS agent can just do GST and super and PAYG. That’s the difference there, they’ve basically got more limits on what they can do. That [register] is also public, so you can just search people’s names. And if they work for a company, then usually the individual will be registered and also the company will be as well, and that will say if they’re registered and if there are any limitations on what they can do based on their registration. They are two good places to start. And the reason that you would use someone that was a BAS agent or a tax agent or a member of an accounting body is very much to do with [the fact that] we all have codes of conduct that we’ve got to abide by and, for example, as part of our membership, all of the money that we hold on trust for people or if we have access to people’s bank accounts, that all gets audited by a third party. So they know that ‘OK, well, even though they have access to everything, that all gets sent off to an auditor each year to make sure that everything’s above board’. But it’s also to do with things like insurance. If you’re using someone that is not registered and they give you advice that isn’t correct, then you don’t have any recourse if they’re not registered.
Eeek! Important to check!
(laughs) Yep!
I just have one final question for today and it comes from how you were saying at the start how CSV sheets weren’t being exported when you were coming up against royalties. Obviously the technology has changed quite a bit since then, but I was wondering, in terms of a broad scope, has there been any technology updates that have really impacted the work that you do and make things easier for both you and the people you work with?
I have to say streaming. In the past, pre-streaming, the royalty statements were relatively compact, but with the streaming ones, they now go [long] (laughs) I can’t even imagine if it was still all manual and having someone import the 0.001 cents and splitting it five ways between the band members! Just mind-numbing!
But what has happened recently, apart from the fact you can download everything to CSV, a lot of the companies - in particular, the one I’m thinking of is AWAL - when they were bought by Sony… in the past you couldn’t produce, in particular, producer statements and mixer statements directly from AWAL. They didn’t have that as part of their offering. But when they were bought out by Sony and they changed over, now you can. Now it’s great – you can set someone up as a collaborator, put in their percentages and the report just spits out for you. Obviously it just means that, one, the artist doesn’t then have to pay a lot of money to have an accountant do that for them and, two, it means that the producer or the mixer isn’t chasing them because they get paid direct and they get those statements directly from AWAL. So that’s actually been a bit of a gamechanger and been really, really helpful. Especially for a lot of the independent artists that a lot of them are with.
All the analytics in it, it’s all of those sort of things where, when they were on paper, you couldn’t see any of it at all. Now you just click a button and you can see what songs are making money, which ones aren’t, which territories. It’s great!
Are there any other tips you’d like to share?
There is one thing that I’d like to flag, and it’s more to do with the recent identity thefts… it’s just to remind people to not send things like their passports and tax file number and things like that via email. Keep those offline somewhere safe, and if they do have to provide them, make sure that it’s provided and then deleted so it’s not just somewhere on a system. I think that’s probably going to be one of the main threats, the level of online fraud. Often artists will send through their login details on emails and invoices with their tax file numbers and dates of birth on there, those sorts of things... It’s just something to be cautious of, I think, and make sure they are mindful of where that ends up.
I’m glad you brought that up; it feels like every time you pick up the phone it’s a scam call, and we work in an industry where we get calls from so many numbers that we don’t know, be it production teams or different venues. Every time you feel like you’re at risk of getting scammed, and it’s easy to see how it happens.
Oh yeah, and particularly around tax season, there’s always heaps and heaps and heaps of tax scams, where they say you owe money when you don’t. They’re just trying to get someone’s details to be able to log into their myGov account. That happens quite a bit. Once they’re in there, they do things like register people for GST that aren’t registered, put in fake BAS’s, amend and lodge old tax returns and claim extra refunds from them. It’s crazy the sorts of things that happen. So don’t give people your myGov details!
There was a big scam last year that the Federal Police uncovered. It was a GST scam; they’d managed to get a whole lot of people’s details and backdated GST registrations and claimed false GST refunds. It was a huge amount, billions and billions of dollars. So make sure you’ve got two-factor ID setup on most things.
Find out more about Darkwave here.