Stax Records owner Jim Stewart refused to re-sign a distribution deal with Atlantic Records and terminated the agreement (May 6, 1968), after Atlantic was sold to Warner Bros – Seven Arts.
Atlantic had sold itself to Warner Bros – Seven Arts for $17.5 million and the sale activated a clause which automatically called for the re-negotiation of the deal with Stax, which had produced numerous hits for Atlantic from 1961 until the sale, in 1967.
At first, Jim Stewart attempted to negotiate with Atlantic and Warner Bros – Seven Arts, in hopes of receiving a better distribution deal.
Warner Bros – Seven Arts wanted to buy Stax for $2 million, but Stewart felt the purchase the asking price was too low for a label that had produced hit artists like Sam & Dave, Booker T. & The M.G.s, Otis Redding, The Staple Singers and others.
Jim Stewart was soon shocked beyond belief, when he found out that the original deal he signed with Atlantic was not a simple distribution deal – it actually gave Atlantic the ownership over all of Stax’s masters.
“Even though they did no financing of Stax whatsoever, the contract stipulated that the Masters would be owned by Atlantic and not by Stax,” Jim Stewart said in the book “Soulsville U.S.A.: The Story of Stax Records.”
“It was tough to swallow,” Jim Stewart said. “It was a serious mistake that I made. They obviously did not have the right or deserve [ the masters] because they hadn’t paid for them. They never paid for a session. Atlantic Records, I think, had a total investment of $5000 in Stax Records. That was for the purchase of the Rufus and Carla Masters in 1960. For that they got the distribution rights from 1960 through 1967!”
As a result of the turmoil, as well as unsuccessful negotiations with MCA, MGM, and ABC, Stax was sold to Gulf & Western for $4.3 million, thanks to a deal arranged by legendary music executive Clarence Avant.
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