360 Degree Record Deals
In the face of declining record sales, record companies are presenting some artists with 360 degree deals, enabling the record company to share in revenue traditionally only collected by artists. This article looks at the arguments for and against these deals and what artists should consider before signing them.
What are they?
360 degree record deals are recording contracts that allow a record company to participate in income streams traditionally reserved for the artist. Rather than simply sharing in the income earned from record sales, under 360° deals (also called multiple rights deals) record companies share in the income received from non-record streams such as touring, merchandise and endorsement.
While some 360° deals simply involve the label getting a percentage of all income streams, others also provide for the record company to be heavily involved in all areas of the artist's career development. Under this more interventionist model the record label basically takes on the role of the artist-manager and becomes involved in decision making in relation to touring, merchandise, endorsement and so on.
When did they first appear?
The new deals emerged in an early incarnation with the deal Robbie Williams signed with EMI in 2002. It is not possible to determine with any certainty the number of acts currently working under such deals but it seems that their prevalence is rapidly increasing. New acts signing with major labels are likely to have to enter into 360° deal discussions, although undoubtedly some artists are resisting the new deals. Acts such as the Pussycat Dolls and Paramore have been reported in the media as having been signed to 360° deals and in 2007 it was confirmed that Madonna had signed a $120 million deal with Live Nation (a concert promotion company). It was reported in the Wall Street Journal that in exchange for cash and shares, Madonna gave Live Nation distribution rights for three future albums as well as rights to promote live concerts, sell merchandise and licence her name and image. By contrast artists like the John Butler Trio and Radiohead are moving in the other direction and instead of giving more to major record labels are bypassing the major recording companies entirely. These artists have shown that signing with a major record label is not the only distribution model for music and that each artist needs to work out a model that works for them.
Why do record companies want to use them?
The 360° deal has arisen as a response to the changing nature of the music industry. Over the last decade, revenue from record sales has steadily decreased as a result of increased piracy and consumers choosing to forgo the purchase of whole albums in favour of digitally downloaded individual songs. At the same time, revenue from ticket sales, merchandise and endorsement deals has steadily increased. Therefore it is not surprising that record labels are looking for ways to increase their share of the revenue pie through the introduction of 360° deals. From the perspective of the record labels, they are the ones spending money investing in the risky and expensive process of developing talent and they should be able to share in the increasingly (at least comparatively) lucrative non-record sources of income that arise from the artists' profile building.
Pros of 360° deals
Proponents of 360° deals argue that the 360° model allows record labels to scout for a wider range of acts and talents. Record companies no longer have to focus solely on artists that sell lots of records but can instead focus on acts that might attract big endorsement deals or on hard touring bands like the Grateful Dead that don't necessarily sell lots of records but attract a loyal fan base that come to all their gigs and buy plenty of merchandise.
In exchange for getting a bigger cut from the artists they represent, the record companies say they will commit to promoting artists for a longer period of time and will actively try to develop new opportunities for them. The record label becomes a pseudo manager and will look after the artist's entire career rather than only focusing on selling records. Record companies are also interested in the potential for cross-marketing items such as CDs, ring tones, concert tickets and merchandise. The major labels are making significant investments in companies specialising in artist management, marketing, touring and web networking. The greater the diversification of the record label's business the greater the potential for cross-marketing opportunities.
Cons of 360° deals
While a more holistic approach to developing an artist's fan base certainly sounds appealing, some remain sceptical about the actual benefits for artists. Unless under the 360° deal the record label is offering some tangible additional benefits such as larger advances, significantly better record royalties or excellent managing and marketing skills and infrastructure an artist may be worse off under a 360° deal.
Some members of the music community argue that many artists have traditionally made very little money from record deals but have been willing to accept this because the recording is a promotional tool which helps the artist increase revenue from other income sources, including touring, merchandise and endorsement. Opponents of 360° deals claim they are a thinly veiled money grab by the record companies. They argue the labels have failed to adapt to the changing nature of the music industry and are now expecting artists to bear the costs of the record industry's failings.
Some critics of 360° deals are sceptical about the whole band as brand notion that make 360° deals potentially profitable for record companies. It is argued that while the band as brand notion might suit acts like the Pussycat Dolls who now have a Dolls-themed nightclub in Las Vegas, it is not equally suitable for more alternative acts who would see that type of brand development as contrary to their ethos and likely to undermine their credibility. While 360° deals may be premised on 'band as brand', the truth is that corporate partnerships and endorsement deals can be very lucrative for the artist and provide great marketing potential. The key for the artist is to make sure that under any deal they sign they have the requisite degree of creative control to ensure that their brand develops in a way that they are comfortable with.
What should artists consider when faced with a 360° deal?
Unless an artist is familiar with the legal issues and confident that he or she understands the meaning of the deal presented to them by the record company, it is a good idea to get legal advice before signing a contract. Arts Law can refer artists to lawyers with relevant experience, or members of Arts Law can get a free one-off legal advice session on the contract through Arts Law.
The artist needs to be confident that the record label has the resources and expertise to properly fulfil its role. In a climate in which record labels are often reducing staff levels, it is reasonable to question whether the labels really have the resources to deliver what they are promising. Even in situations where the artist feels comfortable that the record label has the expertise and resources to provide the additional support they are promising, the artist should ensure that the contract clearly sets out what the label is promising to deliver. If the language used to describe the label's obligations is vague then it becomes very difficult to enforce if a dispute arises.
The other issue for artists to think about before signing a 360° deal is that broader 360° deals may require artists to give up some creative control in relation to merchandise, touring and licensing. It is important for the artist to understand whether they are merely granting the record company passive participation in income streams or, alternatively, an active role in making decisions regarding those income streams. If the label wants an active role then the artist should be aware of, and comfortable with, the consequences of that; for example, does the artist want the record label having a say in the act's touring schedule and the salaries of technical support employees hired by the artist?
Artists shouldn't necessarily jump at the first offer that comes along because an exploitative record deal is unlikely to be better than no record deal at all. Like any contract, it is all about the terms of the deal. If the artist can negotiate tangible benefits in relation to advances and royalties then there is no reason to prevent the record company from sharing in the non-traditional income streams, particularly if such a deal allows the record company to take a more holistic approach to develop a longstanding career for the artist, results in increased services for the artist or in getting a recording made that they cannot otherwise obtain.