There is a new standard in record deals. For better or worse, the 360 deal is here to stay. Even though the music industry is as slow as your grandma’s driving, it cannot seem to get away from itself. The slow reacting, one time behemoths of the music industry (the major labels) have only recently come out and publicly stated that its past revenue model is dead.
The way the labels traditionally have made money is to sign a band up for several years and/or several albums. The labels would give the band an advance that would go toward recording costs or possibly tour support but oftentimes toward cars and women. The band, now starting in the hole of owing the label money, would wait until it sells enough records for the label to recoup its advance (and other miscellaneous costs). If the band was successful enough to bring their account back to even, the label would fork over between 10% and 15% of the royalties earned through the sale of the band’s albums.
The problem with this model (from the label’s perspective) is simply that it no longer works. Record sales have plummeted, pirated and web based sharing of music has become the norm. Oh, and the economy doesn’t help either. Labels can no longer depend solely on physical or even digital record sales to turn a profit. During the month of February, the top selling album, Taylor Swift’s Fearless, sold a pitiful 62,000 units. Record sales for the months of January and February of 2009 are down over 28% from just two years ago. These numbers coupled with the ease of distributing music to the masses without the help of a label’s network, has almost run the majors clear out of business.
After years of decline, the labels (albeit unnamed sources) have finally admitted that their business model is not working. An anonymous source from a major label recently admitted that the way majors do business will be extinct by 2013 if not earlier. Check out the full article here. The exec states something that most of us representing musicians have known for a long time, a label cannot survive without forming a partnership with the artist. It has to share in the ups and downs of a band’s career and provide services throughout the entire relationship, not just when the band is hot, to truly do its job. That is why the 360 record deal is the new norm.
I have written about the 360 deal in the past. Click here for the past 360 post. It was a safe prediction that these modified record deals were here to stay. A 360 deal enables a label to share in the revenue a band or artist generates from all sources, not just from the sale of records. That means when Madonna or Jay-Z (both of whom have 360 deals with Live Nation) sell out an arena or sell a new fragrance at Macy’s, some of that money goes to the label. The label shares in all 360 degrees of income of a musician’s career.
While this may not seem fair or just, label execs who push these deals argue that they should share in all income a recording artist makes due to the fact that the label has made the initial investment into the career of that artist. So basically, without the label, the musician would still be selling out Joe’s on Weed Street rather than Madison Square Garden. The label feels that it should earn along with its artist. They argue that their incentive to support and market their artist in all aspects of his career, not just the sale of cd’s, is built into a 360 deal. The label will help an artist land a film deal or write a book or get into acting because they have a cash incentive to do so.
As I have written before, the label’s reasoning behind the 360’s makes sense on the surface. However, just like with everything else in the music business, be cautious. 360 deals come in all shapes and sizes. They still may take complete ownership of all of a bands copyrights without reasonably compensating the artist. Some egregious agreements will have ridiculously long terms allowing the label to continuously benefit from a small investment it made 10 years ago.
I have been working with some forward thinking bands and managers to come up with a justifiable music model that takes the principles of a 360 deal and shapes them into a true business partnership. An investor will form a limited liability company (LLC) and share ownership in the LLC with the artist. The business, that is the artist’s career, will be governed by an operating agreement; just like a normal business (revolutionary, I know). This will allow for flexibility on both sides. An artist could eventually buy out the investor or the LLC could invest in new talent and form a subsidiary. A lot of the things are possible with the right team and the proper paperwork.
If you have questions about 360’s or other business models for musicians, drop me a line. Even better, come to my showcase: