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Do 360 deals help or hurt musicians and record labels?
CP Cheah /flickr.com
Time again to answer your questions about the music industry. So far we've tackled why physical recordings are the size they are; why songs fade; and what a hook is, among other topics.
Our question today comes from Wes Davenport, who asks:
I would like a story on 360 deals in the music industry. From what I understand, these deals take over duties involving merchandise, concert booking, and other aspects of the business to increase profits and ease the load on the musician ... These deals are controversial among the musicians I've spoken with. Some of them like being freed up to create music. Many, however, see it as a ploy to grab more money from the artist. I can see how this is controversial, particularly since the internet provides outlets to substitute for a label's services.
Wes has the basics, though Danny Goldberg, President of Gold Village Entertainment -- which represents artists -- is quick to say, "a 360 deal is not something that has a precise definition. But in general, what it means is usually a deal with a record company in which the record company also participates in the income of all of the other aspects of the artist's work, such as songwriting and merchandise, in addition to making money off the records."
Hence the term, "360 deal." But even that is a bit of a misnomer, according to Glenn Peoples, Senior Editorial Analyst for Billboard magazine.
"Most deals are about 270, maximum, not 360 degrees," he says. "In theory a 360 deal encompasses all revenue that an artist brings in, and hence the name, '360 degrees.' I'm going back and forth between '360' and 'multi-rights.' Usually in my writing I call it 'multi-rights.'"
The first 360 or multi-rights deals that gained wide attention were not between artists and record labels but between performers and the giant concert promoter Live Nation. Madonna signed a 360 deal with Live Nation in 2007 that landed the performer a reported $120 million over 10 years and gave Live Nation a share of her touring revenue -- but no money from recorded music. The following year, Jay-Z signed a deal with the concert promoter worth roughly $150 million over ten years.
Peoples describes how these kinds of deals work:
"If Live Nation is your promoter -- and when you have this deal they're the exclusive promoter -- you're gonna be making money on touring and Live Nation as a promoter is gonna take their cut. So in a multi-rights deal that wouldn't change. Once you bring in merchandise, that adds another element to it. And Live Nation wants to add merchandise to it -- that it can sell at its venues and through its websites, and it can leverage the relationships it has with its concert goers and ticket buyers. Originally Live Nation did want to get into recorded music also. And they briefly formed a record label, Live Nation Music, and actually signed Zac Brown Band. They promoted the first single, and then dropped the label and Zac went to Atlantic."
Peoples says Jay-Z's deal with Live Nation was different: it created a joint venture for the performer to run some of his businesses through Roc Nation and Live Nation. "These are superstars," Peoples says, " and these are very different deals than the baby bands are signing with record labels."
A multi-rights deal can include merchandise sold at concerts, band web sites and brick-and-mortar retail outlets as well as revenue from touring, sponsorships and even fan sites -- all of the ancillary revenue streams that an artist generates.
"So merchandise is a bigger part of a record label's pie," Peoples continues, "and as it becomes a bigger part, they're taking revenue from artists. So, it's been called a land grab, which is not totally accurate, but it does I think reflect the impact that a record label has on an artist's career."
As an example, he cites the most recent figures from Warner Music Group. In an earnings statement this month, Warner reported that non-traditional income accounted for 13% of revenue in its most recent quarter and 10% for the full year.
"Non-traditional revenue is the kind of stuff in multi-rights deals," says Peoples: "10% isn't much, but it's a big improvement from nothing -- which is where non-trad revenue was just a few years ago."
Danny Goldberg's Gold Village Entertainment represents 15 artists, including The Hives, Teddy Thompson, School of Seven Bells and Steve Earle. Goldberg says it wouldn't make sense for 14 of them to sign a 360 deal.
"But one of them, a band called Care Bears On Fire, it did make a lot of sense for them to do a deal like that with S-Curve Records. They were brand new artists; they were still in high school; the amount of investment required to give them a chance was very risky because they didn't have an existing fan base. For someone [S-Curve Records] to take a six-figure risk in that one instance, it made sense. I don't think it's a theological issue with an absolute right or wrong about it. It depends with the artist and the label. Most of the people I represent, it doesn't make any sense, because they already make enough money live."
Goldberg says the label kicked in "hundreds of thousands of dollars" to make a Care Bears on Fire record and subsidize touring and marketing. And he points out that the label has no guarantee the band will earn enough of an audience to generate enough income to recoup the investment.
For labels, multi-rights deals are, in large part, a reflection of a music industry that's seen record sales plummet over the past decade. Peoples says a label's investment in an artist with a 360 deal now comes back in a number of ways.
"Part record sales, part merch sales, part touring, part music publishing, part everything else. In the past, music sales were enough to merit that investment. So if sales were still fantastic, like they were ten or eleven years ago, the impetus would not have been there to go into these multi-rights deals."
There have been plenty of criticisms that the labels are just trying to grab whatever income they can wherever they can to make up for lousy record sales. And the label's involvement with a band can vary. Peoples describes what he calls "active" and "passive" deals:
"In a multi-rights deal, the label could just take the money even though they're not providing any value for that revenue stream, and that would be a passive deal. And a more active deal is one where the music company owns a promoter or a merchandise company and is actually actively working the rights for those artists and taking a cut."
All of the majors now have merchandise divisions, says Peoples. And they've always had music publishing arms, which control the rights to the songs themselves. But even those divisions are diversifying.
"Sony/ATV Music Publishing, for example, sells shirts at Zazzle.com that have their song lyrics on their shirts," Peoples says. "They've also done similar things at retail with their song lyrics which, along with the composition, are part of the rights of the music publisher. So they're getting very creative."
But back to the question of what's in it for the artists. Goldberg points out that record sales are half what they were a decade ago yet records are still the vehicles through which most artists market and promote their careers.
"They need to incentivize someone to do the marketing. Depending on where they are in the world as far as their sales base, do they have money or do they need money? Sometimes it makes sense to incentivize a company to spend money by giving them [the company] a participation in other income streams. Records alone don't have the value they used to have, but the marketing still costs approximately what it used to cost."
And Goldberg says multi-rights deals work better for different kinds of music than others.
"For a certain kind of artist, say someone who wants to be the next Justin Timberlake, the majors still have a unique value. For a rock band, for someone who wants to be the next REM, they don't. And that's why you see an artist like Arcade Fire -- it has the number one album on Merge Records and sells out two nights at Madison Square Garden."
The power of alternative media, touring and the Internet work to a smaller rock band's advantage, says Goldberg, but the labels still have the advantage in country music and overseas. But in the U.S., multi-rights deals are standard now, says Peoples.
"So newer bands are definitely giving up a piece of a lot of different revenue streams. I think just like old record contracts, some of them work well and you sell a lot of records, or they don't work well and it goes bust. When you're successful everybody's happy."
We hope that answers your question, Wes -- probably more than you wanted to know. Please keep your questions coming and we'll do our best to answer them. Write us at email@example.com.