Article Title
Article Title

Exploring The 360 Deal

by Suz Paulinski

 

As early as 2002, with the pioneering deal between EMI and British pop star Robbie Williams, the major record labels have been exponentially increasing towards deals that allow them to have a stake in all aspects of an artist’s portfolio of income, beyond only record sales. These deals are often referred to as "360° deals." Throughout the decade, certain milestone deals loosely based off of the Robbie Williams’ model have made headlines, such as Live Nation’s $120 million deal with pop music’s queen, Madonna, in 2007; Atlantic’s 2007 deal with then-emerging rock band, Paramore (for approximately $200,000); and Live Nation’s 2008 deal with hip-hop tycoon, Jay-Z, reportedly worth $150 million.

Many have postulated that the major labels (and outside promoting juggernauts, such as Live Nation) began experimenting with alterations to the traditional recording agreement due to the financial crisis brought on by consumers’ illegally downloading music combined with the subsequent decline of CD sales; companies needed to find additional streams of revenue to stay alive.

Although an ever-increasing trend, this business model has created a bipartisanship within the industry. Identifying the enthusiasts from the naysayers is not as easy as one may think; it is not simply a case of labels vs. artists when discussing who supporters of this kind of deal. Many artists find this business model to provide an otherwise impossible well of funds and resources in order to promote their music and grow their brand, while some music executives warn against giving a label such control over one act. While such arguments will be further discussed below, like them or hate them, 360° deals are not fading out anytime soon. Universal Republic Records president  Monte Lipman confirms, “I don’t think there’s a deal being made today where the 360 model doesn’t come up.” In order to understand this turn in business ideology we must first understand the model’s components.

This artist agreement structure has gone be many names, including a “multiple rights deal” or “equity sharing deal.” While these deals can often vary across not only labels, but even within a single label’s roster, the basic structure is the same: The label offers the artist a cash advance (usually more substantial than one offered under a normal recording contract) in addition to paying for the upfront promotional and marketing costs. In exchange, the label is granted the opportunity to recoup not only from the album’s sales, but also profits from touring, merchandise sales, promotional appearances, endorsements, licensing, etc.

Furthermore, once the advance and promotional costs have been recouped (which must occur before the artist sees any profit from any source of income listed in the agreement), the label is then entitled to a sizable percentage of each source of income for either the life of the project, or for a specified duration of time agreed upon by the parties. Like any artist agreement, the amount of the advance, the promotional budget, and the label’s percentage share in profits can drastically change on a per album basis, depending on the artist and the renewable terms set forth in the agreement.

With a traditional recording artist agreement, an artist or band must pay back their advance and all promotional costs incurred by the label from album sale profits before they see any money from the sale of the album. In addition, the label usually shares (and it is usually a majority share) in licensing royalties as well as synchronization royalties, which are monies paid for use of an artist’s music in television shows, commercials, movies, etc. The graph below, with information provided by Hypebot and graphics work by nate, illustrates the breakdown of money from album sales, after the label has recouped costs, with an artist raking in approximately $23.40 per $1,000 in album sale profits.

It’s safe to say that an artist’s income does not come from royalties of album sales, as they usually own a very small percentage of the album’s profit share. If they are the main writer on the album they will receive a larger share of profits from publishing rights. But an artist will rarely get rich off of album sales, even if they are selling a considerable amount of copies.

One of the most well prominent cases of an artist's financial woes is that of TLC. Upon selling over 10 million copies of their 1994 sophomore effort, CrazySexyCool, TLC filed for Chapter 11. As the late Lisa Left-Eye Lopes explained in their 1999 VH1 Behind the Music special:

This is how a group can sell 10 million records and be broke, and everybody get ready to do your math. There are 100 points on an album, TLC has seven; every point is equal to 8¢. Alright, seven times eight is 56¢. That means every time an album gets sold, TLC gets 56¢. Sell 10 million records: $5.6 million. So, LaFace Records had to spend about $3 million on [CrazySexyCool], so that automatically gets deducted from the $5.6 million before we can see a penny. Now, we have $2.6 million dollars left to split between the 3 of us. Well guess what? When you have that much money you’re in the about the 47, 48, 49% tax bracket, so that immediately gets deducted to $1.3 million.

With profits split three ways, with additional funds dispersed to managers, accountants, legal team, etc., the members of TLC each took home approximately $50,000 in 1993 and 1994.

To stay afloat, while the label is promoting the album, the artist or band can make additional money by going on tour and selling merchandise, as well as profit from endorsement deals and the like; the percentage of profits an artist will see from these various streams of income will be considerably more than from album sales alone.

In a 360° deal, however, the label shares in profits from these additional sources of income, as well any additional sources outlined in the agreement. The size of that share usually depends on the amount of money the label fronts to the artist or band and the amount of resources used to promote and market not only the current album, but also the artist brand as a whole.

Under a traditional artist agreement, the label can control who produces and mixes the album, who directs the music videos, which singles are released, when they are released, etc., as it is the label’s money that is covering the cost for all of these expenses. While this may seem like the artist signing away all control to the label, it’s difficult to argue against the label’s position – wouldn’t you want a say in how your funds were being used if you invested a considerable amount of money in a project, especially with no guarantee of the size of the return you will see? Using that logic, when signing a 360° deal, the label will naturally expect further control of other areas of an artist’s career.

A 360° deal gives the label the additional control of when an artist or band will tour, where they will play, what merchandise they will sell, what endorsements they will get behind, etc. Unlike a traditional deal, the label has an entire brand to manage under a 360° deal and is therefore willing to take more time with artist development, rather than push the one-hit wonders that burn out and are traded for the next big fad.

Paramore, currently under a 360° deal with Atlantic Records, is a supporter of such a deal. As lead singer, Haley Williams explains, “We were given all the time in the world, and all the support we could ever ask for, to basically do nothing but play shows... I don’t know that we would’ve been given that lenience [under another type of deal].”

Sonicbids executive, Panos Panay, sees 360° deals in a different light. In an interview with Hitquarters the CEO warns against the growing hold labels are gaining on artists, “[There’re] two things we know about creativity: you can’t force it and you can’t really control it.”

For a less-biased view on 360° deals and how they compare to the traditional recording contract, Sara Karubian provides a brief outline of each type of deal in her paper, 360° Deals: An Industry Reaction To The Devaluation Of Recorded Music, shown below (graphic by nate).

Panos Panay, an outspoken critic of this increasing trend, sees 360° deals as simply that – a trend. As he points out in his interview with Hitquarters, 360° deals are actually not as innovative and as new as most would like to believe. It is a business model that has come full circle from the days of Motown Records where it received a sharp backlash from the talent and can only again share the same fate. "If you were Marvin Gaye or Stevie Wonder and signed to Motown in the late 60s, they owned your likeness, your touring, publishing, record royalties, told you what to wear, told you how to walk … Sooner or later [the artists] said, 'I’m not going to go on the road for 200 shows because you tell me so. I’m an artist! I’m a creative person!' Eventually all these artists left.”

Others are more positive and see this not as a repeat of music history but an ever-changing, malleable arrangement between business and talent. As reported by Billboard, co-founder of Def Jam and current CEO of Recorded Music under Warner Music Group, Lyor Cohen, explained at the Rethink Music conference earlier this year that this type of deal is crucial for labels to succeed in this new music industry, as it forces them to once again focus on artist development.

In an attempt to maintain the inflated salaries of industry heads, record labels will need to turn their efforts towards a smaller artist roster and away from the number of albums released each year in order to put out content consumers will want to invest in across multiple channels of entertainment (concerts, merchandise, ringtones, etc.). He explains, “we want to make deals that make sense, that liberate the industry to the future, that give the power to the consumer."

Whether these deals eventually become as standardized a format as the traditional recording contract, or they remain as varied as the artists they are offered to, Sara Karubian wonders if it’s not the type of deal that is uncertain, but rather the parties that will be offering the deals. She proposes the possibility that, “the 360 model will survive, but that record companies [will] not, due to the success and ability of other types of businesses, like Live Nation, to use the model to cut the labels out of the industry.”

Whatever the outcome, one thing is abundantly clear: the music industry is in one of its most interesting and uncertain times in all of its history, and there is no doubt 360° deals will play a large role in shaping its future. Whether you are an industry executive, an artist or simply a fan of music, this is a trend you will want to watch.

Suz is the co-founder and CFO/COO of IXiiV Records (9 to 5 Records), a music consulting firm that provides an array of services to independent artists in the areas of marketing, branding and performance. She can be reached at suz[at]ixiivrecords.com. Damn the Man. Play the Music.