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THE DAY REPORT: Record Deals In 2009

I’ve been getting your emails asking me to cover record deals in this new bad economy.  I’m hesitant to cover this topic because the truth is that I don’t see the value in an artist doing a deal with a major label or a sub-label anymore.  The deals that do exist are not great, the mentality of having to be signed to a label to be successful is faulty thinking, and unless you are dead broke and have zero entrepreneurial skills, giving up the bulk of your money and control to someone else who is still going to expect you to do all the work, is just plain nuts.

But all that being said, this is still the Number One question I get asked from artists.  Go figure!  You asked for it, here it is….

With the reduction in price to record that has occurred over the past 10 years, and with the increase in bandwidth and internet savvy that has increased at the same time as recording prices decreased, any artist can make and sell his or her own music quite easily.  The area where artists seem to need help is in the marketing and promotion of that product.  To market and promote properly, one needs money and understanding of how-to.  Since many free sites exist to explain how-to (including my own at www.rapcointelpro.com which is being revamped as I write this—but still free), I won’t waste time here discussing that.  But you still need some funding.

No one can start an effective business without money, so if you have no money at all to invest into your own career, you will need to either secure an investor or sign to a label whose goal is to profit heavily from you.  Labels have become banks (and many are run just as poorly as the screwed up banks that exist today).  And although I don’t necessarily see the need for an artist to sign to a major label, that will be the focus of this article.

There are a multitude of different deals out there for any recording artist.  It depends solely on what you agree to contractually.  There is no such thing as a standard contract– a contract is just an agreement between two people that says who will do what by when, what happens if neither side do what they are supposed to do, and how everyone gets paid.  You don’t get what you deserve in this business, you get what you negotiate.  What you negotiate is based on your leverage.

Leverage can consist of many things.  It can be a team of people behind you with an incredible track record (but chances are good that you are giving up a large share of your potential success to them, which major labels frown upon since they are in business to make the lion’s share of the income).  Leverage can be a strong regional street buzz or a track record of sales like PapaDuck, Roccett, TMI Boyz, and Mistah FAB have.  Leverage can even be having an insider at a label who believes in you 100%, and is willing to fight to get you signed to the label—although this is the weakest leverage you can possess because it’s impossible to translate that belief into sales most of the time.

Let me say this for the thousandth time: if you think you can send your demo to a record label and get a record deal, you are wrong!  If you think you can hand your demo to someone with power in the industry and get a decent deal, you are wrong!!  If you think this industry will see your talent and protect and nurture you and your talent, you are absolutely insane!!!  If you think you can buy your way into this industry, or buy a record deal, you are wrong (and will be poor very quickly because someone WILL take your money and then not deliver).  If you decide to put a few years into building up your buzz and awareness in your own region to attract the labels, you are getting a little warmer…

It is important to have an entertainment attorney finalize your deal (or negotiate it if you are not skilled in this area–I have done numerous deals in the past and still always had a lawyer by my side in a deal) because it isn’t always what’s written in a contract that can hurt you, but often what is missing.  EVERY contract is different because every situation is different!  Recording contracts are set up to benefit the label and not the artist, so many changes are needed.  In fact, I once heard that the average contract goes back and forth seven times.

Here is an idea of the different types of deals out there, and these deals are attainable based on the leverage of the artist, how badly the label wants to sign the artist, who is on their team that the label sees as added value, if other labels are bidding for the artist as well, and the recent track record of success of the artist or producers:

Distribution Deal (sometimes called a P&D deal):  This is the hardest deal to get.  Many labels now call the deals they offer “distribution deals,” but most are not.  A true distribution deal is usually an 80-20 split, with the label making 20% and the artist making 80%.  There is rarely money advanced (in a few cases I have seen pressing/manufacturing costs advanced).  This deal is usually reserved for the most successful artists where the label perceives little risk and sees value in allowing the artist to do the bulk of the marketing, promotion, radio, and video work.  Cash Money has this type of deal, as did No Limit back in the mid-90s at Priority.  The only thing the distributing label is responsible for is getting the CDs into stores and collecting the money.  The artist does everything else.  The length of the deal usually runs 3 years and rarely, if ever, goes to an artist without the proper funding already in place.  The artist always owns the masters.

Joint Venture Deal: This is also a deal that is not easily forthcoming without a strong, recent track record of success.   It is usually a 50-50 split, and the term can run from 3 to 7 years.  Most labels split the work with the artist but offer the sole funding for the deal.  There can be an advance, which is always recoupable before the splits, and it is up to negotiation whether the label owns the masters or splits them with the artist.  In a joint venture deal, it’s important to keep control over where and how the money is spent on your project, because 50% of nothing is still nothing.

Artist Deal:  Until the advent of 360 Deals, this was the most popular and common record deal.  The label does everything, except record the album (although they pay for it), and they have complete control and ownership.  The term is usually for 5 to 7 years, and the average percentage for the artist is 12% to 16% (again, depending on leverage).  Out of that percentage the artist pays back everything the label spends that is recoupable, rarely leaving the artist any money unless the sales are exceptional (meaning in the millions).

The 360 Deal:  This is by far the most common deal out there today.  Because labels make less money than they did before internet savvy folks began to file share (download music for free), and because they were slow to offer fans music in the way they wanted to buy it (digital downloads), labels have changed the deals they offer to include an income split on all aspects of the way artists make money: touring, merchandising, publishing, endorsements and sponsorships, tv, film, etc.  If the labels did the bulk of the work and really did build artists’ careers to be superstars, I’d have no problem with this.  But they do nothing different but take a bigger cut of the financial pie.  How much you have to give up depends on your leverage, what you bring to the table, your buzz, and your negotiation skills.  It also depends on how willing you are to walk away if the deal isn’t good for you.  Most labels know that no artist will walk away from a deal offer.  The ones who are willing to walk away rather than take a bad deal, often succeed.  They know their self-worth.

Artists seem to have this notion (yes, I am talking about almost all of you) that to be successful, you have to get signed to a record label.  The label might never put out your music, but you don’t seem to care about that because after all, you are signed to a label.  I’ve seen artists give up 100% of everything to be “signed,” and I’ve seen them do that with local “labels” that no one has ever heard of or that don’t even really exist.  Any idiot can press up a business card that says they own a record label, but does that make them a real business that can move your career forward?  Doubtful.

All labels are not created equal.  Just getting signed to a label is not enough.  In fact, if you are happy solely to get a deal with a label, any label, you are doing yourself a huge disservice–you are setting yourself up to fail, unless you are just super lucky (in which case, play the lottery and stay out of the music business). 

Some labels are great at radio, some are great at working the streets, some excel at making connections into film and TV or have great relationships with BET and M-TV, and some have great connections with the top producers and mixed tape DJs.  If you make outstanding radio songs and you do a deal with a label that has a weak radio department and no budget to pursue radio play, you are screwed and your career will falter. 

Each label is different, and it is important to know those differences as you are building a career in the music business.  Just getting a deal, is not enough to guarantee success (not that anything in this fickle business can be guaranteed, but you want as much of a fighting chance as possible).  And the labels change, as the people who work for them come and go.

Although I no longer do deals for artists, I have played a role in helping to build MANY millionaires in this business (Cash Money, David Banner, Twista, etc).  I feel my key to success has been in studying the labels, knowing the abilities of their employees and various departments (which constantly change), and really seeing who is able to do what, well.  Then, when I was shopping a deal, I would link up the artists with the labels that made a good fit.  I made sure that the artist was always covered by outside consultants in the areas where the label was weak. 

For example, if a major label was strong at radio but weaker on the streets, I made certain it was in the artist’s contract to hire their own street promotions team along with the budget to do so.  If you plan to do business with the major labels, or their sub-labels, you should do so, too–it’s even more important to do so today.  Plus, with the number of artists who seem to be just tax write-offs, I would suggest you get a commitment from the label as to a release date for your project, or you get to leave with your music.  If they do not ever put your music out (and MOST signed artists NEVER come out), they should be penalized while you get your freedom.

With some labels, it is impossible to do this, so I always made certain that I never did deals with those labels—they were not, and still are not, the successful labels anyway, so nothing was lost.  Some labels are in business only to make a certain percentage back above the investment they outlay to keep their investors or stock holders happy, so they are not interested in driving their artists platinum.  Perhaps their business model is to spend no more than $500,000 on the creation, marketing, and promotion of any rap record, and then their goal may be to make back $750,000.  It would follow that they would never spend more than half a million dollars and as soon as they achieve their sales goal, they would stop working the project and move on to another project. 

This situation is great for the older or less mainstream artists who might not have a chance of selling a lot of CDs, but it frustrates most artists who feel they can sell more than 100,000 CDs (after all, for a label to make $750,000 they have to sell less than 100,000 CDs).  If your label does not think you will ever sell more than 100,000 CDs, guess what!?  You will never sell more than 100,000 CDs.  They don’t care if they are wrong because there is a clause in the contract to “upstream” you to the major label (at a fire sale price) on the off-chance that you actually do sell better.

A couple labels over-spend millions of dollars to promote their artists without knowing what is effective, so their motto is spend, spend, spend.  For an artist who desires fame and doesn’t care about making money, this would not necessarily be problematic.  I imagine this is why we see so many broke artists on VH-1 “Behind The Scenes” specials, because they weren’t aware of ways to turn that fame into income for themselves.  I also imagine this to be the reason so many artists have not made money, or recouped, from their record deals.

Then, there are labels that change their staffing, or change their ownership, or change the original teams that had made the labels successful in the past.  This is why labels such as No Limit, Ruthless, Death Row, etc could be on top one day, and struggling to compete the next day.  One thing is for certain in this business: success is created by hit records and hard work.  There is no other route to take.  It is impossible to have one without the other to succeed.

The industry is driven by radio right now, and the bulk of consumers are female.  This means that the days of selling millions of rap CDs without any radio play are over.  Today, a run-away radio hit is almost a necessity to succeed.  But in addition to a hot single, it is important to have a realistic budget and a connected team to follow up with strong radio promotion.  Radio is just one piece of the pie in creating a successful project.  Even though radio is key these days, it is not enough, by itself, to succeed.  You also need more than one hit song if you want to have staying power in this industry.

Here are some of the things I look at when analyzing a label:

Who is running the label?  Have they had success before?  In the past year?  With what kind of artists?  With what kind of music?  What and when was their last hit?  Do they appear to know what they are doing?  Have artists left that label to blow up elsewhere?

Who runs the radio department?  What records do they currently have at radio?  Who are the priorities at radio?  Which stations do they seem to have great relationships with?  Which indie promoters do they hire?  Are the bulk of their releases one-hit-wonders?

What other artists are signed to the label?  What is their release schedule?  Who are the priorities and will my artist be a main priority?

Is the label good at the type of music my artist makes?  Do they offer good artist development?  Do they get a lot of press for their artists?  Is the marketing staff strong?  Does the staff have a good reputation?  Does the staff turn over quickly or is it a good working environment?

Is the bulk of the label’s staff an A-List staff or is it comprised of folks who are new to the business or the folks who could not get jobs anyplace else (a sign that the label is overly cheap and has no clue how to succeed)?

Do they sign the majority of hot acts around the country or do all of their acts seem to come out of nowhere?

Are their deals fair or are there a lot of disgruntled artists slamming them publicly?

I am not any smarter than you.  My connections are not that great.  I just study this industry under a microscope and have placed artists with the labels that appear to make sense for that type of artist.  And, if I can do it, you can do it.  So before you take a deal, just any deal, make sure you understand exactly what you are getting into.  Do the research and make certain the company to which you are giving the next five to ten years of your life, is worthy.  Most are not.  The real work begins once you get a deal, so make sure you have as much stacked in your favor as you can!

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