I gotta state right upfront that I am biased against
360 Deals. I understand WHY they exist,
I just find them unfairly oppressive in the label’s favor in an industry with a
draconic history of jerking artists out of money. I stopped negotiating deals for artists in
2005 because I refuse to do a 360 Deal for any artist! How strongly do you have to hate something to
stop your own income over it?
In the early 2000s, the music industry went through a
severe change. Music sales plummeted,
the importance of the internet reigned supreme, and there was an influx of
artists into the industry causing an over saturation never seen before. It’s gotten worse, not better, for the major
record labels.
Once used to a healthy profit margin that afforded grand
lifestyles for those at the top of the food chain, the major labels became
disgruntled as sales dropped while they missed the boat on less profitable
digital sales. Taking on the role of
dinosaurs fighting for survival, they tried everything from stopping the new
digital revolution, to fighting it, to suing it, to band wagon jumping too
late. Nothing worked for them. And they still haven’t learned from their
mistakes—they still continue to fight the ways the consumers want to receive
their music.
So to justify their continuing existence, they decided to
take an even larger share of the pie from the ONLY aspect of the equation that
they controlled—the artist (or the “content” provided for digital
download). Back in the day, labels took
roughly 87% of the pie while giving the artists 12% of the money AFTER the
artist paid back everything spent on them from that 12% share. This means that if the artist sold $500,000
worth of CDs, and it cost $50,000 to market and promote that CD (a very low
example), the artist share of $60,000 (12% of $500k) would be divided between
paying the label back that $50,000 and a check for the remaining $10,000. The label would receive $490,000 for its
investment and belief in that artist while the artist made $10,000. In exchange for giving up the lion’s share of
the sales, the labels always told the artists that they’d make 100% of the
touring. Any show money, was the
artist’s to keep!
When the s### hit the fan financially for the labels,
they decided to tap into the show money, and all other streams of income for
the artists, as well. After all, if your
profit margin is made smaller, you need to eat more of everyone’s income to
keep the fat cats at the top, and the stock holders, happy. Most 360 Deals share in endorsement income
(15% to 30% depending on the artist), performance income (10% to 30% depending
on the artist), merchandising income (20% to 50%) and Film/TV money (15% to
40%). Before I go any further, I have to
thank Bob Celestin (Law Offices of Robert A Celestin www.raclawfirm.com) for supplying me a 360
Deal contract for an indie label and the good folks at Warner Bros Records for
leaking me a major label contract for an artist’s 360 Deal. This enabled me to write about REAL contracts
instead of just what I’d heard from lawyers, artists, and label folks.
How do labels justify taking an even BIGGER share of the
pie from artists? They complain that
they are doing all of the developing, investing, marketing, and promoting. Their argument is that they believe in the
artist when the artist has nothing, and they feel that assuming the lion’s
share of the risk should result in sharing in a lion’s share of the
profit. If the label is developing and
building the artist to a level of super stardom, they feel they have the right
to share in a percentage of everything that super stardom affords the
artist. So if they drive the artist
platinum, they feel they should get a piece of the tour that came from the fame
the label helped the artist build, and a piece of the endorsement deal or film
income that came from the fame that the label helped build. I guess I could see this argument better, if
I actually agreed that the labels did their jobs well of building artists.
I have a different vantage point of record labels. I see major labels based in tall glass
buildings in NY and L.A. that have little interaction with the streets, fans,
or the artists. I see them sign artists
that have already started to build a buzz or sell music themselves, and then I
see them sit back and let the artists’ teams continue to do much of the work
themselves. I don’t see major labels
taking much risk with their artists, but do continue to put them through a
system that is almost an outdated cookie cutter version of how to sell
CDs. The labels rarely interact with the
fans and are quite out of touch about what the fans want or are willing to
buy. They seem to create this assembly
line of artists who all sound similar and fit a certain format at radio. They seem to throw a lot of music into the
marketplace and work whatever catches on quickly and easily. Most labels do what’s best and easiest for
the label, not what’s in the best interest of the artist. Now, in a way, it’s very unfair of me to make
this sweeping generalization, because there are some amazing people who work
inside of major labels and really go all out for the artists. But I find these people to be the exception,
not the norm, and I also find them to be frustrated most of the time because
they constantly have to fight with their bosses and the status quo to succeed
on a project.
I also find that competitor labels usually hire the best
people away from the labels who are experiencing some success, thereby breaking
up the synergy within a team once they all learn to work well together. This is why a label like Def Jam or Universal
could be so strong in the late 90s and yet be struggling to succeed today. I find that artists rarely look at the teams
working at labels and just fiend for a record deal no matter the success of the
label or who’s at the label (staff or other artists).
So labels got further away from the fans, the staffs got
lazier or more frustrated (perhaps more work for less pay?), the artists took
less risk because there were more of them and they were just happy to have a
record deal, and the fans started expecting music for free because they could
just download it if they didn’t feel like paying for it. Major labels continued reducing spending,
slashing budgets, cutting pay, and signing “sure things” (whatever that
means). And to justify the spending they
were still doing, they decided to offer deals that cut into more of the
artists’ income. The argument was that
out of 50 artists signed to their label, only one was successful and funding
the 49 losses. No other business on
earth has such a backwards business model.
Imagine if Ford built cars and accepted the fact that every model but
the Taurus was meant to be a loss leader, and that the Taurus sales had to make
up the loss of every other brand under their umbrella. Huh?
Or imagine if banks lent money for mortgages
expecting 99% of the mortgages to
default, and 1% of the mortgages were expected to make up the bank’s profits
that year. Further imagine if each
homeowner paying back their mortgage didn’t actually get to keep ownership of
the house after their mortgage was paid back!
The bank’s argument would be that they took all the risk on the house,
so they should get to retain ownership. The
people that lived in the house would still have to pay for all the repairs and
upkeep, but the bank would own the house.
That’s how the music industry is built.
And the folks at the top with the most to lose are the ones fighting to
keep this backwards system alive.
People ask me all the time what I think is wrong with the
music business. I would like to blame
our troubles on the greed of major labels, the proliferation of bad music that
the fans don’t seem to want, or the free downloading of (stolen) music. But the truth is that if the artists didn’t
agree to these incredibly bad deals, there would not be incredibly bad
deals. If a bank existed that kept
ownership of your house after you paid back your mortgage, you would never do
business with that bank. Yet all day,
every day, there is a long line of artists willing to sign their lives away to
record labels because they don’t understand, or possibly don’t know about, the
consequences. Or maybe they just don’t
care. Maybe the need for fame overpowers
the need for money…until they realize they aren’t making money but someone else
is. I find that it takes artists 3 to 5
years to realize they are getting jerked.
In that time, a lot of money is lost and one or two things happens:
either the artist is replaced with a new artist willing to make less money, or
the artist has enough value to renegotiate their deal and share a larger piece
of the pie. Sometimes, they even start
their own labels and repeat this onerous process with their own new, unknowing
artist! They got jerked, so they turn
around and jerk someone else.
But back to 360 Deals.
This new model will exist until artists are willing to say “no!” and I
don’t see any signs of that happening.
What I do see happening are artists becoming more entrepreneurial, and
instead of signing to major labels, I see them finding their own investors and
building their own teams who can help them succeed. There are enough laid off employees of record
labels who’ve experienced some success out here to hire to run and work at indie
labels. There’s a huge void in the marketplace
to deliver the kinds of music fans want…and that’s not just one kind of music.
What I learned from both the buzzes of Drake (lyrical
mainstream artist who’ll succeed at radio) and Gucci Mane (not-so-lyrical
street artist with gutter stories and experiences to share) is that fans still
want music. Major labels are still slow
to respond to the needs of the streets and the internet is only speeding up and
splintering demand further. There’s
still a market for good music that the fans want. Our job is to give it to them. And if we do so with a fair and equitable
split of the profits, the artists can build lifetime careers and we can all
make money!
I hear the artists who sign 360 Deals say that they feel
they have to sign these deals because the label won’t work their projects if
they don’t give up a bigger split. I
hear the artists say they want the labels to help them land endorsement deals,
major tours, and TV Shows and film roles—but I’ve yet to see a major label do
this. Let’s be realistic, these major
opportunities go to the biggest stars and the ones who apply themselves
directly in those alternate areas. If
you hire a film agent, and take acting lessons, you may get increased roles in
film and TV. If you increase your fame
through music sales, your endorsement opportunities increase. Beyonce landed a Revlon contract because she
was a star, Revlon did not make her a star.
How many new artists are the major labels building to be stars? In 2009, it was Taylor Swift and Susan Boyle
out of all of the releases that came and went.
And neither of them were developed by the major label system—one was a
product of an indie label and the other a product of a TV show. The majors had access because they did deals
with middlemen and then applied their systems behind those movements that were
already happening. Maybe that really is
the job of a major label in today’s environment.
In my opinion, a 360 Deal is an excuse for a major label
to take a bigger piece of the pie without doing any additional work. It’s insurance on their part. If the artist does blow up by chance, it
gives them more opportunity to make a bigger cut. And that’s just smart business. I guess if they called it what it really is,
I’d be less annoyed by it: the price of doing business with a major label. If they played a bigger role in building overall
success, I’d be happy to see them share in a bigger piece of the pie at the end
of the day.
Example of a “360 Deal” Artist (this is not an actual
artist example):
Male rapper based in Atlanta with a strong
following. He has his own team of
inexperienced friends and family around him and a very strong street
following. The DJs, fans, other artists
and industry are supporting him and propelling him forward. With no real single or CD in the marketplace,
demand is high—he’s getting $30,000 a show and performing three or four times a
week for the past few months. This will
last about 6 months, approximately. He’s
put out a series of mixed CDs, for free, over the past year. The label signed him a year ago to a 360 Deal
but hadn’t begun to promote him yet because their roster was full. The artist got tired of waiting and began
putting out a new mixed CD every month to build his buzz.
Advance: $75,000
Album Budget once popularity increased: $350,000
Recoupable Marketing and Promotions: $750,000
Monthly Show Income: $420,000
Endorsement Deal: $50,000
Album comes out and sells a total of 350,000 copies (it
was a very commercial album but the artist had been very street, almost gutter,
up to the point of his album release so fans didn’t really embrace the album as
expected).
Album income for label: $3.5 million
Artists’ Share after Recouping: negative
balance of $405,000
$750,000
+ $75,000 = $825,000
12%
of $3.5 mill = $420,000
$825,000
– $420,000 = $405,000
Artist’s endorsement Deal Share: $37,500
75% of $50,000
Artists Share of Touring Income: $1,764,000
70%
of $420,000 x 6 months
Artists Share of Publishing Income (50%): $100,000 (estimate of mechanicals and ASCAP/BMI
royalties)
Income for Label: $4,773,500 gross income on an
investment of $825,000
$3,500,000
sales
$405,000 recoupment
$12,500 endorsement income
$756,000 tour/show income
+ $100,000 publishing income
$4,773,500 gross income
Less Staff costs
Less Day to Day operating expenses
Less Taxes
Income For Artist: $1,122,375 income
$37,500
endorsement income
$1,764,000
tour income
+$100,000
publishing income
$1,901,500
sub total
-$405,000
recoupment
$1,496,500
gross income
Less 20% management fee
Less 5% Business Manager fee (Accountant)
Less Tour costs/legal costs/tour manager/DJ/Operating
expenses/taxes
Let’s compare gross incomes…
Artist made 1.5 million while label made 4.7 million
Artist share: 24%
Label share: 76%
Let’s compare Net incomes before taxes…
Artist made approximately $1 million while the label made
approximately $4.5 million
Artist share: 18%
Label share: 82%
If the label is
taking all of the risk (they are not), putting up all of the money in all of
the right places (they are not), devoting all of their attention to this one
artist (they are not), and doing most of the work (they are not), then this
business model makes sense for everyone involved. But if the artist is doing
the bulk of the work, risking their career in the hands of the label, and
coming out of their own pocket for many expenses, then this business model is
hugely skewed in favor of the major label.