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The Day Report: 360 Deals Are Today’s “Record Deals”

theman_bg

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 shit 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.

               

 

 

 

 

 

 

 

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