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360 Deals - Taking Artists From Every Direction?

by Kimberly Korn

April 2008

© 2008 Hrbek Law.  All Rights Reserved.

According to the trade magazine Pollstar, concert ticket sales have increased from $1.7 billion in 2000 to over $3.1 billion.  In fact, tickets to see current acts like Miley Cyrus can cost up to $1,000.  Selling albums is no longer where the money is.  The album is merely a marketing tool for merchandise and touring.  Labels are well aware of this and now want a piece of the action.    

The idea of 360 deals emerged from the decline of CD sales in which labels needed to find a new way to make money.  Traditionally, artists have gained the bulk of their money from touring, merchandise, and publishing.  With the advent of 360 deals, which allow a record label to receive a percentage of the earnings from all of a band's activities instead of just record sales, labels will now take a huge cut from the outlets that artists have relied on.  Under 360 deals, or “multiple rights deals”, record labels will get percentages of everything from merchandise and concert revenue to ringtones and endorsement deals. 

Labels argue that they deserve a piece of the action because labels invest so much in developing the artist with no guarantee of success.  Previously, labels have taken between 90-95% from record sales, and they will continue to do so.  Additionally, labels will now take approximately 9 cents per song for publishing, about 10% for merchandise, about 10% for touring, plus a substantial share of endorsement deals and anything else they can get their hands on.  Basically, labels will take from all angles: hence the name, “360” deals. 

The labels argue that 360 deals benefit artists as well.  In exchange for the labels taking a piece of everything, artists will get more marketing money behind them, more time to develop as musicians, and receive more promotion for longer periods.  In a sense, labels will move from being solely in the record “sale” business and head towards the “management” business.  Additionally, labels argue that these deals let them sign different kinds of artists because they do not have to focus as much on album sale recoupment.  By not having to rely as much on sales figures to make a profit, labels can invest more in staying with the artist for the long haul, building the band and allowing them more time to succeed – rather than dropping an artist after a disappointing debut album.

This new model is a mixed blessing for new artists.  Despite the access to online promoting and other independent promotion, major labels still possess a great deal of clout in getting new artists into magazines and onto MTV.  When a new artist signs onto a major label with a 360 deal, they will have to surrender completely and place all of their prospects for income from all sources into the hands of the label.  Just as artists are getting used to a little autonomy, they are finding themselves under pressure to give it up.

Megastars have more to gain from 360 deals.  Companies like Live Nation will pay top artists top dollar for the right to finance their entertainment ventures, in deals that give new meaning to the phrase, “all access.”   The New York Times has reported that Live Nation is expected to contribute $5 million a year in overhead for five years, with another $25 million available to finance Jay-Z’s acquisitions or investments.  Jay-Z also will receive $25 million upfront, a general advance of $25 million including fees for his current tour, and advance payment of $10 million an album for a minimum of three albums during the deal’s 10-year term.  Other payments totaling some $20 million is included in exchange for certain publishing, licensing and other rights.  Madonna received more than $100 million from Live Nation in exchange for three albums and the exclusive rights to promote her concerts and to market her merchandise in a wide-ranging partnership.  U2’s deal with Live Nation gives the company the right to handle their digital distribution, merchandise, and "branding rights" for the next 12 years.

Even the top stars, however, have problems with 360 deals.  In 2002, EMI signed Robbie Williams to a $160 million dollar deal giving them a stake in his entire career, however, Williams now wants out of his deal.  On Williams’ website, his manager Tim Clark explains that Williams is unhappy with the way that the major labels – including EMI– have dealt with the problems and threats posed by the Internet. 

It seems unfair that due to the fact that labels are unable to adapt to the changes in the industry, specifically the emphasis to digital technology, artists now have to pay the price.  In the case of EMI, which was recently taken over for $6.4 billion by private equity company Terra Firma, it is especially difficult to market and promote albums when half the company was laid off and replaced with people less knowledgable about the industry.  As more and more labels are bought out by large investors and more emphasis is put on turning bands into brands by way of 360 deals, there is a real danger that the industry will become less and less about the music. 
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