The Perils of 360 Deals

Bob Donnelly, music attorney, very cleanly explains 360 deals that major record labels are offering musicians. He cautions against them for a number of reasons. In these deals the labels not only take approximately 85% of your record sales, they also want a piece in some cases as high as 50% of the artist's other revenue streams such as merchandise, touring, publishing, etc. If record labels were set up to work these areas, it might make sense, but they are not. The labels staffs are dwindling by the day. The labels also want their % on the artist's gross, not the net! In that case, all touring costs such as crew salaries, per diems, hotel and travel costs would all be carried by the artist, the label would assume none of these costs, yet they could commission on those very costs. Even if the label offers tour support to a musician, they would still be commissioning on the money they "loan". Make sense? I don't see how it does for a musician.

Mr Donnelly noted in the Lefsetz letter that the first paragraph of his Billboard post was left off, so here it is.

A new type of record label contract has come to be known as a "360 deal" (as in "360 degrees in a circle") since it seeks to make the label a participant in revenue streams from every quarter of an artist's career. In his popular music industry blog, Bob Lefsetz wants to know why artists would consider such a contract. With typical humor, he writes: If you're contemplating a major label deal and your success is not based on terrestrial radio play, and you don't make pop music, YOU'RE A FUCKING IDIOT!... But where were the attorneys? Oh, I know they were afraid of pissing off the labels, not eating themselves. Are they interested in their clients or THEMSELVES?

Background

Warner Music Will Only Do 360 Deals

TechCrunch summarized the interview with Edgar Bronfman Jr at the Web 2.0 Expo last week. Bronfman said that any new artist on the label will have to sign a 360 deal, which means the label would receive a percentage of not only music sales and master use rights, but any stream of revenue the artist might receive: This includes touring, publishing, licenses, merchandise, etc. It is usually management that gets a % of all income the artist receives in exchange for management services. Note that about 95% of the managers, never see a dime in commissions from record sales and this is not a recent development. What will Warner's be offering in exchange for that all encompassing %? Will they offer management services, music publishing, book tours?

I used to think that having management and record company under one roof would be a good thing. In the case of major labels, I no longer hold to that belief. In all cases, both the artists and management have the same goal as the record label: to sell records. How they both want to achieve that goal is usually very different. The one who might be hurt the most in a 360 deal is the artist. The scenarios could be endless. That is of course if every aspect of their career is carried out under one roof.

Having a separate management company who knows the artist well and is willing to fight for what the artist believes in is invaluable to the artist. Having a publishing company that knows how to get a song placed in an indie film even though it might mean making less money for the record company, but more exposure and money in the long run for the band would be a no-brainer for an artist, but might run counter to the labels immediate bottom line. The label wants the band to open for a completely incompatible artist who might be selling tickets, but the audience is wrong. The band might sell a few records on this tour, but doesn't gain fans for life. It would make more sense for the band to break even on a small club tour opening for the artist whose audience would love the band and staying true to their roots. The conflicts would be immense.

Bronfman says it takes a long time and money to develop and artist and he's right, so maybe this in the only way the labels can generate money to survive. The artists that are most successful are those that know what they want and surround themselves with a diverse group of people that are in their corner and help them get there. Team of Rivals, the book by Doris Kearns Goodwin has been cited lately as Barack Obama is an admirer. It's an amazing study on human nature. Lincoln when compiling his cabinet, decided to fill it with people who were his opponents during the presidential race and didn't always agree with him, but he thought they were the best candidates for the jobs. Initially hating him and disparaging him,they learned to appreciate and respect Lincoln for who he was. There is no reason that recording artists shouldn't look at their team the same way. Having one opinion, one option, one voice, one company doesn't seem like it would be in any one's best interest. Setting aside some time to read Team of Rivals is in every one's best interest.