Just sharing an academic essay I wrote on the new music business model. Enjoy~



Introduction

The music economy is changing. Music downloads will eventually be free, and will serve as little more than marketing collateral to other revenue streams (Arrington, 2008). Over the last decade, upheaval in the music industry forced major record companies to cut their workforce by 60%. Without the budget and staff to support their once overloaded artist stables, labels had to slash their rosters and doubled down on invested acts (Jurgensen, 2010). As recorded music marches towards being a free commodity both artists and labels have to look for other avenues of profit particularly in live music, merchandising and new forms of multi-media (Arrington, 2007).

360 degrees contracts, 360 deals, ‘multimedia deal’ or ‘multiple rights deals’ are contracts that allow a record label to receive a percentage of the earnings, previously off-limits to them, from all of a band's/artist’s activities instead of just record sales. These include and are not limited to touring, merchandise sales, endorsement deals and mobile ringtones. In exchange for receiving a larger cut, labels agree to commit to promoting the artist for a longer time period and will actively seek out and develop new opportunities for them, essentially functioning as a pseudo-manager looking after the artist’s career rather than focusing only on selling records (McDonald, 2010). These rights could be acquired under one agreement at the time of signing or under separate agreements. This business model is primarily structured on declining CD sales in the digital age (Arrington, 2010).

There is expected controversy on 360 degrees contracts. Some view it as grab for money by labels that are facing dwindling sales and high overhead. Others object to the ‘band branding’ notion that makes 360 deals so potentially profitable for labels who seem more interested in ‘milking the cash cow’ rather than selling music. However, labels counter that these deals allow them to sign on multiple artists because they would not have to focus on recouping investments from album sales. Controversial or not, 360 degree contracts are becoming increasingly common in major label contracts (McDonald, 2010).


Turning 360 Degrees

The 360 degree deal was conceived by two savvy business entrepreneurs, Tim Clark and David Enthoven, who also happened to be UK pop singer Robbie Williams’ managers at the time. The two had worked diligently building Williams into a global superstar and then broke industry tradition by creating a new music industry modal, the 360 deal. Eventually that led to a joint venture in 2002 between Robbie Williams and EMI and for a total sum of $157-million which EMI had a minority stake in all the revenues Williams had generated - concerts, record sales, merchandising and sponsorships (Rosso, 2008).

Madonna followed suit by in 2007 by becoming the first artist to sign a 10-year, $120-million, 360 degree deal with Live Nation that gave the concert giant an all-encompassing stake in her music. She had left her previous label, Warner Music Group Corp., in favour of Live Nation because of the changes the music business had undergone (Associated Press, 2007). In 2008, rapper Jay-Z announced plans to depart from his longtime record label, DefJam (whose corporate parent is Universal Music Group), for a roughly $150-million package also with Live Nation (Leeds, 2008). Other artists that have signed up on 360 degree deals include Paul McCartney, Radiohead, U2 and Linkin Park.

While it may have been evident that established artists were beginning to make a shift towards 360 degree deals with event and merchandising companies, they mostly did so because their previous recording labels were unable to promote and support them due to declining distribution sales, as seen with Paul McCartney and the apparent inevitable death of EMI (Driver, 2009). It simply made more sense for an artist to go where proper support was and with dwindling music sales, that money was to be made in live shows and merchandising (Arrington, 2008). As Wayne Rosso (2008), founder of Mashboxx said, “If you're a big enough star, you just don't need a record label anymore.”


You Greedy B’tards.

The 360 degree contract has since been primarily drawn up for the new generation of up and coming artists. In late 2008, Warner Music Group announced a move to lock all their artists to 360 degree deals before working with them. "Every new artist we sign, we sign now with rights in all their revenue streams: ticketing, touring, merchandising, sponsorship," said Edgar Bronfman Jr., Warner Music Group CEO (Williamson, 2008). For a recording company or label, the justification for such is to say ‘We cannot make enough money just from selling your records to justify the level of advances, royalties and recording costs you want us to pay’ (Harrison, 2008).

From the start, these deals appear to have validity and have proven to work where record labels have shared earnings with such diverse new acts as Lordi, a Finnish metal band which has its own soft drink and credit card, and Camila, a Mexican pop trio that has been drawing big crowds to its concerts (Leeds, 2007). Atlantic records’ 360 deal with rock group Paramore has proven a huge success with the label providing full support to the band during its early development stage. However, these are only a handful of successful acts amongst the thousands worldwide signed up to 360 degree deals.

In a 360 degree deal, the artists are financially receiving much less of what they would normally have for their work, but receive more up-start support from the label, as with Paramore’s case; the support offered by the label included underwriting many of its touring expenses, and earlier on, the purchase of a van and payments to continue the band members’ high school education on the road. This freed the band up to focus on writing music and performing, as vocalist Hayley Williams said, “We were given all the time in the world, and all the support we could ever ask for, to basically do nothing but play shows” (Leeds, 2007). Granted, Miss Williams might have been a little too young to understand the financial implications of the contract at the time (Krozser, 2007). It may still be too early to call the deal a complete success in Paramore’s favor. At present, besides financial capital the only value a recording label has to really offer an artist is its marketing ability, distribution range and access to various other forms of profitable ventures (Krozser, 2007).

The fact is the real potential of a 360-style deal does not emerge unless an act is popular long enough to attract either loyal fans who reliably buy tickets, or attention from business partners who might help market merchandising spinoffs. (Leeds, 2007) Also, the reason record labels have latched on to 360 deals is because of the lucrative merchandising and live industry (Harrison, 2008). On a typical 360 deal contract for new acts, the recording label gets approximately 90 – 95 % of record sales, 10% of touring income, 10% of merchandising income and 9 cents publishing cut per song (or more, depending on media distribution). “This model was implemented in response to the changing face of music distribution and consumption technologies but the prevalence and affordability of these technologies is the reason why no artist should commit to a 360 deal in the first place” (podcomplex.com, 2007).

This leads some, including myself, to argue that an artist should not need a record label offering these services for a marginal slice of the pie when it could be done independently. Rather than give up so much potential income to labels, new acts would be far better off producing and distributing their own music and hiring a dedicated promotional agency to handle the marketing and business side of things (www.podcomplex.com, 2007). Managers are also up in arms at the model because the record label essentially takes a slice of their income (Harrison, 2008).

From a music consumer’s perspective, there are those who agree that independent artists deserve the money they make from live ticket sales and merchandising and that record companies should remain as their job description - record company. (Cepican, hubpages.com)


The Bottom Line

“360 deals give labels a place in the new music economy, and there’s nothing wrong with their attempt to keep their businesses alive over the long run. Artists can choose to go with them or not, depending on their own opinion of the benefits.” (Arrington, 2008)

In the response to the changing methods of how music is distributed and consumed, the 360 degree contract can be seen as renewed effort by recording labels to garner profits off artists. While it may indeed prove to be an invaluable and valid path to success for those who lack the resources, need a jump start in their careers or are just plain gullible, the long term consequences and implications of such a contract on the artist in the long run have yet to be seen.

If you want something done right, you have to do it yourself.


Bibliography

Borg, Bobby. The Musician’s Handbook: A Practical Guide to Understanding the Music Business. New York: Billboard Books, 2008.

Harrison, Ann. Music: The Business. The Essential Guide to the Law and the Deals. London: Virgin Books,, 2008.

McDonald, Heather. (n.d.). 360 Deals. Retrieved April 28, 2010, from http://musicians.about.com/od/ah/g/360deals.htm

Arrington, Michael. (2008). "360" Music Deals Become Mandatory As Labels Prepare For Free Music. Retrieved April 28, 2010, from http://techcrunch.com/2008/11/08/360-music...for-free-music/

Arrington, Michael. (2007). The Inevitable March of Recorded Music Towards Free. Retrieved April 28, 2010, from http://techcrunch.com/2007/10/04/the-inevi...c-towards-free/

Williamson, Aidan. (2008).Warner Music Lock All Artists To 360 Deals. Retrieved May 30 2010 from http://strangeglue.com/music/warner-music-...-360-deals/2980

Jurgenson, Jon. (2010). The Lessons of Lady Gaga. Retrieved May 30, 2010, from http://online.wsj.com/article/SB1000142405...1644867154.html

Madonna announces huge Live Nation deal. (2007). Retrieved June 1, 2010, from http://www.msnbc.msn.com/id/21324512/

Why 360-Degree Deals Won’t Turn The Music Industry Around. (2007). Retrieved June 1, 2010, from http://www.podcomplex.com/blog/why-360-deg...ndustry-around/

Rosso, Wayne. (2008). Perspective: Recording industry should brace for more bad news. Retrieved June 1, 2010 from http://news.cnet.com/Recording-industry-sh..._3-6226487.html

Andrews, Amanda. (2009). Changes rock the music world as '360' deals rise. Retrieved June 1, 2010 from http://www.telegraph.co.uk/finance/newsbys...deals-rise.html

Leeds, Jeff. (2008). In Rapper's $150 Million Deal, New Model for Ailing Business. Retrieved June 1, 2010 from http://query.nytimes.com/gst/fullpage.html...ation%22&st=nyt

Driver, Richard. (2009). After Terra Firma buyout, EMI losing artists. Retrieved June 1, 2010, from http://www.bloggingbuyouts.com/2008/01/18/...losing-artists/

Krozser, Kassia. (2007). 360 Deals: The Musical Merry-Go-Round. Retrieved June 1, 2010, from http://medialoper.com/360-deals-the-musical-merry-go-round/

Cepican, Matthew. (n.d.). Recording Contracts: the "360" deals. Retrieved June 1, 2010, from http://hubpages.com/hub/Recording-Contracts-the-360-deals

Very interesting. Good work!

Very good Nice one.

informative read.

however, isn't it the point that most independent artist cannot afford the upstart cost and hence had to rely on the record company.unless ofcoz their parents are rich or the musicians happen to be stock market lucky bastards.

i guess record companies have the economy of scale to lower cost per artist that most independent could not. and ultimately they have more connection and can open more doors. for example, i dun think i can ever hope to open for say, U2, even if i have the talent and some money without the record company bridging the way.