Thanks to Ed Pierson for the link to this post at NPR Music. Because my blog posts about 360 record deals have generated the most visits and emails to me, I am sharing this with my readers. NPR Music 360 Record Deal Blog Post.
Creativity is a must for the Artist's and the Label's attorneys when it comes to negotiating and crafting the "360" provisions of a recording agreement. I have negotiated several 360 record deals since I first blogged about the subject. In fact, it is rare to be presented with a recording agreement that is not to one degree or another a 360 deal.
For me as an Artist attorney negotiation of the 360 provisions of a recording agreement can best be approached by subdivision of the various areas of possible non-recording income. So in most instances one would not want to agree to a flat percentage of all non-record income. Instead, the entertainment attorney will want to negotiate the various sources of 360 income separately, e.g., publishing, merchandise, live engagements, tour sponsorship, other types of sponsorships, endorsements, and so forth. In fact they have to be treated in this fashion if the Artist has granted certain non-recording rights to the Label such as in a songwriting agreement with the Label's publishing company or an agreement with the Label's merchandising division. It is also a good idea to have a specific listing of the types of income that the Label will commission and eliminate any reference to "all other" non-record income. For example, one might be able to eliminate motion pictures and literary authorship from the 360 provisions. Or if the Label has the right to manufacture and market its own artist merchandise (as opposed to an agreement to supply the Artist with merchandise), one can seek to reduce the Label's cut of the Artist-owned merchandise sales -- or even eliminate it all together.
In addition to breaking down the different types of non-record income that will be commissioned by the Label under the 360 provisions, the lawyers may build in certain milestones, adjusting the Label's income participation percentage according to the success of the Artist. As an example, if the Artist is a performing artist that depends on its existing regular engagements and merchandise sales for its livelihood, then the Label's override on live performances and merchandise sales might not kick in until a certain number of units of the Artist's album have been sold. Or perhaps not unless the Artist's compensation for a live performance reaches a certain guaranteed dollar amount.
Negotiating the 360 deal requires creativity and a willingness to find win/win solutions, both on the part of the Label and the Artist.
This morning's post is a an article by Paul Resnikoff which appeared in this mornings Digital Music News. The report from Midem in Cannes is worth sharing with all who are interested in new models for both new and established recording artists.
Deal Evolution: Why 360 Degrees Doesn't Cover It All...
The music industry has its fair share of cliches, but on the contract side, the "360-degree deal" is already becoming a bit overused. So what, says one executive, simply because it accurately describes the all-encompassing nature of an all-asset contract. But according to several lawyers at Midem this week, better to use the umbrella "multiple rights deal," a catch-phrase that covers a far broader range of contract structures. That includes so-called "90-degree" and "270-degree" deals, and a variety of other partnerships covering less than every asset generated by an artist.
Alongside the specific degrees, different types of deals and novel structures are proliferating, and artists are wise to be informed of the emerging trends. Major labels are almost exclusively signing 360-degree deals these days, a trend that was once again reiterated at the conference. But majors are only one player on a very changed field, one that now includes consumer brands, television networks, and mobile companies, among others. It also includes the self-starting artist, who can easily ride solo through a range of innovative, do-it-yourself approaches while selectively striking limited partnerships. "It's not only the record company that is involved in these types of deals," attorney Bernard Resnick explained during a Midem legal symposium.
In fact, anyone with enough money can now come to the table, a trend perhaps best exemplified by touring behemoth Live Nation. The Live Nation entry highlights the decreased competitive negotiating power that label groups now exert, and the increased options that artists - both established and emerging - can exercise.
Live Nation is the author of one of the most classic, textbook 360-degree deals to date, a tie-up involving Nickelback. The deal encompasses the gamut of assets generated by the rock group, an exhaustive list that includes recordings, touring, merchandising, licensing, and even literary rights. "Whatever Nickelback does, from the minute they wake up to the minute they go to sleep, Live Nation is involved," Resnick continued.
But that's old news to many executives and artists. What about these newer deal structures? At this stage, almost every variation is possible, and limited only by the creativity of the partners involved. In the case of Bacardi, a recent alliance with Groove Armada focuses heavily on touring and recordings, both components that can easily be tied back to the brand. In the case of U2, a stepped-up, 12-year deal with Live Nation focuses on touring, as well as merchandising, branding, and certain digital aspects. But publishing and recording stays with Universal Music Group.
Of course, few bands will ever reach the superstardom of U2. But savvy artists and their managers are wise to tap partners for specific needs like publishing, based on the expertise of the core team. That makes sense in a market that allows artists to create direct fan relationships, and keep a massive percentage of resulting sales. Indeed, many have argued that the manager is the natural nexus for all of the artist's endeavors, instead of the label.
A "sub-360-degree" structure also allows more flexibility. Artists can typically leave managers if things go sour, but exiting a major label, 360-degree deal is less straightforward, and any dispute could stall an artist's career. In previous horror stories, labels would freeze new recordings, and prevent releases through any competitor while a dispute ensues. In the current model, a label group could theoretically cause problems across every earning aspect of an artist's career, potentially during the peak of an artist's fame.
Other issues continue to crop up, including questions related to whether label groups have the in-house competence to fully manage all-encompassing deals. Additionally, the 360-degree is less beneficial to the manager because of responsibility conflicts. According to numerous executives and lawyers at Midem, the all-encompassing label deal quickly encroaches upon the manager relationship. "The agreement doesn't say, 'we will be your manager,' but they start saying that they are going to be involved more," attorney Dina LaPolt relayed. "It's not in the contract, but they're barging in."
Resnick took it a step further by pointing to contracts that explicitly limit the managerial role. "I've seen a contract with a major where they did more than allude to it," Resnick shared. "They actually said, 'you as an artist will limit the commission you will pay your manager'." That promises to be the beginning of a prolonged turf battle, one that could marginalize certain manager relationships.
There is a saying among artist managers and entertainment attorneys: "No record deal is better than a bad record deal."
That observation was recently illustrated when an artist client of mine and their management decided to walk away from an offer made by a well-established label after it became clear that the deal was a "bad deal". Actually, what made the deal a bad deal in the opinion of my client and his management was the "360" nature of the proposal, which by the way was negotiated for a matter of weeks before things came to a halt. Not surprising in today's market, the label insisted on participating in the artist's entertainment related income from all sources, not just from recordings and other exploitations of master recordings. Those sources would include publishing, merchandise, acting, endorsements, sponsorships, and live engagements. This deal might have succeeded had the label been willing to give the artist a better than average advance. However, the label offered a signing advance in the mid-range of what artist's of this caliber would have been offered prior to the 360 trend.
The client is not a seasoned label artist, looking at his 2nd or 3rd record deal offer. The client is a new artist looking at their first recording agreement. In my entire career I have never had a new artist walk away from a proposal from a large well known label. This is a first. What makes this so unusual in my experience is that most new artists give the impression at least that they will sign most anything to get their shot at stardom.
In the music business, this is indeed a brave new world -- one where many artists are choosing to make careers without the help of the established record label -- even if it means a smaller audience base initially. The fact that this artist walked away may or may not be a sign of things to come. We will have to wait and see.
By now I'm sure you've heard and/or read about the '360' record deal. There are at least two approaches to this type of deal. One is where the Record Company will not only control and profit from the sale of the artist's recordings and related products, but will also participate to a greater or lesser degree in the Artist's non-record income streams (e.g., touring income, merchandise sales, endorsements, songwriting, publishing, etc.). The label's non-record income participation in the more modest type of deal is usually relatively small. The Label simply gets an override percentage from all artist income streams. The argument is that it is primarily the Label's marketing and promotion efforts that are driving the upward value of all income streams and that they are taking the biggest financial risk. The Labels argue that they will be able to put more development and marketing money behind the new artists.
However, there are "360 deals" and there are "360 DEALS"! The latter is the second type where the record company not only participates in non-record income as much as allowed, it "partners" with the Artist both in sharing the profits and in the decision making in as many areas of the Artist's career as it can get the Artist to agree to. The Record Company's share of non-record profits might run the range from 5% or 10% of the Artist's Net income to as high as 50%. Most beginning Artists will have no real strength when it comes to this type of deal. The Label will have all the negotiating power. The Label has the money and is taking the biggest risk -- and can therefore pretty well have its way with the new artists. But there is really nothing new about that is there now? Artist lawyers and managers who find themselves in this weak bargaining position can only do the best job they can, in the back of their minds only hoping for that their Artist will experience success so phenomenal that the deal can be renegotiated later.
I and a major manager just finished negotiating one of the power 360 Deals with a Major Label. We certainly have the experience and reputation to take this on, the manager with over 30 years in the business and me with over 25. It took over 2 months of almost daily negotiations, both by telephone and email, just to come to an agreement on the major deal points. I'm afraid part of that might have been because of the newness of this type deal to all of us. And by "us" I mean not only the Artist representatives but also the Label.
We are on a new frontier. It will be a difficult adjustment for some of us -- maybe all of us. I can only believe, however, that these types of deals are the future--both in the sense of what will be and in the sense of what will be at least a partial answer to the woes of the record busines. These deals will be modified with experience and time. Those of us who have the experience and years in this business will have to adust our thinking and get beyond concepts of what seems "fair" by yesterday's standards and get in the game to help Artist's and Labels both survive and prosper. We all still need the Majors as the surest way to beat the odds and reach the widest audience for exceptional artists. Instead of whining about the changes, I choose to jump in and continue to the best job I can for my clients--under any model presented to me.
There are a lot of good articles on the net about the new deals. I suggest this one in the New York Times.