Taking Money From All Angles: The Rise of The 360 Degree Deal
It is no secret that record labels’ profitability has suffered due to internet piracy of music. Pod Complex. While the recording industry has successfully sued services like Napster, they simply are unable to keep up with the sheer number of file-sharing, peer-to-peer and web-hosting sites that disseminate copyrighted music. Pod Complex. Services like Limewire, Kazaa, and RapidShare are just a few of the many places people continue to turn to instead of purchasing from legitimate sources like iTunes or traditional brick and mortar stores.
To combat the loss in traditional revenue, labels are increasingly turning to multiple rights deals, also known as 360 degree deals. Music superstars including Jay-Z, Madonna and U-2 have all signed 360 degree deals worth between $80 and $150 million. Artist’s House. 360 degree deals are contracts which allow the label (or other contracting party) to receive a portion of all an artist’s revenue streams including merchandising, performances, fan clubs, and sometimes even acting. Artist’s House. In some cases, like that of Jay-Z, a multiple rights deal adds value to the artist by creating a partnership; Live Nation,, a promotion company, for instance, agreed to finance Jay’s own entertainment venture. NY Times.
Even though 360 degree deals have become the norm throughout the US music industry, budding and even moderately successful artists lack the necessary clout to shape the nature of their “partnership” with bigger companies. Artist’s House. For them, these multiple rights deals essentially give the labels a bigger piece of the pie, while offering less. In this way labels are essentially “just trying to find another way to make up for the money being lost on the Internet” and in the words of Jay-Z, “that’s not cool.” Billboard Interview
In fact, two major labels have a standard multiple rights deal despite not having the necessary resources to fully exploit the full gamut of an artist’s potential. Artist’s House. In cases like these, a 360 deal can greatly reduce an artist’s profitability because despite the label’s inability to fully realize an artist’s potential, the artist is contractually prevented from seeking other opportunities. Artist’s House. For instance, if an artists’ deal gives the label rights to sponsorships, that artist will be precluded from seeking their own endorsements no matter how little the label seeks them out. Even in a situation with optimal marketing potential, a standard 360 deal gives labels anywhere between 10-30% of all merchandising, publishing, touring and sponsorships income. Artist’s House.
The third major issue is that of cross-collateralization or using profits from one area, i.e. tours, to cover losses from another area, i.e. record promotion. Artist’s House. In the past an artist likely had two separate companies in charge of its merchandising and recording, so profits from the latter could not be used to cover losses from the former. However, with one company in charge of all areas, it is common to use revenue from one segment to cover losses in another. This practice shifts the risk of potential losses from the company, to the artist. Artist’s House. Before, an artist may have negotiated an offer to license their “brand” for merchandising to a third party for a fixed amount and a possible share of the profits. In this arrangement, the third party manufacturer risked the loss if the merchandise did not sell. With a 360 deal, all things are centralized through the label so a loss in merchandise sales would be subsidized by profits from another area like record sales or shows. This really makes the 360 deal an all or nothing prospect for an artist. Artist’s House.
Given the nature of the 360 deal, it is critical that artists have knowledgeable advocates working for them to ensure they are getting the best deals possible. The recording industry is a dynamic market and consulting with someone knowledgeable of its inner-workings is essential in ensuring you as an artist get the most for your work. In fact, today, a traditional record label may not even be the right, or necessary, choice to propel your career. Rebel Talent. Many other players have entered into the “industry” including marketing firms and promotion companies, like Live Nation, because of the 360 deal, and can often provide equally effective, yet more affordable services. Rebel Talent. So, to all artists, make sure you have someone in your corner familiar with both the ways of the industry and your interests because the other side certainly has people in theirs.
by Nicholas Allen, summer intern Arther Law
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