Multiple Rights Deals Changing How Record Labels Make Money

Evolving '360' model allows companies to gain more revenue

360deals_Al Branch Credit Jennifer Altman1

Al Branch, of Hip Hop Since 1978, sees labels transitioning into full-service entertainment companies. (Source: Jennifer Altman)

A burgeoning business model is changing the way record labels do business and forcing musicians to transition from artist to brand – quickly. As album sales hit record lows and revenue plunges, the recording industry has sought a new means to account for lagging profits — “360″ deals.

In a “360″ – or multiple rights deal — artists still receive an advance against future royalties, but labels now receive a cut of almost every revenue-generating venture the artist inks including merchandise, touring, and endorsement deals.

“I think [the industry] realized that artists were being more successful outside of record sales,” says Al Branch, general manager at Hip Hop Since 1978, an artist management firm which represents hip hop megastars including Kanye West, Lil’ Wayne, and popular newcomer, Drake. As record sales began to decline mid-decade, dropping 20% per year over the past seven, according to Nielsen Soundscan, the industry that was raking in money hand over fist from CD sales in the ’90s was sent reeling.

While these deals can be negotiated by both parties, a label’s cut in an artist’s revenue stream in a 360 deal can reach up to 50%, with the median stake ranging from 15%-25%, says Gary Stiffelman, an entertainment attorney who has represented Michael Jackson, Usher, and Eminem.

It’s a far cry from the standard recording contract where an act would receive a cash advance – to produce the albums — against future royalties on an album and labels only made money from album sales and licenses.  Branch estimates about 75% of the new artists signed to major labels in the last 4 years are in some form of a 360 deal.

Of the four top labels, Sony BMG, Universal Music Group, EMI, and Warner Music Group–which in total account for 75% of the music market –Warner Music CEO Edgar Bronfman told a Web 2.0 Summit audience last year that his label now requires all new artists to sign the deals. He also said about one third of their signed artists were under the contracts.

But with record companies having a greater stake in an artist’s overall career – even beyond music – who stands to win with this new business models? Some argue the deal will lessen the industry’s pressure to turn an instant profit giving artists more time to develop.

Pages: 1 2
ACROSS THE WEB
  • http://www.ItsPaydayBlog.com Zachary Rinkins

    I think this new practice continues a long held tradition of record companies economically exploiting artists.

    You always hear the suits say,”We have to recoup our investments,” and the like. But, record companies thoroughly exploit artists.

    First, the record industry gives you an advance. Second, they give you about 15%-25% of the album. Artists must repay all the expenses before they receive a dime. Think songwriters, studio time, graphic arts, producers, video production,etc. After the artist pays for everything, and after the company has received a more than generous profit, the company retains ownership of the masters. Where is the equity? They use the master to generate future income. Think movie features, new albums and TV commercials. For GOD sakes they still sell Ray Charles’, Elvis’ and Tupac’s music and they’re dead.

    Then, after an artist realizes that they are being exploited and force the company to release them, the real exploitation begins. First, the company demands a huge payout from the new company. So the artist starts in their new situation in massive debt. Then, after the artist gets a buzz going, new marketing and a new album. The old record label then markets and releases a greatest hits album with unreleased music on the same date as the new album. Taking advantage of the resources the new company financed. How can they do this? Because they own the masters that artists finance.

    The only way for artists to make more money is by diversifying i.e (touring,acting, new media, reality shows, sponsorships etc.) Now the companies want a piece of that pie. The music industry is a legal mafia that’s not in the business of enriching artists. Just ask Little Richard, New Edition and many old school acts.

  • Pingback: Record Labels Looking For More Ways To Make $$$$ « Urban Mogul-Life

  • Pingback: The Spin on 360 Deals | Dream Row - Education in Music Industry, Film Industry, Photography Industry, Comedy Industry. Entertainment Industry Education, Live Entertainment Booking & Promotions