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.
For labels, signing an artist to this comprehensive deal is not about the instant hit anymore, says Stiffelman, who also teaches music law at the University of California Los Angeles. “Now a manager can say, if we put out an extra single I think I can get my artist on the Black Eyed Peas opening act. Now they’re not limited to how much they can sell, labels are looking at the broader picture.â€
But he warns against companies assuming greater control of an artist’s image and brand. Adding that with labels holding a share in much of an act’s deals artists can find their image exploited.
Though Branch is a proponent of the deal (arguing, “If a label invests millions of dollars in an artists and [the label] brings the artist to the world, why can’t [the label benefit from that?â€) he says that if a company does not have the proper team in place to develop an artist, than the deal is counterproductive.
Many labels, because of downsizing, are left with less staff, and with one person responsible for several jobs, some are going above and beyond their skill level, he says. Thus, the onus of marketing and branding can fall heavily on the shoulders of the artist and its personal management team while the label still shares in the profits.
So, where will this new business model taking the industry? In the next five years, Branch sees labels transitioning from music companies to full-service entertainment companies.
“I think we’re going to see companies establish recording divisions, touring divisions and so on, to run these talented people,†he says. “Labels are going to see artists as brands and not just people who can sing or rap really well. The time is right.â€