360 Deals: The Musical Merry-Go-Round

Sometimes, you don’t know whether to laugh or cry. Artists across the entertainment industries — publishing, music, motion picture — earn money from their efforts in slightly different ways. For musicians, who earn a pittance from record sales, the real money comes from touring and merchandise.

Naturally, as sales have dropped, the labels have looked far and wide to find other sources of income. They see radio as a new cash cow (“can you believe they’re playing our music for free?”). And they see those lovely t-shirt and ticket dollars as theirs to share. After all, you know how hard A&R guys work while on tour.

The birth of the 360 deal — where artists and labels (and artists reps such as managers) — share in the proceeds of all money-making efforts. The New York Times has a lovely storyabout how this process is working for a band named “Paramore”. Since I believe it’s never too early to explore the magical world around us…

Not surprisingly, I’m going to take the position that this label-generated bright idea is bad for artists. Then I’m going to take the position that it’s great for artists. You watch, you learn, this is how the big kids do it.

Let’s start with the bad. Lordy, you have to love the cynicism of the music business. Paramore, signed when the average age of the band was just under illegal (that’s still in high school for those who are unclear on the concept), saw the label’s proposal as a way to go the slow-growth route. Let’s take off the rose-colored glasses. Unless this band had a major player as a manager, there is no way they were sufficiently educated in the ways of the business to make this kind of call.

Fueled by Ramen, a subsidiary of Atlantic Records, has since put money into recording, touring, and promotion for the band. The goal was purely commercial:

A somewhat similar blueprint emerged in 2005 when Atlantic and a small partner, the Florida company Fueled By Ramen, signed Paramore with plans to build a brand-name rock band, one that now not only racks up sold-out shows but sells merchandise from flip-flops to tube tops.

It is telling that the actual financial arrangements of this deal are not being discussed. If Atlantic is indeed putting as much money into the tours and promotion as the article suggests, then they’re going to recoup their investment. Another 306 deal is outlined in the Times article:

Atlantic’s document offers a conventional cash advance to sign the artist, who would receive a royalty for sales after expenses were recouped. With the release of the artist’s first album, however, the label has an option to pay an additional $200,000 in exchange for 30 percent of the net income from all touring, merchandise, endorsements and fan-club fees.

Atlantic would also have the right to approve the act’s tour schedule, and the salaries of certain tour and merchandise sales employees hired by the artist. But the label also offers the artist a 30 percent cut of the label’s album profits — if any — which represents an improvement from the typical industry royalty of 15 percent.

I know, I know. I can see all of you out there shaking your heads in disbelief. We all know that for this kind of deal to be profitable for both parties, it’s going to take a lot of hand-holding promotional efforts on the part of the label. Given their previous track record, it’s hard to imagine that there has been a true come-to-Jesus moment in the industry. The Paramore deal sounds, I’m sorry to say, more like an Atlantic version of a Disney package. Think Hannah Montana for the punk crowd.

But I said this can be good for artists. I mean, Madonna recently signed on for a 360 deal with LiveNation. Madonna, in my opinion, is one of the smarter business-oriented musicians out there. Based on the publicly released terms of her deal, she’s getting it good. Very, very few artists can play in the same negotiating pool as Madonna. The next time LiveNation signs a band or singer, the terms will not be as sweet.

Hmm, maybe it’s a weird form of “bait and switch”?

Oh, right. The good. One thing is abundantly clear: the music labels need new talent to survive. While catalog sales remain the path to acceptable bottom lines, once every household in the world owns “Eagles Greatest Hits” (or whatever it’s called), you simply cannot depend upon sustained sales to prop up a really bad business model.

Once upon a time, the cost of producing and distributing a record was beyond the reach and skills of bands. These days, both are eminently affordable. You don’t need a major label to build a career. You also don’t need to fork over 70% of anything to that label. Right now, labels offer certain value to bands:

• Marketing: Labels can still afford to put good money into marketing a band. By sharing resources among many groups, they can harness print, broadcast, radio (payola anyone?), and online promotional efforts. Aggregating efforts allows bands to get exposure they probably couldn’t afford on their own.
• Distribution: While record stores or stores that devote space to CDs are declining, in-store sales still beat out online sales and downloads. Again, through the magic of aggregation, labels can place physical product far more economically than any band can. But wait! There’s more! Labels can also use this power of aggregation to ensure their artists’ music is available through every possible download service in order to read the broadest audience possible.

  Yes, this does require a paradigm shift on the part of the labels. They need to stop obsessing over piracy and start thinking maximum distribution overdrive.

• Access: If labels want to be relevant in this new “360” world (I keep typing “260”, which is probably indicative of how less-than-positive I feel about this wholistic notion), they will use their awesome powers for good. They will be working hard to get bands into venues. They will use their siblings for television and radio exposure. They will get their bands into places bands have never been before. If the label has a real financial stake in the band, the label will work hard for the band.

What I am saying is that today’s musicians need to see that they are all-powerful. Rather than going weak-kneed because a label wants to sign them, the bands should be all, “Yeah, so what can you for me that I can’t do myself?” Negotiations should come from a place of power, not gratitude.