360 deals have come around as the recording labels response to three major trends in the music industry in recent years: (1) the steady decline of revenue from records sales, (2) the increase in prices of tickets to live events and fan expenditure on merchandise and (3) the strengthening of the capabilities of the collecting societies and publishers getting better at their roles which translates in income from public performance and synchronization becoming more and more significant.
It is becoming the norm nowadays that if labels are going sign/extent a record deal they would be willing to do it only if they can get a share from other activities such as song-writing, tickets, merchandise and sponsorship deals. In their own words: ‘we are not making enough just from selling records to justify the level of advances, royalties and recording costs’
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360 deals and Indie Labels.
360 deals are very appealing for independent labels which use it as way of acquiring more rights thus improving their bargaining power when the time comes finally come to secure major partners. The main concern for artists are: first, that the label could hold to these rights and blow out a deal with a major company who wants the rights assigned to them; second, that independent labels often don’t have the capabilities to realize the full potential of the rights assigned; in other words: monetize them.
If a label is looking to have these rights assigned to them they need to be prepared to pay different values of commission depending on the type of rights assigned. I recently checked a 360 deal (recording/publishing/merchandise/sponsorship) served to an artist along with a management contract in which the label set an across the board 15% remuneration for all of the rights assigned. I advised the artist to not accept less that 30% for publishing, no less than 50% percent for merchandise and that they allowed the artist to shop around for deals and come back a give the company a chance to make the deal on the same terms as the best offer. I also advised to keep matters ‘old-fashioned’ when it came to record sales royalties and the artists were paid 17% on the dealer price of records sold.
For labels having different rights assigned from artists should definitely mean that they ought to work really hard to make it worth for artists giving away these rights and to make up for the lack of capabilities, expertise and contacts in areas in which the label has not been traditionally working on.
Other important aspect is ‘cross-collateralization’ of different types of income which means using income for certain type of activity to cover costs from another, e.g. merchandise income to cover recording costs. Although it may be tempting for labels to do so it should be avoided for the sake of artist getting paid sooner or actually ever getting paid at all.
Labels are advised to keep and maintain three separate, distinct and non-cross-collateralised sets of accounts, in respect of:
- Services in relation to activities as recording artists;
- Services as songwriters and composers; and
- Services in relation to other activities.
This blog post was written by Daniel Ward, legal advisor at Altarboy Music.
Image Credit: frf_kmeron