360 Deals – The Basics

This is the first part of a series of articles looking at 360 deals. Part 2 will look at the issues an artist should consider when offered a 360 deal. Part 3 provides a summary of the range of commercial terms that are available. Part 4 examines some of the alternatives.

The Basics

Under a traditional recording agreement, the record label would pay you a royalty (or a share of profits) from sales of your records. With a 360 deal, the record label will additionally want to take a share of your income from all other sources within the entertainment industry. So, typically, this may include a share of all or part of your publishing, live work, merchandising and sponsorship.

What’s The Rationale?

The record labels claim that the traditional form of recording agreement is no longer financially viable. The labels say that their revenues are falling and, at the same time, it is becoming harder, and more expensive, to successfully promote and market artists. On top of this, there is a significant increase in the supply of music onto the market. This means that the ‘hit rate’ of the record labels developing a ‘successful’ artist is falling.

The labels go on to say that because of the above factors, receiving income from record sales alone will simply not pay the bills!

Do I Have To Accept A 360 deal?

It depends! If your record deal is from a US record label then you almost certainly will have to accept a 360 deal. 360 deals have now been used in the US market for several years, and the position of record companies has become entrenched. That doesn’t mean you can’t still negotiate a good deal with your US record label – just that you will have to accept that 360 rights will form part of the deal is some way, shape or form.

In the UK, my experience is that many record labels simply do not ask for 360 deals. Those record labels that do ask for these rights will readily give them up if pushed hard enough. There are some exceptions – with a relatively small number of labels insisting on 360 rights on a ‘deal or no-deal’ basis. Even then, most UK record labels will not insist that your songwriting income (or publishing rights) be part of the deal.

What Are These Deals Worth To The Labels?

The BPI recently reported that almost £76m was generated in 2011 from 360 deals with artists – an increase of 14% on the previous year. By comparison, the retail value of record sales (physical and digital) reduced by 0.5% between 2012 and 2013 from £1,048.4m to £1,043m. Income from 360 deals is therefore an attractive growth area for the labels.

Finally…

There have been a number of high profile railings against 360 deals. Neil Warnock, CEO of The Agency recently described 360 deals as ‘immoral’, stating that “No company should own everything that an artist does.”.

Alan McGee, former Creation Records boss has also stated in his Guardian music blog that

It was trailblazers such as Peter Grant here in the UK and Shep Gordon in the States who fought for artists, winning them a percentage of the door at gigs. They pulled artists out of the slavery of 1970s deals. Didn’t we all applaud that? Wasn’t it great when the Beatles started their own label?

In a 360-degree deal, this is what the records company is doing: ripping off the door at the gig. Let’s call it like it is. Where is the morality in that? The cops would bust someone for stealing at the door. And everyone would applaud. So what’s going on here?

Because music is free and the traditional record industry model obsolete it doesn’t give the industry the right to move into the business of promoters and merchandisers.

Many new artists will not have the profile or negotiating position to refuse a 360 deal – particularly if it is the only contract on the table. There are alternatives though. These are identified in Part 4. In the meantime, if you are forced to negotiate a 360 deal, then head over to Part 2 to read about how to make a 360 deal work for you.

If you need help negotiating your 360 deal then please call me, Mark Roberts, on 0161 826 9309.

Image copyright © Peat Bakke. Licensed under a Creative Commons License.

Clearing music samples

A common question asked by musicians and producers is whether they need to obtain approval for the inclusion of a pre-existing piece of music or ‘sample’ in any new recording. If approval is required, then what process will they have to go through to obtain clearance? For the uninitiated, the term ‘clearing a sample’ refers to obtaining the legal rights to use music, lyrics and/or recordings that are owned by someone else. Continue reading “Clearing music samples”

Five Types of Record Deal

There are currently five main types of record deal. There are also a number of hybrids which take various elements from each type of deal.

Which deal is best for the artist or the record company will vary depending on the circumstances. In this article, we look at the benefits of each.

1. The Licence Deal
Under a licence deal the artist will licence the record label to use the recordings made by the artist. The licence would usually permit the record company to manufacture, distribute and sell named recordings. A licence deal might be appropriate where the support required of the record label is limited, e.g. where the artist has already made a recording.

In recognition of the fact that the record company undertakes less work under a licence deal, the record company generally accepts a reduced royalty rate and reduced packaging deductions are payable.

2.  The Exclusive Recording Contract
Under this type of deal the artist exclusively appoints the record label to manage the music recorded by the artist during the length of the contract. An exclusive recording contract typically lasts for 1 year, but provides the label with the right to renew the contract for further periods of time. The label will generally require the artist to record one album during the contract term.

In return for exclusivity, the artist can expect a significant investment of time and resources from the label. This could extend to include the recording of videos and marketing and promotion costs.

3.  The Development Deal
The development deal is a hybrid of the exclusive recording contract. However, rather than require the artist to record an album’s worth of material, the deal is that the artist will record a number of demos or singles. The label can then make a decision to extend or terminate the relationship with the artist on a ‘suck it and see’ basis.

The fees payable to the artist under a development deal are limited and may only cover recording costs. However, the development deal provides an artist with an opportunity to impress the label. In theory, the label gets to see the creative best from an artist who will be hoping to secure a full, exclusive recording contract.

4. The Production Deal
The production deal is another hybrid of the exclusive recording contract. In a production deal, the artist does not contract directly with the record label, but with a business that makes recordings. The recording company then licenses or assigns those recordings to a label. Typically, the record label is an offshoot business of the recording company.

The production company will generally expect exclusivity from the artist for as long as copyright in the recordings is available. During the term of the contract, the production company will look to develop the artist by recording several tracks and will then ‘tout’ their artists to the bigger labels in the expectation that the production company’s rights will be acquired either through a licensing deal or assignment.

The advantage to an artist in signing up with a production deal is that the artist may enjoy greater creative freedom and benefit from a greater degree of focus from the owners of the production company. However, the down side is that most production deals are 50:50 net profit deals – where the artist only receives 50% of net profits. This is minimal when compared with the royalties that are potentially payable under an exclusive recording contract.

5. The 360 Deal
A typical exclusive recording contract will allow the record label to make money from selling the recordings of the artist. Under a 360 deal the artist agrees that the record label can make benefit from all areas of activity in which the artist is involved. This could include royalties received from areas such as merchandising  and ticket sales. More importantly, the 360 deal may also extend to cover monies received through other areas of an artist’s life, such as acting, writing or promotions.

An alternative to the 360 deal is a 270 deal which is the same as a 360 deal but excludes publishing.

To discuss any queries regarding record deals on an informal basis and without obligation, please call Mark Roberts on 0161 826 9309.