Over the years, 360-degree equity deals have becomeprogressively common, with eminent names such as Madonna and Jay-Z signing thoseagreements. A 360-degree ‘multiple-rights’ contract entails the businessrelationship that is held between a music industry company and an artist.
Thecontract encompasses the financial support the music industry company promisesto provide the artist with, alongside any other support required of thecompany. This may include assistance with the marketing and promoting of themusic, alongside any tours the artist may partake in. The company may alsoagree to support the artist by advances per album, a signing bonus (unlikelyunless it is a renowned artist) and offering shares in the company. The otherside of the deal involves the artist conceding, in terms of the contract drawnout, to allow the company to an agreed percentage of the revenues which havebeen gained through the processes of live performance, the publishing of themusic and the sales of recorded music (McDonald, 2017). Fundamentally, a 360-degreeequity deal serves as a viable alternative to the originally signed recordlabel deals which rarely offered any investment reaching outside musicrecording.
The emerging of the widely debated and star signed 360-degreecontract has been argued as evidence towards the idea that the balance of powerwithin the music industry is shifting. Further evidence to support this idea isthe fact that the majority of publicised 360-degreedeals have been made by the music promoter Live Nation rather than individuallabels. Posing a possible threat to the recording majors with its differentareas of coverage.In 2002 EMI signed a very innovative deal with RobbieWilliams, that initiated a change in the contracts offered by record labels.
This two part contract is deemed the precursor of the 360-degree deal. Threeyears later, still at the forefront of the change, EMI signed another extendedrights contract, this time with the nu-metal band Korn. A year after that, in2006, Live Nation overtook the pioneering label by signing the same band undera contract with great significance to the music deal history. However, it wasthe groundbreaking agreement between Madonna and Live Nation, made in 2007,that became the first 360-degree equity deal in public discourse. It wasunexpected and new for a well-known artist, with an estimated net worth of $325million at that time ($580 million as of 17/05/17; Forbes), to sign a contractwith a tour promoter instead of a major record label. It was an innovationaddressing the transforming market by meeting the emerging need of a change inapproach towards artists, with its own take on the one-stop shop.Because of the shift in the industry and manystreams of revenue involved in the new type of agreement.
the 360-degree dealis also called a ‘multiple rights’ contract and the companies supporting theartist are represented as music industry companies rather than recordinglabels. The revenue generation areas include some of the following: merchandiseand digital sales, endorsement contracts, television and movie appearences,concerts, live performances, tours, publishing, songwriting and lyric displays.The companies commit to promoting the artists over longer periods and also seekto create more opportunities for them, hoping for a rapid success of theinvestment and increased profit from shared rights. The entities can offer tomanage and look after the entire ‘break’ in the career of their signed artistinstead of production and distribution of records only, which is what theywould be originally assumed to do as a record label.
Within traditionalagreements, artists used to be paid relatively minimal royalties by the recordlabels. After making deductions that entailed album or track production ittranslated into a very small direct income for the artist in that particulararea. However, the label would only expect recording royalties if the album wasa major commercial success, which created a certain amount of risk for the musiccompanies. Especially that profits from touring, publishing, endorsements,merchandise and several other sources of revenue entirely belonged to theartists.
Although it is very unlikely that no company in themusic industry thought of profiting from a wider stream of revenue than onlyfrom the records, it can be argued that up until the 2000s the record labelswould not explore additional sources of revenue as there was no need for that.The recording industry ‘boom’ in the 1990s, with the peak of CD sales, passedrelatively quick, yet still, some labels would believe in the CD’s comeback andblame the significant decline in sales on the digital piracy that came with the21st century. Their hopes were for the improvement of the intellectual propertyenforcement to eliminate the issue, but a few years later it became clear thatthe CD sales will decline up to a point where the revenue will be steady butvery low. It might also be argued, that there are always trends emerging, whichcan ‘revive’ certain products. Realistically, in most cases, trends pass asquickly as they come up, which creates an obstacle in achieving stability indistribution and sales of a ‘revived’ product. There is also the argument ofthe all-time fans and collectors, but in the age of technology and rapidchanges, even the strongest fanbase cannot fight becoming a fanbase of a barelysustained, non-profitable niche.Today, years after the break-through change incontracting, the 360-degree equity deals still have a relatively vaguedefinition and can be structured in different ways. Nonetheless, a cleardistinction between active and passive rights should be maintained.
Thecontract can be represented as a traditional recording agreement with anadditional clause allowing the label a share of the artist’s income fromnon-recording rights, while having no engagement in the management of thoserights (passive approach). On the other hand, the deal could be presented as ajoint-venture involving both the artist and the label, but with a significantrole of the association in the management of the rights (active approach). In thatcase the artist could also be requested to sign a contract, allowing anothershare, with a sister firm or a division of the enterprise to execute thesignificant role.
This happens, because a unit handling a different sector isconsidered a separate entity (Passman, 2011). Nevertheless, most dealsare actually a mix of both active and passive rights: for example, by mid-2007Warners’ policy was to insist on active rights in recordings, merchandising andfan clubs, with passive rights being negotiated for all other kinds of rights(Goodman, 2010; in Marshall, 2012). In order toprovide a better understanding of the Multiple Rights Contract an interviewwith attorney Elliot Resnick explored the splits in forms he supplied. Some ofthe contract terms indicated that the label should supply the following: 25%live performance and touring, 25% publishing, 25% for digital products such assales from artist’s fan site and ringtones, 50% merchandise, 25% endorsementsand finally 25% for other revenue generating sources such as TV or movieappearances and book publishing. The percentages from Resnick’s deal aretypical, though they vary from one contract to another. Whatever the splitcould be, the artist’s advisor or the artist himself should ensure that thelabel is committed to doing a great job that surely deserves the equity sharein the income generated.
For example, the label should be committed tomanufacturing merchandise and also selling it online in return for the 25%share (Gordon, 2013).When it comes to publishing, a 360 degree contract mayentail what is referred to as a co-publishing terms agreement. In that case,the company supporting the artist gain complete control over any songs theartist publishes for the whole duration of the contract and the label receives25% of all the revenues generated during that particular period (Gordon, 2013).The company may also demand a 50% of all the revenues generated by the artistsongs or even a higher percentage of the publishing shares. In return, thecompany would have a dedicated member responsible for pitching the songs tosome other artists, musical supervision and covers. This would aid in placementof the songs in video games, movies and television, leading to increasedpublishing, benefiting both parties.Moreover, because there have been noticeablefluctuations concerning commercial terms and the structure of the agreementsover the years, all the possible variations of the contract should be handledresponsibly with time and care, as there is a risk of a 360-degree contract presentinga big disadvantage to the artist. Certain situations may deepen the issue.
Whenfaced with the dilemma of either an exploiting 360-degree contract or nocontract at all, signing the deal still seems to be a common choice. Most musicindustry companies are now insisting on having the 360-degree deals, theartists aren’t given many choices and are left to themselves not being able toafford a representative. That said it is only profitable for the artist if thedeal is properly negotiated and the pitfalls often involved in the deal arewell covered, which may require a certain expertise. In the case of an artist,that is already a part of the industry, the ability of an artist’srepresentative to improve the terms of the contract majorly depends on theirnegotiating skills (artist’s leverage as well as lawyer’s knowledge). Ifthere’s a contention between the parties, the lawyer’s knowledge of the dealswill lead to improved terms of contract as compared to when the lawyer is notwell conversant with the deal (Chase, 2014).More importantly, as far as negotiating for theadvances is important, it should also be ensured that the label can’t cross-collaterise the revenuestreams. This means that the company can’t earn from one stream and rush to payfor unrecouped streams which had balances or were not paid for (McDonald,2013).
For example, if the company pays $50,000 to cater for the recordingcosts and the royalties owned by the artist are 50cents for album or song thatprobably sells at $10.00, the artist should sell 150,000 so as to break even.Supposing that the artist only sells $50,000 and the artist revenue is $25,000,if the contract terms allow the company to cross-collaterise different streams,$25,000 will be in effect on the so called “red balance” in the artist’sroyalty account.The popularity of the multiple rights contract may bea result of an old fashioned mentality of the artists.
The thought is that anartist has to be signed to a label, although that definitely is not the only wayto succeed. The “do-it-yourself” (DIY) principle is a new way of grasping ituntil an artist gets the right deal or never signs one and makes it on his own.This means that an artist won’t have to share their income with anyone otherthan themselves. Also, DIY accords an artist the ability to learn the music marketand business.
Avoidance of learning the music industry exposes the artist toill treatment, especially in cases where they don’t have experienced representatives.Artists must show labels that people are ready to pay for their music. A lot oflabels are more eager to generate income than to make qualitative music. If theartists can show them that they have already made some good sales themselves,they would therefore be taken more seriously (Karubian , 2008). Starting thecareer by supporting yourself enables to fill gaps in the music market that aregenerated by an oversaturated production of pop. This would also give an artista very good basis for negotiating a deal because they are offering somethingoriginal.
Therefore, this allows the artists to build their career all bythemselves before engaging into contracts with companies.When entering into a 360 deal, the artist gives apercentage of their income all because they are convinced that the label willtake their career to another level. Before entering such deal the artist mustensure that the label has enough money to invest in them (Vasquez, 2017). Thelabel must be in a position to pay for digital sales, promote liveperformances, produce and pay for high quality music videos, design classicwebsite for the artists and so on. The artist should also check previous thelabel’s track record to defend oneself against fraud. Artists should alsoensure that the 360-degree contracts they sign have escape clauses.
Some of thedeals will tie them for up to 10 years. During that period they may bestructured in a way that the label will be required to do almost nothing. If alabel identifies another artist who is more vocal than the one they currentlyhave and see chances of better income, they will happily abandon the first one.The artist’s should therefore negotiate the deal keeping in mind that it needsto have clauses where the artist can detach himself or herself from it, butalso requires certain actions from the label. For example, they can insist onhaving a clause that addresses the music release, which requires the label torelease the music tracks within a specified time frame, to a specific marketand with the intended promotional support.
While the importance of 360-degree contract hasalready been touched upon, it is imperative to explore it in depth. Labels giveartists the opportunities to develop. Artist development deals have beenregarded as a thing of the past unless proposed by independent labels. Whensomeone has their music, branding and image in order, labels would like tosupport them wholesomely. Supporting such artists presents minor risk to thelabels and also opportunities for artist development (Wiebe, 2017). It’s a loteasier for the artist, when they have someone managing their work and strategising their music.Therefore, if a label continues supporting an artist after their first trackand tour, it probably means that they have identified great potential in theartist and this gives the artist a fair opportunity to succeed and grow.
Evenif someone doesn’t succeed as anticipated, the lessons learnt from a labelcould be applied in building a lucrative and successful career.Artists have access to skillful and best people in themusic industry through ‘multiple rights’ contracts. Though the word ‘best’ issubjective, if an artist is signed to one of the best labels in the industry,it means they have access to experienced engineers and music producers, but italso means that their music is controlled by a marketing powerhouse. In simpleterms, the artist wouldn’t have to worry about every detail of their career,but there’s also a price to it. If the label is doing its job, it will help toget the music on radio, manage itineraries, book promo and so on. Getting intocontract with industry majors is a very exciting adventure. This doesn’t meanthat someone will have to choose people to work with but will definitely providethem with people who understand what is ‘the secret recipe’ for the break-throughand maintenance of the career in the industry. Therefore, a 360 degree contractis a good deal for artists, if engaged with an experienced label as well aswith properly negotiated terms of contract.
Despite the ‘multiple rights’ contracts being veryinnovative, they also get a lot of critique and are often perceived as moreprofitable for the labels than for the artists and are sometimes met withcritical statements, where they are said to be an easy way of obtaining moneyfor the labels, facing dwindling sales as well as high overheads, withoutanything in return. This accusation is a result of the fact, that musicindustry companies have originally and successfully sustained themselves, for along time, without the ‘multiple rights’ contracts. As a result, using thosecontracts may therefore look like they’re suffering from the inability tomanage their own businesses and are trying to change the terms of the industry(Basofin, 2010). The fear of signing a disadvantaging contract iscreating even more negativity towards the 360-degree deals. It is argued to be sometimesdifficult for the artist to achieve any personal goals (musical, career wise,financial), since most of the affairs are managed by the label.
That highlights,that the artists should only enter into a contract when they clearly understandit and its binding terms. If someone fails to understand the terms and agreesto sign the contract, it is hard to recognize the artist as a victim after the agreedupon details factualize. The artists are responsible for their choices andshould approach any contract with great care and awareness.Several scholars have viewed the 360-degree equitydeals as the music industry companies acknowledging the fact that little profitis made by selling and distributing music. This sentiment, however, has asimple solution; creating different methods to generate revenue may be the onlything that needs to be done. Generation of new methods entails listening to thedemands of the consumers alongside being innovative (Vasquez, 2014).
This wouldbe beneficial as it would raise sales in areas where there had previously havebeen nothing, thus raising overall sales and profits. The utilization ofmarketing methods such as amazon music, Pandora, and Spotify is a clearindication of the effectiveness of innovativeness, creativity and in simpleterms thinking outside normal enclosures. Therefore, even though the idea of a 360-degreeoffer has been mostly embraced, there are still many different ways to promotemusic at an independent level.The music market is a very complex industry oftenunderestimated and hidden behind a curtain of the creativity and passion broughtin by the music making artists. It can never be emphasized enough, that it isvery important for the music industry companie and artists to get theirnegotiating strategies right within this exceptional deal structure containedin relative documentation.
For the artists, it is advisable to get advice andguidance from professionals and acquire a lawyer with diverse knowledge in 360-degreecontracts to engage in negotiations on their behalf. The misconception of a 360degree contract being very one-sided is due to the lack of understanding onwhat is right or wrong while including royalty rates and putting the terms of thedeal together. The artist should outweigh the advantages of the deal with thedisadvantages involved.
A detailed and thorough assessment should help theartist making the right decisions. It can also be said that 360-degreecontracts are mostly recognized as very important parts of the music industry’sbusiness models. Due to the decline in physical recording of music andincreased digital piracy, the deal offers great opportunities for artists towork with labels. This helps in maximizing profits for both the artist and thelabel too (Dubber, 2013). As a result of a shift in the business, there is nomarket for a record label ,as know in the 20th century, anymore.
Thenow called music industry companies have to seek other streams of revenue tosustain themselves. That is due to the digitalization of the music industry aswell as the change of a mentality towards being signed to a label. Emergingartists do not feel obliged to get signed in order to break-through and have achance of a career.
Moreover, they seek the convenient all-around, extensivecare package at a one-stop shop ,like the pioneering Live Nation, that would handlemore than strictly the musical in- and output. ‘Multiple rights’ contracts arean organic answer meeting those needs, allowing the music companies to makerelative adjustments, but also grow, transform and expand, rather than posing athreat.