The "360 Record Deal" Revisited

by Mike Milom on November 1st, 2007

In a prior issue of Music Row, we considered some of the elements of the new type of exclusive recording agreement in which record labels participate in touring, merchandise and other income streams of the artist. Recent news articles about two so-called “360 deals” motivated us to revisit this subject.  The Wall Street Journal recently broke the news of Madonna’s mega million dollar deal with Live Nation in which Madonna reportedly will receive $120 million in cash and stock in exchange for distribution rights to 3 future albums and the rights to promote live concerts, sell merchandise and license her name and image. The second article published by the New York Times in early November noted the rising popularity of Paramore, a Franklin, Tennessee band, suggesting that its success at least partially resulted from the support of its independent record label, Fueled by Ramen, under the group’s 360 record deal..

While well established artists will always have options when seeking to perpetuate their popularity and profitability in the evolving music industry, it is likely that the 360 deal soon may be the only kind of contract offered to new artists in most genres.  Clearly, the economics of the recording industry is driving record companies toward this new contract model and, certainly there are positive aspects of the 360 deal for new and developing artists.  However, there are many potential negatives that artists must consider before signing on the dotted line (which, ironically, is no longer a dotted line due to advances in technology).

In spite of the staggering changes in the recording industry, two fundamental economic principles have not changed.  The first is the so-called “Golden Rule of Negotiation” – “the person with the gold makes the rules.”  The second is that the greater the risk one takes, the greater the reward required to induce one to take the risk.  These principles have always greatly influenced the relationships between recording artists and labels and they will continue to do so in the new industry models.

As long as one doesn’t get hung up on such subjective concepts as fairness and  equity, new artists can find relative comfort in the new multiple rights or 360 deal if they are careful to avoid giving up substantial portions of hard earned touring, merchandise and brand licensing revenue for illusory promises of higher record royalties, greater tour support and greater security during the development period of their career.  One of the greatest challenges in negotiating such deals from the artist’s perspective is that the participation requested by the label in the artist non-traditional revenue streams are easily quantifiable (e.g., “Artist shall pay to Company  10% of Net Touring Revenue as herein defined”).  However, the benefits offered by the label (e.g., “Company will provide  promotional support for Artist’s tours during the Term”) in exchange for such participation are usually much more difficult to measure or enforce.  Even when the label is required to spend specific amounts for specific purposes (e.g., “Company  will provide negative tour support in the amount of $500,000 for each Album released hereunder”), unless the artist has the right to approve when and how those funds are spent, what appeared to be a fair exchange can quickly become an illusory benefit.  Absent careful negotiation and drafting, a promised partnership between the label and artist in the artist’s career can become a relationship in which the traditional elements of partnership such as operational transparency, equal access to information, equal participation in key decisions and similar elements are virtually non-existent.

In analyzing a proposed 360 deal, an artist must know whether the label is merely participating in revenue streams from activities managed and controlled by the artist or whether the label will be managing and controlling the touring, merchandise or marketing activities and/or collecting the revenue from those activities and accounting to the artist. If the label intends to perform functions that exceed its traditional role in the artist’s career (e.g., tour promotion, personal management, publishing, merchandising, endorsement and brand licensing),  it is essential that the artist be certain that the label has the personnel and expertise (either through its employees or joint venture arrangements) to deliver the promised results effectively and in a manner that will benefit both the label and the artist.

It is obvious that Madonna was not compelled to make a deal with Live Nation.   She did so because she determined that it was in her best interest. However, while Paramore’s 360 deal may afford them great financial success and visibility, many other artists may struggle or fail completely because a 360 deal was their only option and they are not able to negotiate sufficient contractual protection to assure that the label performs as promised.

First published in Music Row Magazine, www.musicrow.com.