When Does a 360 Music Deal Make Sense?

All of my tech friends are pinging me about the article on TechCrunch about Warner Music Group's demands that any new signed acts must agree to a "360 Deal."

Traditionally, a record company would sign a deal with an artist that set specific royalty rates for each copy of a record sold. In exchange, the label would front the investment money for the recording while applying their substantial promotion and marketing prowess to the task of getting records sold. Along the way, any expenses incurred in the process would become "recoupable" against those royalties.

In a nutshell, albums would get made, but artists would rarely see a penny outside of their statutory songwriting royalties. That's because labels would find ways to extract every single cent from artist payments by deducting every cell phone call, every bottle of water, and every regional promoter's cat litter bills from the artist's escrow account.

That was fine, though, since artists really make money from movie and TV licensing, from fan club memberships, from merchandise, and from live concerts. Managers and label owners tolerated each other long enough to get a contract signed, and the world kept spinning.

Live Nation's Best Idea Ever

Along comes Live Nation, a revived company formed from the ashes of Clear Channel, the shell of SFX, and the brain of MusicToday. Clem Chambers called it months ago: by leveraging the footprint of the most desirable concert venues in the country with the prowess of the industry's most successful marketers, Live Nation actually found a way for itself and for musicians to make money. As a result, it started a new music business precedent: "360 deals," in which Live Nation acts as label, promoter, presenter, and gift shop. For major touring acts, it's a no brainer. Ditch the major labels, cash a fat advance check, and head out on the road.

So now, with record sales in free-fall, Edgar Bronfman is telling all comers that he won't sign an act unless his label gets the same kind of deal. If Warner had the same kind of promotional clout as Live Nation, this might make sense. But I can't see handing over an extra 10-30% of an act's income to a company that's already failing to pay artist royalties in an era where artists still have to do all of their promotion. On top of that, recognizing that the cost of producing high quality records has come way down, where is the benefit of actually signing with a label like Warner?

Song Sharks Using 360 Deals to Lure Unsigned Acts

Here's what's even worse, in my opinion. Bronfman's statements are legitimizing a trend among small labels that are already indistinguishable from song sharks. I'm hearing more and more from independent musicians who are being approached by so-called A&R scouts who promise fame and fortune in exchange for up to 66% of their overall earnings.

When you're already broke, and dreaming of stardom, 66% of nothing is nothing, so it feels good to actually consider this kind of a deal. Here's why these folks are ripping you off:

  • No legitimate music business manager, even in this economic climate, will request more than 15% of an act's net profit. Managers make money on the back end, just like you do.

  • If you don't already have 1,000 fans on your mailing list, a record label isn't close to being in a position to help you.

  • Consider any professional offering services the same way you would select a doctor, a dentist, or a real estate agent. What's their track record? Who have they actually produced? If they're new at the business, that's fine -- they should be commanding a smaller rate than someone who's got some gold records on the wall.

  • Any deal you make early in your career that hands over a chunk of your revenue will make you less attractive to more experienced professionals. If you get big enough to be courted by Live Nation, they're going to want a piece of the whole pie, not the 75% or 50% that's left over after the deal you're thinking about.

As always, I remain convinced that record labels make great pressing & distribution partners. I wouldn't sign a deal that allowed them to charge my act for promotion, unless I knew exactly who was going to do that work for us and what their strategy was.

And, as always, make sure you run every prospective legal agreement by an experienced entertainment attorney. $300 spent now can save you thousands or even millions of dollars down the road.