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Blogs Guest Blogs 360 Divided by 2 = Fair: Why 360° Record Deals should make the Artist a Partner by Zac Locke
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Blogs Guest Blogs 360 Divided by 2 = Fair: Why 360° Record Deals should make the Artist a Partner by Zac Locke | 360 Divided by 2 = Fair: Why 360° Record Deals should make the Artist a Partner by Zac Locke |
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| Written by Foresight | |
| Monday, 21 April 2008 | |
  Many before me have advocated for a change in the way record labels contract with their artists. In fact, some commentators’ battle cry is: “Get rid of the record labels!” I, if anyone, should agree with these label-haters after spending three years at the highly dysfunctional Virgin Records America (whose once-hip Los Angeles office is now a parking lot for the City of Beverly Hills’ broken-down police and postal cars). But these commentators forget that the record labels provide the recording, marketing and distribution funds for new artists. The Internet does increase exposure for music, but how do you know what you want to listen to? As Hollywood music lawyer Dean Sheldon Serwin put it, “did you know you needed Crest Tartar Control toothpaste before they spent millions of dollars to tell you that you needed it?” Any product must have money spent on it for consumers to buy it. And the artist is the label’s product. Without the artist, the label does not have a business, and without the label, a new artist cannot break through the clutter. Thus, any solution to the broken record deal will have to treat labels and artists as partners. 360 Deals Lately, it seems like every artist is signing a “360 Deal”, where the label shares in non-traditional areas such as touring, merchandising and publishing, while giving a little more of the recording income to the artist. Different Artists feel differently about the deals . The more important consideration is that any new type of a record deal, especially 360 Deals, should involve a comprehensive revenue sharing model. Imagine a simple percentage-of-gross-revenue system, with no costs besides the advance taken out of the artist’s share of any money they make for the label. This would encourage more cooperation between the artist and the label as each would be invested in the other’s traditional sources of revenue and would do their most to maximize both. With all of the ball-hiding that labels do – marking up expenses, taking deductions for fictional costs, reducing royalty rates, cross-collateralizing albums, and imposing controlled composition clauses, an artist can easily sell half a million (or even a million) albums, and never see a penny over the advance. However, the label can get rich off of the same hit album, since the artist’s share is based on collecting money only after all of the costs associated with the recording, distribution and marketing are recouped by the label. In this current scenario, the label is happy, but the artist usually has to depend on touring to make any money. However, if the album is a flop, the label loses millions of dollars, and the artist still makes no money and has to depend on touring. But since the album flopped, there is probably not a huge audience for any tour, so the artist is just screwed. In the revenue-sharing system that I envision, the artist would get a certain percentage of the money that the label takes in, before costs to the label. If you are a record label representative reading this, your eyes have probably just stopped watering from laughter induced by the suggestion that the label pay the artist on the gross revenue, before costs. The labels would have a very good argument that with a new artist, marketing costs can easily exceed any possible revenues from selling music. However, since my idea is a comprehensive revenue-sharing system, the label would have a chance to participate in the artist’s revenues from other sources, especially touring, merchandising and publishing. Now I may have upset the artists reading this, who already do not trust the labels and balk at labels getting their hands on any more of their income. But artists should consider that if the label gets a cut of their other revenue sources, the label will have more incentive to develop artists’ careers. The more an artist’s recorded songs penetrate the market, the more people will buy a ticket to see that artist on tour. Thus both the label and the artist benefit from each others’ efforts. The artist will be motivated to produce songs during the term of her deal because she sees money before costs and deductions. And the label will be motivated to develop a long-term relationship between the artist and her fans because they will profit from the touring and merchandising. The artist will still be motivated to tour despite the record company taking a cut of the touring because touring helps sell recordings, and the artist’s deal will be better if she shares in recording money on a pre-cost revenue basis. Moving to a simple revenue-sharing system would also simplify accounting and foster trust between artists and labels. It is easy: if the label takes in money, they give the artist a percentage. And vice versa. No funny accounting. For the label, paying the artist would be another cost of doing business, much like in television, or sports. Actors do not have to pay for the cost of running a show, and athletes do not have to pay for the cost of installing new luxury boxes in their stadium. Since costs would not be deducted under my system, initial artist advances would be smaller. Also, the advance is still recoupable, which minimizes the risk to the label. The advance is the only recoupable recording expense by the label under my system. With a small advance, the artist would have to earn more money by actually releasing quality songs, benefiting music lovers, too. Under a revenue-sharing 360 Deal, the artist’s income will be a truer reflection of the label’s profits, which, simply put, is the fairest way. About the author: Zac Locke was initiated into the music industry back in ’97 with the independent hip-hop label, Noo Trybe. After a year of listening to 20 wack demos per day in its A&R department, he joined Virgin Records where he worked in urban, international, and college marketing. He then moved into television, producing promos and marketing videos for A&E and The History Channel, where he was nominated for an Emmy®. During law school he clerked for a Hollywood music attorney and in the Entertainment Department of a top LA law firm. He is the Editor-in-Chief of the UCLA Entertainment Law Review, and will earn his J.D. in 2008. Comments
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| Last Updated ( Tuesday, 22 April 2008 ) |
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First off the labels already rationalize their use of the 360 deal as a way to invest more in their artists. I like the idea of a simple revenue-sharing deal with the labels, which is where I think the music business is heading i.e. Jay-Z/Live Nation. But to ask a record label to pay NEW artists before recouping makes little business sense, especially considering the fact that labels work on the presumption that 80-90% of new artists fail to make a profit.
If the sale & distribution of digital products can one day offset the CD's decline in market share, maybe your revenue sharing idea could then gain some traction (less overhead and production expenses). But as long as we're operating under today's market conditions, labels have to do what's necessary to protect themselves while simultaneously putting their businesses in a position to capitalize on future opportunities created by the advancement of technology. For now labels have to keep the lights on, and remain liquid enough to invest in those ten acts that are likely to fail!!