by Tony Berman
Researched & edited by Howie Cockrill
Professional and armchair music industry pundits alike have a new and seemingly bottomless discussion thread.
The topic is a controversial new business model being explored by record companies to save their business: the “multiple rights” or “360” deal.
This is Part 1 of a multi-part, comprehensive article about 360 deals - what they are, where they come from and what issues everyone involved should be aware of.
INTRO TO THE 360
360 deals are agreements between record companies and artists that cover more than just the recording, manufacturing, distribution, marketing and sales of “albums,” a term that is becoming more and more passé in the age of the digital single.
In a 360 deal, record companies also receive income from an artist’s merchandise, touring and ticketing, online presence, sponsorship, marketing and any other revenue stream “now known or hereafter developed.”
To put it bluntly – 360 deals are “artist brand” deals.
They encompass not just CDs and downloads, but also (for example):
- live concert streams sponsored by Live Nation, Ford and AT&T,
- clothing deals with American Apparel and Sean John,
- fansite ticket contests brought to you by Ticketmaster, MTV and Spin Magazine,
- our gear deals with D’Addario strings and Marshall amps,
- song placements in the “Heroes” TV show and Outback Steakhouse commercials,
- and so on.
THE 360 DEAL IN CONTEXT
Before diving into the effects of the 360 deal, let’s first take a look at the cause.
360 deals are not being conjured in a vacuum. There is historical context for their emergence.
For the past several years, CD sales have been declining to the tune of 10 to 20% each year from the previous year.
Meanwhile, digital sales and rental models are still far from tried and true.
Myriad explanations have been proferred for this downturn in CD sales (piracy, digital rights management, a dearth of quality music, a glut of one-hit wonders, the democratization of digital distribution, etc.), but at the end of the day – the writing is on the wall.
The bread and butter of record companies, large and small, major and independent, has been the recording and sale of the shiny disc, and increasingly this bread and butter is being devalued (or “re-valued” as I prefer to say) until it is nothing more than hard tack and margarine.
In short, the very raison d’etre of record companies is being eroded by a consumer-driven market of experiential branding, where economies of scale (think – increasing the supply of recorded music) have not provided a solution.
Indeed, record companies are turning more and more to economies of scope (think – increasing the number of commercial outlets for music) as a means of trading in that red ink for black.
In the meantime, the very reason why record companies are casting about for additional revenue streams is the same reason why marquis performers are seceding from the major label structure.
The reason: the break down of traditional distribution.
Recording, marketing and distributing music have been the trifecta of record company dominance, shaping their relevance over the last several decades.
However, in recent years digital technology has drastically democratized, if not replaced, each of these areas.
The decline of physical product and the rise of one-click recording and distribution of digital content may be creating a famine for the major record companies, but it is creating a feast for largely self-sufficient artists that can take up the reins of their own business.
Superstar acts like Radiohead, Nine Inch Nails and Prince have all eschewed the major labels in favor of a “do it yourself” model of distribution.
Other acts like Jamiroquai were soon to follow, and now even country music diva Dolly Parton seems to be in on the game – all begging the question of whether this trickle of secession by major performers will become a flood.
This is where 360 deals come into play.
From a record company’s perspective, why continue to set up your (one and only) shop on a ship that appears to be taking on water daily?
Casting about for alternatives, record companies are discovering a “new world,” where music sales are only one factor in solving for “x” (“x” equals profit).
From an artist’s perspective, this “new world” is actually quite old. The sale of music has never been a sole source of income for artists.
It is extremely uncommon for an artist to make a living off record royalties alone, especially when those royalties are recouped from advances on recording contracts.
Touring and merchandise have long provided the nut that pays the rent on crowded one-bedroom apartments.
However, record companies have to pay rent too, and like Bugs Bunny who appears to be a steaming roast rabbit to a starving Elmer Fudd, an artist’s non-record-sales revenue streams have become too tantalizing to pass up.
These non-record-sales ("ancillary") revenue streams seem to be multiplying all the time. Even though CD sales are way down – other areas of the music business are way up.
Live music revenues, the old staple of artists, are doing quite well.
The expansion of cable television has offered new opportunities for music television channels.
The endless march of “must have” mobile communication devices and gaming consoles is yet another exciting area for music sales and licenses.
Satellite and internet radio continue to be significant sources of music revenue, and of course, there are the increasingly ubiquitous advertising possibilities.
Check back with MELON for Part 2 of this article, where I will dive right into the specifics of 360 deals.