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.
Thanks for sharing the information with me. The article was extremely informative and I look foward to reading more soon. Thanks again. Jay http://longislanddjkaraoke.com
Posted by: Jay | August 12, 2011 at 06:41 AM