Music Biz: 360 Deals Pt. 2

by Tony Berman

Researched & edited by Howie Cockrill

In Part 1 of this article, I introduced the "360 Deal," which is similar to a recording agreement between an artist and a record company but encompasses much, much more than just recordings.  I also provided a bit of history to put the 360 Deal in context.

In Part 2, I am going to dive right into the specifics of 360 deals to give you a flavor of how they work.

SPECIFICS OF THE 360 DEAL

So what does this contentious new deal look like?

Last year Madonna cut a 360 deal with concert impresario Live Nation.

Notably, Live Nation is a concert promoter and a venue operator – NOT a record company. This presents another issue for record companies – competition from other industry big shots.

Nevertheless, the Madonna-Live Nation agreement provides a perfect example of the comprehensive scope of 360 deals.

Just in case you’re unfamiliar with Live Nation, it boasts 80 offices and 160 venues in 18 countries and claims that 35 million people attend their concerts annually.

With a price tag of $120 million and a term of 10 years, Live Nation has inked a hardly immaterial agreement with The Material Girl encompassing every aspect of her profitable brand.

To be more specific, Live Nation has formed a new entity called "Live Nation Artist" (formerly "Artist Nation") to handle 360 deals.

According to an Live Nation Artists press release, “the new division was formed to partner with artists to manage their diverse rights, grow their fan bases and provide a direct connection to fans through the global distribution platform and marketing proficiencies that have made Live Nation the world’s largest live music company.”

What does this mean in plain English?

Live Nation (Artists) will get a piece of the pie heretofore reserved for record companies – the recording, manufacture, distribution, sale, marketing and promotion of music, in this case Madonna’s.

In addition, Live Nation will handle her merchandise, including creation, production, licensing, marketing and fulfillment, via three merchandising affiliates – Anthill Trading, Trunk and Musictoday.

Online, Madonna’s official fansite will come under the domain of Live Nation affiliates Musictoday and Ultrastar, who already run official fansites for the Rolling Stones, the Police and the Red Hot Chili Peppers.

This will include the production and syndication of original video content for internet and DVD markets, as well as partnerships, fan club contests and concert ticketing, social networking and grass roots promotion.

Live Nation Studios will be tasked with the production and distribution of live concert content on internet and mobile platforms, while Media Rights will license Madonna content for TV, home video, internet, mobile, and radio.

Live Nation will use its clout to tap into a veritable bottomless pit of sponsorship opportunities for Madonna, while Tour Design (yet another LN affiliate) will provide tour support via audio/visual production, post-production, design and marketing.

Dollar signs abound.

Although the Live Nation deal gives us a jumping off point for understanding the vastness of the 360 deal – the focal point of this article and of the controversy in general falls mainly on record companies and their use of the 360 deal as a new paradigm of artist relations.

There are myriad ways to structure a typical recording agreement. In 360 deals – the possibilities are even more endless.

Beyond the Madonna deal, we are seeing that the agreement begins typically – an advance to the artist, recoupable through record sales royalties. However, this is where tradition ends.

Many 360 deals are structured so that the record company gets a higher percentage of net profits from record sales (some reportedly as high as 90% - 95%) and a smaller percentage of net profits from an artist’s touring, merchandise, fan clubs and sponsorships (reportedly around 10% - 30%).

Alternatively, an artist may receive a higher percentage of net profits from record sales (as high as 30%) in exchange for giving the record company a higher percentage of net profit from the ancillary sources mentioned above.

But typically an artist will try to limit the record company’s percentage in the non-record-sales areas and at the same time increase their own percentage of record royalties.

Some 360 deals may start out as traditional recording agreements, with the record company having the option to make the jump to the 360 arrangement.

In these cases, the key negotiating point is what will trigger the option.

The artist may negotiate for an option in which the record company’s 360 rights do not kick in until after certain sales thresholds are met – say 250,000 sales for Album 1 or 500,000 cumulative sales for Albums 1 and 2.

Another approach is an option in which after the release of Album 1 or Album 2, the record company can pay the artist additional money (often tens of thousands of dollars) for the 360 rights.

Publishing rights may also be on the table in the 360 deal. Additionally, the record company may get the right to approve the artist’s tour schedule and salaries for tour/merch employees of the artist.

Check back with MELON for Part 3 of this article, where I will explore some of the issues and potential pitfalls of 360 deals.

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