How to Avoid Getting Completely Screwed by a 360 Degree Deal

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The 360 degree deals present a major disadvantage for artists.  But faced with a choice of the 360 deal versus no deal, the 360 deal may be worth accepting — but only if properly negotiated and only if the major pitfalls touched upon in this article are avoided.

If your career is hitting the point where a serious contract is on the table, please read this (and get a good lawyer).  It comes from longtime music industry attorney Steve Gordon, Esq., whose seen his fair share of artist contracts over the decades – major, indie, good, bad, or otherwise.    

First, let me give every artist and manager a quick primer on what a 360 degree deal is.  Basically, the 360 is an exclusive recording contract between a record company and an artist in which, in addition to monies from sales of the artist’s recorded music, the label shares in other income streams such as touring and live performance, merchandise, endorsements, appearances in movies and TV, and if the artist also writes songs, publishing.

In fact, most 360 deals have catch-all phases giving the label a financial interest in everything else that the artist does in the entertainment business.

A traditional recording agreement only provides an income stream for the label from record sales.  But similar to the traditional recording agreement, under the 360 deal the label acquires the copyrights in the artist’s recordings and options for multiple albums.  The 360 deal also usually includes all the same deductions from record royalties as the traditional deal, including producer royalties and reductions for packaging, “net sales,” foreign sales, midprice and budget records, and even “new technology.” (originally applied to CD royalties and now to digital sales).

The traditional recording agreement had a lot of bad stuff in it for the artist. The 360 deal usually has all of that, and a lot more.

Origins & Reason D’Etra

The 360 deal is not new.  The first reported one was English recording star Robbie Williams’ deal with EMI in 2002.  But in the last few years 360 deals have become common place.  New artists signing with a major label or their affiliates can expect it as a matter of course.  The reason for the prevalence of the 360 deal is the dramatic decline in income from sales of recorded music.

Income from sales of pre-recorded music reached its peak in 1999 at approximately 14.5 billion dollars.  By 2012 that amount had shrunk to only approximately $7 billion —  a decline of more than 50% not accounting for inflation.

This is the reason that labels began to pursue income from sources that would have once been sacrosanct to the artist.

Under the traditional paradigm, the label would pay the artist a small royalty which was even smaller after all the deductions.  The artist could expect to receive no recording royalty at all unless his album was a major commercial success.  But he got to keep everything else: publishing, merch, touring, endorsements, etc.

However, these days artists often generate more money from other activities than record sales.  For instance, Lady Gaga’s Monster Ball Tour grossed over $227 million dollars, and 50 Cent’s deal with Vitamin Water turned golden when he accepted shares in the company in exchange for authorizing the use of his professional name in “Formula 50”.

It is reported that his shares were worth over $100 million after Coca-Cola purchased Vitamin Water’s parent, Glacéau, for $4.1 billion.

These developments have spurred the labels to seek to participate in all the possible revenue streams generated by an artist.  In my own practice, I have seen small labels also known as production companies get in on the act and insist that new artists sign 360 deals with them even if they put little or no money into recording and make no promises in regard to marketing or promotion.  These companies expect the artist to provide fully mastered recordings for little or no money upfront, and they demand income from all sources of revenue.

Bottom line: these are horrible deals.

The label’s argument

Record labels argue (and majors who pay big advances have more credibility in making these arguments) that they make significant investments in an artist’s career by, among other things, putting up considerable sums for recording including paying advances to A-level producers, getting the artist’s music on commercial radio, securing invitations for the artists to perform on popular television shows, paying for one or more top quality videos for YouTube and other outlets, and providing tour support before the artist is popular enough to demand significant sums for live performances.

For emerging artists, a major label deal may be the path to becoming famous and rich.  For instance, Lady Gaga was a virtual unknown before Interscope spent a vast sum putting her on tour as an opening act for the New Kids on the Block, paying for marketing (particularly to the gay community), hiring wardrobe and makeup, and paying all her other expenses for over a year, not to mention using their clout to get her invited as a guest on almost every important radio station in the country.

The labels argue that 360 deals are fair because monies generated from touring, merch, endorsements, and other streams would not exist at all without their efforts.

Many artists and their representatives would contend that it isn’t their fault that the labels are making less money from their records.  360 deals, they would maintain, are just a cynical money grab by record companies who are facing dwindling income from recorded music because they have failed to react appropriately to the changing industry.  Asking artists to foot the bill hardly seems fair.  But the reality is that since all the major labels and affiliates usually demand 360 terms, the artist may not have much choice. Given that reality, let’s discuss how the artist’s attorney can improve the deal.

How to improve the deal.

The ability of the artist’s attorney to improve a 360 depends on the artist’s leverage as much as the lawyer’s knowledge and negotiating skills. For instance, if there is a bidding war among two or more labels, the lawyer’s ability to improve the deal increases immensely.  If the artist is already making significant income from live shows, if not from record sales, this can also aid the lawyer in negotiating better terms or at least carving out those areas where the artist is already earning money from the 360 deal.

Carve-outs

If an artist is already earning revenues from a particular source, the lawyer should try to carve that stream out of the 360 deal. For instance, certain EDM artists are earning tens to hundreds of thousands of dollars playing large venues and festivals. If a label wants this kind of artist, it should be prepared to forego tapping into live performance income as they had nothing to do with creating it.

Get the label to work for the money or at least pay advances for each stream.

In an interview about 360 deals with entertainment attorney Elliot Resnick (on Youtube, here) we referred to the splits in a form agreement that he supplied. The contract provided that the label’s take for various streams was as follows:

• 50% Merch

• 25% Touring and live performance

• 25% of “digital products” such as ringtones and sales from the artist’s fan site

• 25% Publishing

• 25% of Endorsements

• 25% of any other income from the entertainment business including appearances on TV and movies, theatre, book publishing, etc.

These above percentages are typical but the actual amounts vary from deal to deal. Whatever the splits are, the artist’s attorney should try to get the label to commit to doing something to deserve a share of each income stream. For instance, in return for its 25% the label should commit to manufacture merch and sell it at retail, via the Internet and supply the artist with merch for sales on tour.

Points about publishing.

In regard to publishing, a 360 deal may include a “co-publishing” agreement in which the label has exclusive control of any songs that the artist writes during the term, and the label retains 25% of any monies generated from the songs.  Or, the label may demand 100% of the “publisher’s share” or 50% of all income generated by the artist’s songs.  In exchange for either of these arrangements, which are major gives, the label should have a dedicated staff committed to collecting monies generated by the artists songs, and that can pitch the songs to other artists for covers and music supervisors for placements in movies, television, video games, etc.

Aggressively negotiating advances

If the label is not equipped to provide support in respect to any income stream, or even if it is, the lawyer should try to exact advances for each stream. The ideal would be if the lawyer can also negotiate that as soon as the label recoups each advance for each income stream the label’s right to commission that income stream terminates.  For instance, if the label advances $25,000 against a 25% commission for branding and endorsements and the artist gets an endorsement deal for $100,000, the artist would pay $25,000 to the label (25% of $100,000), but thereafter the label would not be entitled to any more money from that income stream.

Avoid Cross-collateralization  

Just as important as negotiating for the label’s commitment to earn its keep for each stream and to pay advances for each stream, the lawyer should make sure that the label cannot cross-collateralize each stream.  This means that the label should not be able to take money from one stream to pay for unrecouped balances for another.  For instance, if the label pays $100,000 for recording costs and the artist’s royalty after deductions is 50 cents for an album that sells at $12.00, the artist must sell 200,000 albums to break even.

Now, suppose the artist only sells 100,000 (still a considerable feat in today’s market), and his income from touring is $50,000, if the contract allows the label to cross collateralize the various streams, the $50,000 will be applied to the “red balance” in his recording royalty account.  This means the artist would receive nothing from touring — the monies would be applied to the unrecouped recording costs.

Net versus Gross

If the artist must shell out a percentage of his touring or merch or other income to the labels, her lawyer has to insure that the percentage is based on net, not gross.  For instance, if a tour earns the artist $25,000 but her expenses added up to $20,000 (for hotels, transportation, booking agent fees, sound and lighting, etc.), the label should only commission the $5,000 in profits not the entire $25,000.  Indeed, if the label’s commission was 25% and that was based on gross, the amount due to the label would actually exceed the artist’s profit.

In Summary

As I mentioned earlier, 360 deals generally suck for artists.  But it may be worth accepting – but only if properly negotiated and only if the major pitfalls touched on in this article are avoided.  Obviously the artist should never enter into any exclusive recording contract, let alone a 360 deal, without the assistance of capable counsel.

Steve Gordon would like to acknowledge the research assistance of Joy Charles in preparing this article.

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35 Responses

        • Musician

          I understand where you’re coming from, but I think it was more so an article to inform musicians long before they encounter the chance to sign a major deal. Their are a lot of independent labels who as mentioned aren’t as big and are offering 360 deals. Many musicians where I’m from have found themselves in horrible contracts with small labels that would have been avoided with the knowledge presented here. I have certainly learned a few things and am grateful to the author.

          Reply
  1. JTV Digital
    JTV Digital

    Good article.

    From a label’s perspective, a 360 deal is very convenient since it lets you manage in one place all the aspects described above.

    From the artist’s point of view, yes it can be different since such “all-in” deals also represent a higher risk if the label fails in executing the deal terms.

    Reply
  2. Andrew
    Andrew

    This article was fantastic. Extremely insightful and so in-depth and all-encompassing. Thank you so much for your work and for sharing!

    Reply
  3. Tom Lewis
    Tom Lewis

    Let’s be real here. Who invests significant funds to record, market, and release music to just recoup their investment from sales of pre-recorded music. That is ludicrous given the state of today’s music business environment. Your odds at the “BIG WHEEL” in Las Vegas are better.
    Publishing (ie copyrights) only have value that the market determines by perception. If a recording company or other venture creates that value through promotion, marketing, and exposure than why shouldn’t they be entitled to recoup their investment and share in the value they helped establish? This argument by lawyers to the contrary is quite frankly a joke.
    What you need to negotiate as an artist are escape clauses that provide you some relief in the event that the venture offering you the 360 deal does nothing other than acquire interests in your copyrights for noe effort to exploit them or you.

    Reply
    • danwriter
      danwriter

      Publishing has been on the table for over 50 years, ever since it became common for recording artists to write their own material. And all major labels have had well-evolved publishing divisions that helped exploit artists’ catalogs to their (putatively) mutual benefit. Everything else in the 360 is relatively new as part of the contract between artist and label, and the label likely has far less capability when it comes to helping artists with those areas. The “carve-out” part of this article is the big take-away.

      Reply
    • Kieran-Alexis

      Publishing is not copyrights. It’s really simple;-
      Copyright is the right to copy, and to generate monies off sales of those copies.
      Publishing monies are generated by use of the copyrighted materials in public broadcast.
      Doh.

      Reply
  4. Sticky label
    Sticky label

    The usual suspects here that complain about Pandora or Google or Apple being “anti-artist” should perhaps target the original rip-off merchants, which is to say the record labels themselves and terrestrial US radio for paying nothing for recording performance royalties. Stomping your feet about the perceived inadequacies of new market entrants while effectively ignoring the real challenges that have faced music creators for decades rather undermines your points.

    Reply
  5. Tom Lewis
    Tom Lewis

    Re: Sticky Label
    You don’t know what you’re talking about! Businesses that build their models on other people’s content are bottom feeders. They entice Wall Street with obfuscating figures to garner investment. If they can’t make it paying songwriters and recording artists a living wage, then the business should go away. You can’t open a restaurant without food and people to cook it.
    Like it or not, society needs a filter system. Radio and record companies served that role. Songwriters that were good derived careers. Now with anarchy and digital chaos everywhere it is increasingly difficult for real talent to cut through. You might not like the system, but it worked for a lot of people.
    If we continue to devalue music and the talent needed to write, play, and record it, we’ll become artistically bankrupt. I’m not sure if we aren’t already there…

    Reply
  6. R.P.
    R.P.

    I’ve successfully negotiated 6 360 deals in the past 5 years. 2 artists are now major artists in the game and the other 4 have withered away. When it comes to percentages do not let anyone, even a lawyer, tell you that it is “typical”. There is NO such thing. EVERYTHING is negotiable.
    Also, if they want money from other revenue streams then YES, make them work for it as the article states.
    Example: they want money from any acting that you do? Well, ok, hire me an acting coach and an agent.
    Money from shows? Then pay for a tour.
    get it?
    Leverage is still the key.

    Reply
  7. Helena Bøhn

    This blog post is very relevant and there are points that are worth considering.

    Although we need to seek out what the artist want, are you in for the music or are you in for the money? Misunderstand me right.
    I do not agree that all 360 deals sucks, what you I think you are referring to is major labels that looks at artists as a product. Why shouldn’t they? Their job is to maximize their profit as all other businesses. Why would they risk a product they don’t know wouldn’t sell? “Record companies remain the largest upfront investors in artists careers. They shoulder the financial risk inherent in trying to break a new act “-IFPI 2014. What they normally do is to try out “new” artists or developing artists under another label that they own or part own. If they sell very well, they get upstreamed to the ‘real’ majors. By owning these smaller record labels the majors can develop, control and try out new artists, you might think they are independent but the majors usually own them. Why is this a wrong thing? I mean if you are a commercial artist, if that is what you want; selling shit loads of records, then you’re maybe more into the fame then the integrity of your art. You might say “ah, but all I want to is to get my voice heard” (you’re not the only one to say at least). You need to do something that differs yourself, you need to do the work for them, and you need to be a product before they even think about signing you. You call the 360 deal a bad deal, well let me tell you what the majors did when records where selling; They signed on loads of artists that they saw had potential to sell like Mariah Carry or Prince. “SAW THE POTENTIAL”, they signed a record deal to then record one album and then have them on the roster for a long, long, long time. This was a tactic they used so that other majors wouldn’t make the artist bigger than Prince or Mariah. My point is; there will always be something, but everything is down to business, as an artist you are a brand and a product. It is more important these days as an artist to actually know the business. I totally agree with you though that if the label takes a cut of something else, then they should participate in the job! As you said: “get a hell of an lawyer”.

    Reply

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