360 + Change: Labels Pushing Harder on Broader Deals

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By now, the problem is obvious.

Major labels are lopsidedly invested in a sinking commodity, namely recordings.  Publishing has offered some stability, but can majors effectively transition into an all-encompassing business model?

Survival now depends on the execution of broader deals, according to many executives.  The latest industry buzz surrounds the “360-degree deal,” and the term carries more substance than hype.  The reason is that the music business is far broader than recordings, and labels have been missing downstream profit opportunities for decades.   That includes money from touring, merchandising, and advertising, among other areas.

Now, majors are pushing 360-degree deals quite aggressively, according to executives close to the negotiations.  Just recently, one platinum-selling manager told Digital Music News that majors are almost exclusively interested in 360-degree relationships.  And even if that is secured, investments in artists – new or old – are being made very carefully.  “They go over and over the album, until they are positive it will work,” the manager relayed.

Others are telling a similar tale.  That includes Jim Heckman, chief strategy officer at Zazzle, a company specialized in customized merchandising.  According to Heckman, artists gain more revenues and greater economies of scale through consolidated deals.  “No duplication of infrastructure means smaller checks,” Heckman assured.  “The reality is that someone will write you a check three times greater if you give up your rights,” the executive noted.  Zazzle has been striking a string of deals – including with MySpace, Facebook, and major labels – that involve artist-specific galleries and customized product choices.

Speaking of merchandising, a critical piece of the picture, Heckman noted that deal structures are often shorter-term.  A typical  merchandising relationship spans three years, a cycle that offers  near-term options for artists to consolidate their activities.

So, do a deal with the devil?  For many artists, that is how the choice is being framed.   “If you put all your eggs in one basket, they really have you by the balls,” Hanoi Rocks frontman Michael Monroe said at Popkomm last year.  And more and more, artists are pursuing independent or non-label avenues, including superstars like Radiohead, Pearl Jam, and Madonna, who ditched Warner Music Group for Live Nation last year.

That spells a major land grab ahead, though diversified growth requires learning.  Live Nation is now challenged to learn the recording, publicity, and artist development sides of the business.  Labels, on the other hand, have to figure out non-recording pieces.  And artists, frequently passed over by bigger companies, are figuring it all out themselves.

Throw in a string of other entrants – including Starbucks, Wal-Mart, and MySpace – and that spells the tornado that is the music industry today.  Whether labels can tussle in that environment remains an open question, and a critical one for survival.

Paul Resnikoff, Publisher.