In 360-Degrees We Trust: Evolving Deal Points Emerge

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Major label deals are quickly shifting towards all-encompassing, 360-degree relationships, and executives are now rebuffing more limited proposals.

Certainly, diversification makes sense, especially alongside rapid declines in recording revenues.  But can majors compete against equally-ambitious heavyweights like Live Nation, and potentially management agencies, mega-retailers, and artists themselves?

Or, perhaps more importantly, why would artists surrender their rights to non-recording assets?  At the Urban Network Entertainment & Marketing Summit, held recently in Newport Beach, California, major label executives underscored the power of established relationships and superstar rosters.  “It’s just easier for us to walk in the door,” explained Troy Marshall, vice president of Rap Promotions at Interscope Geffen A&M.  “When we’re walking into a Microsoft or Hewlett-Packard, we’re also bringing Mary J. Blige, Soulja Boy, and G-Unit.”

That means more muscle within bigger negotiations, though smaller artists could find themselves overlooked.  “For a new artist, it still remains to be seen if the 360-degree model works,” said Matthew Middleton, an attorney at Middleton Law Group.

Middleton praised Interscope for adding value to various non-recording, ancillary revenue streams, but questioned propositions floated by other labels.  “The label may not be adding value to those other revenue streams, or putting resources into the new artist to justify giving a percentage of endorsements, publishing, merchandising, touring, sponsorships, acting, and book deals.”

So when does a 360-degree make sense?  “If you want to take it to the next level, you’re going to take a risk,” said Kevin Arnold, founder of the Independent Online Distribution Alliance (IODA).  “It’s a risk-reward situation, because [majors] can blow stuff up across every different sector of earnings and revenues.”

But Arnold noted that many artists simply fail to cross certain sales thresholds, and quickly find themselves chopped by a major.  And major label executives undoubtedly consider album sales performances ahead of a renewal.

Of course, money is money, and urban artists are now generating serious dollars from ringtones and mobile formats.  “It’s not just about 100,000 units, or 50,000 units,” explained Jeff Harleston, executive vice president and general manager of Geffen Records.  “It’s about how much profit is being generated, because there are so many other products beside albums.”

But newer formats can sometimes breed the wrong type of success.  That includes ringtones and a-la-carte downloads, both products of an entirely different consumer landscape that values immediacy and cherry-picking.  And for the right single and artist, that creates the perfect environment for a high-profit pop – and potentially serious ringtone cashflow.

Unfortunately, the party is sometimes over as quickly as it began.  “The industry now is so single-driven, because everything is about the download or the ringtone,” Middleton explained.  “Album sales are so significantly down, and the artists selling millions of ringtones and downloads appear to have the most success,” the attorney observed.

And that dims most 360-degree possibilities.  On the major label side, a quick-hit profile makes it hard to commit broader revenues towards a long-lasting, diversified career.  “Particularly on the urban side, we’ve always been a single-driven industry, but artist development is the key to this game,” said Michael Mauldin, president of the Mauldin Brand Agency.

And for the longer-lasting artist, both parties can win.  But what exactly do these deals look like?  Addressing the topic, executives pointed a range of terms across a several different artists types – typical stuff for an early-stage, transitional negotiation environment.

But certain trends are emerging.  “In a normal record deal, as a new artist you would probably get a royalty in the range of 14, 15 or 16 points, or about $1-1.50 a record,” Middleton said.  “If you do a 360 deal, most major record companies are going to try to get anywhere between 25-35 percent of those different revenue streams,” the attorney said, sketching some initial negotiation terms.

In return, artists get a bigger chunk of recording royalties, a significant selling point for the 360-degree deal.  “Instead of making $1-1.50 a record, you can now get $3-4 a record,” the attorney offered.  “But still, if you aren’t selling any records, then there is no upside.”

Report by publisher Paul Resnikoff in Newport Beach.