Are Label offered “360 Deals” Good?

Since writing my last article about record deals I have been getting a lot of questions about label offered “360 Deals.” So, I thought it would be good business to discuss exactly what a “360 Deal” is, and how it might be structured. Whether or not the “360 Deal” is good, or not, is entirely up to how you perceive the outcome.

A “360 Deal” is simply a deal that allows the labels to take a piece of the action on everything sold by, given to, or earned from an artist. This means that if an artist gets an endorsement from Pepsi, paying five million dollars, the record label will get a chunk of it. It also means that for every show played by an artist or group the record label will take a chunk of the ticket sales. “360,” meaning “all around” or “full circle,” is a “politically correct” way for record labels to say “we get a percentage of everything that encompasses an artist’s success… or failure.” Another way to think of a “360 Deal” would be to consider it a business partnership or joint venture. The artist is providing the talent and draw to the business and the label is providing the capitol and know-how to exploit or market/promote the artist’s talents.

Let’s back-up a bit and look at a traditional deal.

In the past, and still today, many artists sign a traditional deal with a record label giving the artist about 15% of retail profits. Out of these profits the artist has to pay back the label for all monies spent in the promotion of the record. Typically, an artist must go above “Gold” - selling more than 500,000 CD's to actually pay off the money labels spend in the promotion of a CD release. This is called “recouping.” In addition, the artist must pay management, producers, booking agents, tour costs, merchandise manufacturing costs, etc. out of their pocket. What the artist is left with after paying these expenses is roughly 2-5% of retail sales to put in their pocket.

In a traditional record deal, labels are looking to recoup their money very fast - typically within a few months of releasing the music. In many cases labels actually want to break-even from retail pre-orders of a CD. If an artist does not sell fast then the label will drop the artist - quick to cut losses - in order to invest their money into another artist - hoping for that platinum artist that will keep the label afloat. Remember, for every 20 artists released, only one will make the label enough money to cover the costs of the other 19 releases. That means record labels take huge chances to find that one artist that will make the most money. As soon as a label even thinks that an artist is a flop or will only sell a million CD's, they will drop them. For you history buffs, in the past, if an artist sold just 200,000 records they were considered a huge success. My, have times changed!

The issue with today’s traditional record deal is that it offers no artist development time for new artists. Many artists that are dropped from slow sells only need a bit of development to become superstars. However, with slow retail sales and the rising costs of marketing and promotion, record labels want to see at least break-even status of an artist on the initial order from retail. This makes it very hard for a new artist to prove their ability to gain fans by the masses. Artists in the 60s, 70s, and even late in the 80s, had the opportunity to develop over two or even three albums. Labels would put them on the road and make them grind it out until the public started to actually like them. (There was a lot more going on, but this article is about 360 deals, not artist development. I will write about true artist development in future articles!) But, the point - artists had the chance to “blossom” and develop over time.

What does all this have to do with a “360 Deal?”

A “360 Deal” was developed as a means of record labels to realize more profits from investments. Well, sort of. Actually, the “360 Deal” was developed because CD sales are so low that record labels were having troubles “recouping” their investment from CD sales alone. By developing the “360 Deal,” record labels are once again realizing the “return on investment” that they were seeing in years gone by.

At first glance, the “360 Deal” seems like a rip-off to a new artist. How could it not? In the past, record labels only took a piece of CD sales and the artist held the rights to everything else. In most cases “everything else” was the only place an artist actually made money. By offering a percentage of “everything else” it seems an artist is letting go of the only leverage and profit centers they have. And indeed they are - sort of. But let’s get a bit deeper into the “deal.”

A “360 Deal” means the record label is getting a piece of everything tied to an artist. Everything! That means for every dollar an artist makes, in any area, it will have to be split with the record label. But it also means that the record label will take an active role in how the artist is marketed in all aspects of their career. It means that the record label will make sure huge corporations are aware of the artist for endorsement deals; tour promoters are paying the artist good money to perform; and Wal-Mart is stocking the artist’s merchandise. This can’t be all bad.

In the past, an artist had to be really good at a lot of things or hire people to do it for them. Meaning, if the artist wanted to exploit merchandise, they had to know how to do it or hire someone, giving them a percentage for their efforts. If an artist wanted a product endorsement they had to hire someone to attract the corporate giants and again give a percentage of the deal for their efforts. Doesn’t seem too different than the “360 Deal,” does it? Except, if the label is handling all the promotional matters of everything the artist has to offer, instead of several different people or companies, it might offer the artist a better “promotional concept” and follow through.

The typical “360 Deal” also comes with a higher royalty rate given to an artist for CD sales. Yes, you read it right. In most cases, the typical 15% of the retail royalty rate a record label offers its new artist’s is doubled - making it 30%. Not bad. Plus, a larger signing bonus is offered. This bonus, in most cases, is substantial compared to bonuses of the past.

But wait - there is more!

In a traditional record deal, labels only received a portion of the CD sales so they only cared about CD sales. They would do anything and everything to get the public to buy an artist’s music. Now, with the “360 Deal,” labels have an interest in everything the artist does. This means they will put a lot more effort into artist development. WOW! Labels will actually be developing an artist again. This is huge! Look at “High School Musical.” It might not be your “cup of tea,” but you have to admit that it is a money making machine. Every artist has that ability, if developed. “High School Musical” didn’t get that big just by being a good movie. The folks behind the scene did their magic to create demand. They had a vested interest in seeing mass merchandise sales. Just as the record labels will in the “360 Deal.”

It appears that record labels, will again, help artists realize their full potential. They will use their marketing machine to help push the artist’s entire career. This is a good thing! It means labels will take the time to let an artist develop over time. It means that if an artist’s CD does not go platinum on pre-orders they still have a chance that they can make great money, do huge tours, and get endorsement deals worth millions. It basically means a record label can take the time to really develop an artist over time to once again oversee the rise of the “Super Group.”

“But I’m Already Making it and have 100,000 Myspace friends..”

The perceived disadvantage to the “360 Deal” is that artists that attract a “360 Deal” are already “making it.” They are the artists that have a huge online fan base, are selling CD's online, and they are already performing shows to large crowds. They appear to already be on their way to mass success. If an artist is already “making it” on their own, why would they sign a “360 Deal” and give away money they are already making?

The internet is great and it can help an artist “break.” But the internet is not the complete solution. Many new artists do not realize that there is a lot of money being spent offline to maximize an artist’s appeal to the mass public and basically make the masses go out and buy a CD and merchandise. This means mass success and multi-platinum sales do not come from internet success alone. There have been those very rare cases that an internet success turns into mass success, but it really does not happen without a huge investment offline.

If an artist has the capitol to invest in an offline marketing push they can handle their own “360 Deal.” They might not have the information, but if they have the money they can hire consultants to handle every detail they cannot accomplish on their own. With marketing money and music consultants, an artist can function as their own record label and keep 100% of the profits - after expenses. But remember, record labels spend more than a million dollars to create a massive buzz around a new artist in the world wide marketplace.

Remember, keeping 100% of the profits generated independently from selling 50,000 CD's, small merchandise sales, and performing on semi-national shows is far, far, less than the percentages offered in “360 Deals” that go international - with CD sales in the millions, merchandise sales generated from Wal-Mart and other retail giants, and international tours that generate over a million dollars at each venue.

The final conclusion of the “360 Deal”

The advantage of the “360 Deal” is clear. Record Labels will have a vested interest in an artist’s entire career. This means they will help exploit the artist in all areas that can be developed to create a profit. It means that a record label will work for more than the sale of a CD. And let’s face it, record labels know how to market and promote like no other industry on earth. They have perfected the art of music marketing and promotion over time to maximize return on investment. More importantly, record labels have the contacts, power, and pull to make moves that most artists would never be able to do on their own.  On the flip side - if an artist has the money needed to do everything on their own, a “360 Deal” might not be the solution.

One last thought - the “360 Deal” is still a contractual agreement with a huge corporation that only cares about the bottom line. Do not sign anything without an attorney. Do not use your divorce lawyer or the attorney that helped your grandmother create her will. You need to find an entertainment attorney that has been in the business for a minute and has actually helped other artists get good deals. Be smart, be aware, and above all, be proactive!!

Peace,
Jai
“Love the Music in Yourself,
Not Yourself in the Music.”