360 deals have come around as the recording labels response to three major trends in the music industry in recent years: (1) the steady decline of revenue from record sales, (2) the increase in prices of tickets to live events and fan expenditure on merchandise and (3) the strengthening of the capabilities of the collecting societies and publishers getting better at their roles which translates in income from public performance and synchronisation becoming more and more significant.
It is becoming common for labels looking sign a new deal with an artist, or extend an existing deal, that they do so only if they can acquire a share of the income from other activities such as song-writing, tickets, merchandise and sponsorship deals. In the label own words: ‘we are not making enough just from selling records to justify the level of advances, royalties and recording costs’
360 deals and Indie Labels.
360 deals are very appealing to independent labels which use them as a way of acquiring more rights thus expanding their income streams and improving their bargaining power when negotiating major partners involvement. The main concerns for artists are: first, that the label could hold to the rights that a major company may want to acquire when negotiating a new deal; and second, that independent labels often do not have the capabilities to realise the full potential of the rights assigned, i.e., monetize them.
If a label is looking to have different rights assigned to them (copyright, merchandise, live work agency rights) they need to pay different values of commission depending on the type of rights assigned. Having a 360 deal in which the label set an across the board 25% remuneration for all of the rights assigned it just not fair on the artist. Broadly speaking, an artist should not accept less that 50% for publishing, net income for record sales and merchandise. Ideally artist should be allowed to shop around for other deals and give the company a chance to make a new deal on the same terms as the best offer (i.e. give the company a matching right).
With every right comes responsibility. For labels having different rights assigned should mean they ougth to work really hard to make it worth for artists giving away these rights and to make up for the lack of capabilities, expertise and contacts in the areas in which the label has not been traditionally working on.
‘Cross-collateralisation’ means using income for certain type of activity to cover costs from another, e.g. merchandise income to cover recording costs. Although is tempting for the labels to do so it must be avoided in the interest of the artist getting a remuneration sooner or in fact ever getting paid at all. The risk of having less/not profitable activities (money holes) should be borne entirely by the label and not alleviated by taking money from a profit making activities that would otherwise be payable to the artist.
Labels are advised to keep and maintain separate, distinct and non-cross-collateralised sets of accounts, in respect of:
- Services in relation to activities as recording artists;
- Services as songwriters and composers; and
- Services in relation to other activities.
by Daniel Ward & Juan Lopez, Legal Consultant
[notice_box]For a trusted 360-type contract please visit The Music Law Contracts website.[/notice_box]
Image Source: Paulo Brandão