The collapse of our economy and the rise of the digital era introduced new business models to the music industry. Lack of record sales from the record companies has allowed the concept of a 360 deal to be the primary practice in signing artists today. This deal allows record companies to collect non-traditional revenue from the artist in other scopes of the entertainment industry like live performances, film/TV, music publishing and endorsements.
What used to be a 10 to 15 page signing contract turned into 60 to 70 pages depending on the artist and their clout. The industry buzzword “360” has led many people to believe that this type of deal is partial to the artist and it only benefits the record companies. What most people do not know is that this type of deal has long been around particularly with independent record labels and disguised in record deal contracts as a clause called cross-collateralization.
In order to understand cross-collateralization I will give you a very basic description of an artist contract. Artist/songwriter deals usually involve a cash advance to the artist which in turn needs to be recouped by record sales in order for the artist to start getting paid. If the artist gets a $50,000 advance, record sales must be high enough to pay $50,000 in mechanical royalties to the artist in order to recoup. If the royalties only add up too $40,000 the record label can collect the additional $10,000 from the artist through other revenue streams like live performances in order to recoup the loss. This cross-collateralization clause is similar to a 360 deal only difference is that the cat is now out of the bag.
Some suggest a 360 deal is beneficial for the artist because of all the resources that come with it, just take a look at the band Paramore. Since Paramore started in 2004, the band members have worked their ass off by non-stop touring and building a fan base. The demand to see Paramore keeps rising due to cross market promotion and marketing. Paramore signed a 360 deal with Fueled by Ramen in 2005 and since has never looked back. The advantage of a 360 deal is that most record companies are affiliated with many other companies in all spectrum's of business. So it is much easier for an artist to get a fashion deal or a TV deal because of the affiliation. Paramore’s management quickly landed deals with retail stores like Hot Topic (There is one in every mall) to showcase their records and merchandise. Yeah, at the time they were only getting a very small percentage or nothing at all of the sales but if you step back to see the big picture you will be able to compute all the promotion and consumer awareness they receive from these deals which to their advantage turns into a longer career and more money.
In my opinion 360 deals are not as awful as everyone makes them seem to be. I actually think record labels don’t go far enough. Investing in an artist is one of the worst investments in business because you are entrusting all your money on a living thing and anything can go wrong. The artist could croak at any time, maybe go crazy or find themselves incarcerated; there are plenty of circumstances that can devastate an investor. Not only is the record company taking a big plunge by investing in the artist but they are also going to use all their resources to make them successful.
Management/record labels like Roc Nation are great homes for artists since they are a subsidiary of Live Nation (LYV). Live Nation report’s estimated revenue of $5,394,381,000 a year, they have close to 1,000 subsidiaries all over the world in all the different markets utilized to make an artist into a multi-millionaire.
Al Branch from Billboard said that “The full service entertainment firm of the future will not only bankroll the ideas of superstars, it will hire qualified executives to maximize the resulting profits”. This type of business model is an extension of the 360 deal. In the near future 360 will not just be a term used for record deals it will be defined as an encompassing business model for the record business.
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