360 Deals
I’m not doing 360 deals… I will ask for a piece of whatever I help with, but it may be 90, or 120, or… But not 360. I always thought 360 was born from this theory of, “Well, we’re already [ruining] your record side and not making any money, so could we [ruin] the rest of your business, and take a piece of that too?”
—Michael Caplan, former long-time Sony Music executive who recently started his own indie label
As a result of the general decline of the music business in recent years, a new kind of recording contract has appeared, namely the so-called 360 Deal, also known as a 360 Degree Deal, Multiple Rights Deal, All Rights Deal, or Bundle Deal.
First, Some History
Under the terms of the traditional record deal—i.e., the kind of recording contract used before the advent of the 360 Deal—record companies did not share in any kind of income other than
income from record sales (and income from other uses of master recordings, such as use in films and TV shows).
Since the record company did not share in the artist’s income from non-record income streams—such as airplay income from ASCAP or BMI, band merchandise sales, and touring—a successful artist could make a good living from those non-record income streams alone, even when if record royalties weren’t substantial.
But the 360 Deal has changed all that.
What is a 360 Deal?
With a “360 Deal,” the record company shares in the income from record sales and some or all of the other kinds of artist income mentioned above. It varies from label to label, and
deal to deal, exactly what kinds of income the label will be entitled to share in. Most major labels today require new artists to sign a 360 Deal in one form or another. Also, artists already signed to major labels are often being asked to re-negotiate and sign a new 360 Deal. For those artists, the labels usually have to sweeten the prior deals by, for example, paying new advances, increasing the royalty rate on record sales, and so forth. Occasionally a deal for a new artist will be structured to start out as a traditional record deal, but with the record company having the right to convert the deal to a 360 Deal in the future, upon paying an additional advance that is provided for in the contract. Sometimes the label has the right to do this only if a certain benchmark level of sales has been reached. Right now, 360 Deals are in their infancy. As labels evaluate the financial results, the terms of 360 Deals are likely to evolve and change.
There Is No Standard 360 Deal
The specifics of 360 Deals vary from label to label. And even at the same label, the terms of a 360 Deal will often vary from artist to artist, because some artists have more negotiating leverage
than others.
90 Degree/180 Degree/270 Degree Deals—What are They?
In conversations about 360 Deals, you will hear someone mention a 180 Deal, 270 Deal, etc. But these terms don’t really have a standard accepted meaning yet and are often thrown around pretty loosely.
If someone uses the term “90 Deal,” they usually mean a traditional type record deal, where the label shares in only record sales income, but not music publishing income, merchandise income, touring income, etc.
In some instances, people use the term “180 Deal” to mean that the label shares in record sales income and music publishing income. The term “270 Deal” can mean that the label shares
in only record sales income, music publishing income, and merchandising income (but not touring income).
That being said, I’ve heard other people use those same terms very differently. If you’re involved in business discussions involving these terms, first make sure that everyone involved is using
these terms the same way.
Active Participation vs. Passive Participation
Active Participation. In some instances, the label’s financial participation in the various types of non-record income will be “active.” Using band merchandising income as an example: If the
label’s participation is active, it means that the label (or an affiliated company that is part of the same corporate conglomerate) operates a merchandising company which sells various bands’ T-shirts, caps, etc.
In some instances, a label will demand active rights even though it’s not set up to actually exploit those rights. For example, a label might demand active merchandising rights even if it’s not
actually involved in the merchandising business.
Passive Participation. In other instances, the label’s financial participation may be passive. Using again the merchandising example, the artist can make his or her own merchandising deal directly with a merchandising company not affiliated with the label. The label gets a share of the income but not any active operational involvement.
The practical ramifications of active vs. passive participation are discussed in more detail below in the section entitled “360 Deals–Exactly What Does the Label Take?”
What Kinds of Companies Offer 360 Deals?
1. Major labels
2. Some (but not all) independent labels
3. Large corporate concert promotion companies (primarily Live Nation)
4. Some non-entertainment companies (for example, Bacardi Rum, Guitar Hero, Verizon, and others), often in conjunction with some kind of entertainment industry company. These are
normally companies seeking to use artists to help brand their companies in a specific way.
5. Some music entrepreneurs, who sign artists to a management deal and record production deal, and then share in the artist’s various kinds of income. These deals—sometimes called “across the board” deals—have been around for a long time and are generally considered exploitative by artists’ attorneys. The terms of these kinds of deals vary tremendously.
Some Alternatives to the 360 Deal
Joint Ventures. Occasionally major labels, instead of signing an artist to a 360 Deal, will form a Joint Venture with the artist. The Joint Venture is a stand-alone company co-owned by the major label and the artist.
These Joint Venture deals are potentially much more profitable for an artist than a 360 Deal. But they are usually only used for artists who are already established and generating significant income. Even then, such deals are not common, and are becoming less and less so as time goes on.
Net Profit Deals. In the past ten years or so, some major labels have used a Net Profit Split arrangement with selected artists, rather than the traditional royalty rate arrangement. However, such arrangements have largely fallen out of favor at major labels. (Such deals are still very common at indie labels, though.)
Are 360 Deals Fair?
A lot has been written on the issue of whether 360 Deals are fair to artists. I won’t re-hash all of the arguments about the fairness or unfairness here, since those arguments are easily accessible online.
On a practical level, the real question from an artist’s perspective is whether the 360 Deal offered by a major label would be better or worse for his or her career than going in some other direction (for example, self- releasing his or her own records, or signing a non-360 Deal with a smaller company).
Does it Make Sense for an Artist to Enter into a 360 Deal?
If you are a new artist wanting to sign with a major label, most likely you will have to sign a 360 Deal. The question then becomes: When does it make sense for a new artist to sign to a major
label?
As a general rule, if you have a range of options available, it will make sense to sign to a major label only if you aspire to make and sell very commercial, mass market music (for example, pop
music). To be successful with mass market music usually requires that an enormous amount of money be invested in radio promotion, tour support, national print advertising, etc. Usually, only major labels have the financial resources and marketing power to mount that level of promotional campaign.
The Disadvantages of 360 Deals
There are two kinds of disadvantages of 360 Deals: the financial negatives and the non-financial negatives.
The Financial Negatives. The financial negatives have already been discussed above. Mainly, that you have to give the label a share of certain kinds of income which labels historically did not share in.
The Non-financial Negatives. And then there are the non-financial negatives. With a 360 Deal, especially 360 Deals those where the label’s participation is active and the label is overseeing not only your record sales, but also possibly your music publishing and/or merchandise sales and/or touring income, you are giving the major label an enormous degree of control over your career.
In the past, if an artist’s relationship with a label went sour, the artist could hope to rely on the income from other sources, such as touring and music publishing income, to survive. Though it was never easy for artists in that scenario (ask Tom Petty), but at least there was some hope of being able to survive despite bad relations with the label.
With 360 Deals though, most or all of those eggs end up in the same basket with the label. It makes it all that much easier for the label to, in effect, threaten to put a kibosh on your entire music career if you don’t ‘play ball.’
Any artist attorney who has been around for any length of time has experienced many difficult situations with labels. For example, labels refusing has refused to release an artist’s record (after it had already been recorded), but at the same time refusing to let the artist do anything with the masters. And labels frequently under-reporting record sales, and thereby cheating artists out of record royalties.
For artists’ attorneys who have experienced these kinds of difficulties (and others) with labels, the prospect of signing a 360 Deal—effectively granting a label even more control over an artist’s business and financial life than ever—is quite unappealing.
360 Deals—Exactly What Does the Label Take?
Record Sales Income. Normally, the 360 Deal contract contains the same kinds of record royalty provisions that have been used for many years in the traditional recording contract. The artist’s royalty rate will normally be in the range of 13% to 17% of the wholesale price of each record sold. This is subject, though, to various royalty exclusions and deductions stated in the contract, which have the effect of reducing the royalty rate.
Other Music Industry Income
There are numerous kinds of non-record income a label can also potentially share in:
1. Music publishing income
2. Band merchandise income (band t-shirts, etc.)
3. Miscellaneous online income (For example, an Internet fan club, the sale of platinum ticket packages, and so on.)
4. Touring income
5. Personal appearance income (i.e., non-musical appearances)
7. Literary income (for an artist who writes books)
8. Acting income
9. Miscellaneous other sources of income (in which case there is usually a usually a catch-all clause covering all such income.)
In general, the label’s share of particular kinds of income (other than record sales) will be in the 20% to 35% range, though sometimes as low as 10% and sometimes as high as 50%.
As already mentioned, it varies from label to label exactly which kinds of income the label will share in (music publishing income, touring income, etc.). The label’s percentage share of such income will vary from label to label, and artist to artist. In any given 360 Deal contract, the percentage may be one specific percentage for one kind of income, and a different percentage for another type of income. For example, the label might get a certain percentage of merchandising income, and a different percentage of tour income.
Also, in some 360 Deals, the label’s participation may be active with certain kinds of income, but passive for other types of income.
The exact percentage for any particular kind of income will be significantly affected by whether the label’s participation is active or passive. If it’s active participation, the label is at least theoretically, dedicating time and resources to managing, for example, a merchandising company. As a result, if the label’s participation is active, its percentage share of that income will be more than if a passive participation.
But there’s a wrinkle here. It’s not unusual for a label to acquire active participation rights (and hence a larger percentage share of the income), and then sign off those rights to a third party company, in which case there are then two companies getting a piece of that income. Obviously, this is not a good result for the artist.
To make matters worse, sometimes a label signs a “sweetheart deal” with a company affiliated with the label, and the deal benefits those two companies but and takes advantage of the artist. If that happens, there are not only two companies getting a share of the income, but the income is less due to the ‘sweetheart’ terms of the deal.
As a general rule, for the various reasons mentioned above, it will be in your best interests to try to make the label’s participation passive if at all possible and to try to make their percentage as low as possible.
A few additional comments:
Tour Income. Sometimes the label’s share of tour income is calculated on the artist’s gross tour receipts rather than the net. If based on the gross, the label’s percentage share is usually much lower, more in the range of 5% to 15%.
From the artist’s viewpoint, it’s very risky to give a label a share of the gross receipts (rather than the net profits) from touring. The cost of touring can be very high, and the gross receipts from a tour can be much, much bigger than the net profits. If the label’s share is based on a percentage of the gross, the label could end up receiving a disproportionately large share of the artist’s actual net profits from touring. Indeed, it’s easy to imagine a situation where the label makes a lot of money and the artist makes little, none, or even loses money from a tour.
Music Publishing. Sometimes the label will demand an active participation in the artist’s music publishing rights. This means the label will demand that the artist sign a music publishing contract with a music publisher affiliated with the label, for songs the artist writes or co-writes.
In other instances, the label will be willing to have just a passive participation in the artist’s income from music publishing.
Either way, many potential (and complicated) issues can arise. For example, will the label share in all of the artist’s publishing income? Or instead, just the publishing income earned from the artist’s own recordings (and not publishing income earned from other artists’ cover versions) And will the label have the right to exercise future options to extend the term of the publishing agreement, even after the artist is no longer signed to the label? And will the publishing agreement involve songs previously written by the artist? If so, is there another publisher who already has rights in those songs? In short, an artist’s attorney needs to meticulously address these and many other publishing-related issues when negotiating a 360 Deal.
Other Contract Issues for 360 Deals
Advances. Artists who sign 360 Deals with major labels still generally receive advances for the recording rights, as with traditional record deals. But those advances have gotten smaller and smaller in recent years as record sales have declined.
The major label may also pay a separate advance for the non-record other rights granted in a 360 Deal (for example, merchandising rights). But those advances are often quite small in comparison to the potential value of those rights.
Non-Recoupable Advances. In the past, labels would sometimes make part of their advances non-recoupable (for example, in the form of a signing bonus). In other words, the label wouldn’t have the right to subtract (“recoup”) the amount of those non-recoupable advances from future monies owed to the artist. But non-recoupable advances to new artists are becoming more and more unusual. Advances today are almost always recoupable.
Approval Rights. In a 360 Deal, the label will ordinarily want certain approval rights, to ensure that an artist’s bad business decisions or excessive expenses on tour do not reduce the amount of income in which the label is sharing.
The label will also want to make sure that the artist is not paying excessive commissions to the artist’s manager, agent, and business manager. (Those commissions are usually deducted off the top, so the higher the commissions are, the lower the net profits are that the label shares in.) Therefore, the label will sometimes include a clause in the contract putting a percentage cap on those commissions.
The label may also want right of approval over such things as the artist’s tour schedule, the artist’s selection of a booking agent, and the salaries of the ‘“merch,’” (merchandise) table employees traveling with the artist.
You can see, just looking at these approval rights issues, how intrusive and controlling a 360 Deal can potentially be.
The Risk of the Label Abusing its Power and Control. With a 360 Deal there’s always a substantial risk that the label will abuse its powers by trying to force an artist to make concessions which the artist would not have had to make in the traditional recording contract scenario of the past. For example, after the contract is signed, the label might tell the artist (subtly or not so subtly) that the label will not promote the artist’s records heavily, or will pay less tour support, unless the artist agrees to concessions in connection with, for example, merchandising rights.
Cross-Collateralization. “Cross-collateralization” is a term often found in recording contracts.
If the contract says that the label is entitled to “cross-collateralize,” it means that the label can reimburse itself for recording costs from not only record sales income, but also from other kinds of income (for example, income from selling band merchandise).
Cross-collateralization is never a good thing for an artist and is to be avoided as much as possible. Any cross-collateralized income, rather than being paid free and clear to the artist, will
be withheld by the label and used to cover recording costs and other kinds of recoupable expenses.
There is normally one exception, though, to labels’ rights to recoup recording costs from all kinds of income. Traditionally, most labels have not insisted on being able to recoup recording costs from publishing royalties. And so, artists have usually been entitled to receive those songwriter/music publishing royalties without the label taking some or all of those royalties to pay off recording costs.
This is generally still true today with 360 Deals; most major labels do not insist on cross-collateralization between record royalties and songwriter/music publishing royalties, although some are indie labels do.
Participation Period. In 360 Deal contracts, the term “participation period” means the period of time during which the label will be entitled to share in the artist’s non-record income.
With a traditional record deal, the artist was usually obligated to record for the label for a certain period of time, usually called “the term.” But the label would usually be entitled to own the master recordings after the end of the term, basically forever. The label would also be obligated to continue to pay record royalties to the artist after the end of the term.
This is still the case with 360 Deals. But with 360 Deals, there’s another issue. Namely, will the label be entitled to continue to share in the income from various non-record income streams (for
example, merchandising and touring income) even after the end of the term? And if so, for how long? And will the label’s percentage of income remain the same after the end of the term? Or,
will the contract say that the label’s income percentages will gradually get reduced each year after the end of the term, so that the label’s share of non-record income would go down to 0% after a certain number of years?
Artist’s Pre-existing Deals with Other Companies. Often an artist is already signed to a merchandising deal or music publishing contract with another company, before being offered a
360 Deal by a record company. When that’s the case, the artist, before signing the 360 Deal, must make sure that the contract doesn’t allow the label to exercise rights which have already been given to other companies. If that happens, the artist will be in breach of the 360 Deal as well as those contract(s) the artist previously signed with other companies.
Indie Labels
As mentioned above, it’s not just major labels doing 360 Deals. Many indie labels are doing so as well. But, it’s highly questionable whether many indie labels actually have the personnel, resources, and financial wherewithal to properly oversee their artists’ merchandising, touring, etc. Unfortunately, sometimes small indie labels can barely handle even their basic record company obligations as it is, (making, marketing, and selling records), let alone take on merchandising, touring, etc. And in many instances, small indie labels have so little money to invest in their bands that it barely makes sense to give them a share of any non-record income streams such as merchandising income, etc.
But if an indie label does have significant financial resources and demands a share of other income streams in order to be willing to invest substantial amounts of money in a band, there are
contractual ways to address that situation—for example, to give them a right to share in other income streams on the condition that they spend x amount of money on the band within a certain specified time frame.
Conclusion
Because of the daunting ramifications and risks for artists, you need to be extremely careful when deciding whether or not to enter into a 360 Deal. In some instances, it may make sense; in many other instances it will clearly not make sense.
If you decide to enter into such a deal, you will usually want to negotiate, as much as possible, substantial changes in the first version of the contract you receive from the label, in order to minimize the risks discussed above.
As with any kind of contract, the extent to which you can change the terms to your favor will depend on how much real negotiating leverage you have. In some instances, though, it may be possible, with some shrewd and creative strategizing, to increase your negotiating leverage before you even start the negotiations.