LEGAL GUIDE
Written by attorney Michael Andrew Upshaw | Oct 1, 2012

360 Recording Contracts – The Good, The Bad, The Necessity

360 Recording Contracts – The Good, The Bad, The Necessity

Originally Posted Here.

If you’re interested in the business of music these days, you’ve probably heard some talk about “360″ recording contracts. This is a brief explanation of what they are, where they came from, and whether or not they are beneficial.

A Little History

The 90′s was a great decade for music, both creatively and in terms of record sales. It wasn’t uncommon to see record companies dumping millions of dollars into a new artist, and all that was wanted in return was the right to sell records. Artists were generally able to keep all of their touring, merchandise, and publishing rights. With one stream of revenue, record companies made a killing.

Major record companies were also able to make money from the downstream businesses of record pressing and distribution. Those services would be paid for at retail prices out of the artist’s small share of the sales. However, as we all know, the advent of the internet and file sharing has put a serious damper on record sales in the last ten years or so. Record stores are largely going the way of the dodo and the need for physical media to distribute has waned. Nowadays we just download it onto our iPods or stream it to our handheld media devices. Artists with established names, who used to be a guaranteed source of income for record companies, can distribute via the internet without any record company at all (see Radiohead for example).

Enter the 360 record contract.

What is the 360 deal?

To understand what a 360 record contract is, we first need to understand the business model of a musical act. An artist or group has several primary sources of revenue. The most commonly thought of are records and live performances. But, there is also merchandise, celebrity endorsement, and publishing (which includes everything from songbooks to sound sync licensing for commercials and movies).

As mentioned above, record companies were largely in the records aspect of music only, with separate publishing departments that an artist could make deals with as well. Artists were able to parlay the promotion of their records into lucrative touring and merchandising careers. But since sales of records just ain’t what they used to be, record companies are now putting together deals that encompass the entirety of an artist’s streams of revenue to keep things afloat. Hence the 360, as in 360 degrees – in case it wasn’t totally obvious.

Are 360 deals bad?

There are those who criticize record companies (correctly or incorrectly) as evil and wanting to take as much money as possible from artists. Many point to the failure of the record industry to adapt to the digital age and that 360 contracts are a last ditch effort to save the sinking ship at the expense of artists. This begs the question of whether 360 contracts are inherently bad for artists.

The answer is—as with most complex questions—it depends. Generally, there are two primary considerations in any creative business venture: 1) the creative aspect, and 2) the business aspect, and they are not easily separated.

In any record deal (360 or not), the first thing an artist should ask is “Is this a company/person that I want to work with creatively?" If the answer is “no" then the business aspects are moot. An unhappy artist is obviously bad for the artist, but any affiliated company will not be happy either if they’re selling a reluctant product.

The business end is a bigger and more complicated question. 360 contracts are a relatively new and evolving animal, and the terms of them are not standard as the old recording contracts had become. In the past an artist would retain a royalty interest in all records sold that was between 9% and 13%. Today, the percentages can vary from 50/50 splits to deals where the artist or the label takes significantly more or less. What affects those percentages are things like how well established the artist or label is, how much money is the label willing to advance, and whether the costs of production (which traditionally were paid entirely out of the artist’s royalties) will be shared or borne entirely by the artist, or whether there are any other offers on the table.

Today, record companies are really in the brand building business. It doesn’t behoove a label to have an unhappy artist, just as it doesn’t benefit an artist to have a record company that doesn’t believe in or promote an artist. But, there is certainly a ceiling to the success that an artist can have if there is not a good team to grow the artist’s brand. Record companies are professionals who know how to grow that brand.

Having a successful music venture requires professionals outside of the band, and professionals need to be adequately incentivized. Since records themselves are largely a promotional expense and not a money-maker, other streams of revenue must be included in order to compensate those professionals. The goal of a contract is to get business done, and the 360 contract is part of the economic reality of music business in the digital age.

Contracts are not the be-all end-all of business. They are only agreements and guidelines on how to get business done and how to split money. These deals are good or bad depending on the specific circumstances of the deal. What is most important is that artists know what they are getting into.

Ultimately, whether a record deal is a good one for an artist can be answered in two questions: 1) Does this deal take my brand/enterprise where I want to see it go? and 2) Will I make more money than I would if I didn’t take this deal?, or Am I being adequately compensated for what I’m giving away? These questions require a lot of consideration and thought. It’s also a good idea to have an attorney in your corner who can give you some perspective on what you’re getting into.

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