The Piracy Effect: 360 Deals and Artist Branding

From Jeff Leeds, New York Times:

It’s not possible to tabulate the number of acts working under 360 deals, but worldwide, record labels share in the earnings with such diverse acts as Lordi, a Finnish metal band which has its own soft drink and credit card, and Camila, a Mexican pop trio that has been drawing big crowds to its concerts. In the United States, Interscope Records benefits from the marketing spinoffs from the Pussycat Dolls, including a Dolls-theme nightclub in Las Vegas.

“Five or eight years ago an eyebrow would be raised,” said the music producer Josh Abraham, whose recent credits include recordings by Slayer and Pink. “Now it’s everywhere. You can’t talk about what a deal looks like without seeing 360.”

Like many innovations, these deals were born of desperation; after experiencing the financial havoc unleashed by years of slipping CD sales, music companies started viewing the ancillary income from artists as a potential new source of cash. After all, the thinking went, labels invest the most in the risky and expensive process of developing talent, so why shouldn’t they get a bigger share of the talent’s success?

Though the concept could be applied to anyone, even fleetingly famous pop stars, the real potential of a 360-style pact does not emerge unless an act is popular long enough to attract either loyal fans who reliably buy tickets, or attention from business partners who might help market spinoffs like a fragrance or sneaker line.

“Let’s face it, if you’ve sold 1.5 million albums off one single, and here comes your clothing line, and here comes your personalized phone, you haven’t really built a fan base,” Mr. Flohr of ATO said. “You’ve built fans of songs.”

Particulars of a 360 deal might differ from label to label, but a recent Atlantic offer to another act provides an example of how one might be structured.

Atlantic’s document offers a conventional cash advance to sign the artist, who would receive a royalty for sales after expenses were recouped. With the release of the artist’s first album, however, the label has an option to pay an additional $200,000 in exchange for 30 percent of the net income from all touring, merchandise, endorsements and fan-club fees.

Atlantic would also have the right to approve the act’s tour schedule, and the salaries of certain tour and merchandise sales employees hired by the artist. But the label also offers the artist a 30 percent cut of the label’s album profits — if any — which represents an improvement from the typical industry royalty of 15 percent.

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