Manage for Success: The 360 Deal, Newsletter #84, April 2008


"Manage for Success" is a free monthly newsletter for record label executives who want to operate their companies efficiently and successfully. It's published by Keith Holzman of Solutions Unlimited, a management consultant, troubleshooter, and trusted advisor, and is based on his many years as a senior executive in the music industry.


Copyright 2008 by Keith Holzman, Solutions Unlimited. All rights reserved.


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There’s a lot of talk these days among label executives, artists, and managers about the so-called 360 or "multiple rights" deal.


The concept of the 360 deal was initiated by the major labels. They needed to increase income that was being steadily reduced by drastic decreases in sales of CDs. Unfortunately, income from sales of digital downloads, although a big help, has not been strong enough to offset the decline in sales of physical product. As a result, labels are now trying to make money from whatever sources they can find, and one of the most likely and accessible is the artist who records for them.


Why "360?" Because there are that many degrees in a circle, and it's that circle that encompasses all of an artist's potential earnings.


According to a New YorkTimes article by Jeff Leeds, the first version of a 360 deal was EMI's 2002 contract with Robbie Williams.

<http://www.nytimes.com/2007/11/11/arts/music/11leed.html >


In that article, Leeds writes "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?"


In a typical 360 deal a label tries to obtain a portion -- commonly 25 to 35 percent -- of an artist's income to which they previously didn't have access. This additional income can include monies from any or all of the following: artist touring, merchandising rights, endorsement or sponsorship, licensing, publishing, acting and reality show performances.


What's in it for the labels? What do they do for it, if anything? And what's in it for the artist?


There's lots of potential for labels -- essentially a considerable amount of money from successful artists that can go directly to their bottom lines. With just a few exceptions, most of these labels apparently don't really do much for their artists to warrant taking those funds. The exception occurs when a label actively helps direct and develop an artist's career. In effect, they take on most of the responsibilities of managers. Is there a potential conflict of interest here? I believe so.


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Label owners and executives have to deal with a great many problems, in addition to deciding if a 360 deal makes good business sense. Contact me if you're one of those managers having trouble coping with running your company. I've had many years of record industry experience at labels large and small, and have solved many such problems. Let me help you as I've helped so many other labels "manage for success." My email address is < keith@holzmansolutions.com >.


If you're an artist or budding music-loving entrepreneur thinking of starting your own label, take a look at "The Complete Guide to Starting a Record Company," available as an eBook in PDF form, or as a printed, spiral-bound volume. Read the complete Table of Contents and download the Introduction at < http://www.recordcompanystartup.com/ >.


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On the other hand, what's in it for the artists?


Not much from what I have seen. There are, of course, exceptions, and some artists have gained from such deals. However, they are apparently quite rare.


It's a well-known fact that most artists earn very little in the way of royalties because their label first has to recoup all recording costs, and frequently a major part of publicity and radio promotion expense. Successful artists -- and this is the same for both major and minor acts -- earn most of their income not from record label royalties, but from extensive touring in front of live audiences.


They make the bulk of their living constantly performing in front of paying customers in bars, clubs, concert halls, or large arenas. This is particularly true for artists signed to independent or their own labels. In addition, they can make a lot extra selling their CDs at these gigs.


What can an artist lose through a 360 deal? Quite a good deal, particularly if the artist hasn't made as much for their label as the label had expected, and as a result options weren't exercised and the artist got dropped. This puts a taint on the artist and will probably make it more difficult for him or her to get signed to another label.


And why would an artist want to give up a substantial portion of his or her performing and other fees to a label that does very little, if anything, to warrant it?


The one circumstance I can think of that might benefit an emerging artist is when a label works really hard and puts sufficient money into establishing and then maintaining his career, effectively marketing both the artist and his music.


If you're an artist, would you be happy with a 360 deal?


And if you're a label, is this something that could benefit you in the long run, or make it more difficult to sign artists you'd really like to have on your roster? Think about it from a long-term perspective, run the numbers, and then decide if it benefits your label and your artist.


Until next month,

Keith Holzman -- Solutions Unlimited

Helping Record Labels Manage for Success.


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Copyright 2008 by Keith Holzman, Solutions Unlimited. All rights reserved.