360 Deals: A New Business Model

Rolling Stone magazine said, "Record sales are down twenty-five percent since 2000." While digital sales are on the rise, both the artist and the label are quickly looking for different, profitable income streams. Instead of an artist being signed exclusively for their recording services and being viewed solely as an artist, they are now being viewed as well-rounded products that can be marketed, distributed, and sold similar to any other product hitting the shelves this spring. This is made possible by the evolution of the 360 deal, which is also known as a multiple rights deal. Emo-punk rock group, Paramore along with superstar talent Madonna have popularized deals such that Madonna signed a 10-year pact with concert promoter Live Nation for an astounding $120 million dollars, not just for her exclusive recording services like a normal recording contract would entail, but for a rich mix of cash and stock in exchange for the rights to sell three studio albums, promote concert tours, sell merchandise and license her name. While newer business models may raise a few eyebrows and concerns, thus far the multiple rights deal has shared success among the artist and the label.

Historically, artists have been recruited into major labels for their “exclusive recording services." From this, incomes and specific percentages are derived from record sales only. The same contract provisions that money be paid to the artist in the form of an advance for recoupable expenses such as touring support and independent promotion. While this is happening, record companies such as EMI, Universal, Def Jam, and others are putting fourth millions of marketing dollars to enhance the image and name of the artist in hopes to increase such record sales. Logically, it would only make sense that the record company be the sole beneficiary from such investments. However, since the artist signed a contract for his or her "exclusive recording services," he or she has no right or obligation to share any other streams of income such as the merchandising revenue they accrue while on tour. At the same time, the label is putting money fourth for the artist to be seen and heard, or marketed, the artist is able to collect nearly 100% of merchandising and endorsement profits without the record company seeing a dime from such sales. This is where there has recently become discrepancy amongst the label and the artist as well as its solution; The 360 deal.

360 deals, profit deals, or also known as multiple rights deals, are an attempt to unify revenue streams that the artist and label accrue. Aside from Madonna’s popular deal with Live Nation, Paramore has shown us what a 360 deal does for a band starting from scratch that does not have twenty six Grammy nominations, countless lifetime achievement awards, and world notoriety. According to the New York Times, “Music executives and talent managers cite Paramore as a promising example of a rising new model for developing talent, one in which artists share not just revenue from their album sales but concert, merchandise and other earnings with their label in exchange for more comprehensive career support.” The article goes on to explain, after three years of touring in and out of clubs and festivals, the band sold more than 350,000 records, doubling the sales of their debut and is now selling out theaters on its biggest tour to date. It is my belief that by fostering young talent from the very start with a 360 approach, like Paramore, the labels are able to take full advantage of the profit deal. Here, they can construct the band from the ground up as a product, tailoring it to the current and future markets trends and demands for maximum profitization for both parties.

If it is so successful, the question may be asked, “If Paramore can do it from the ground up, why isn’t everybody signing these kinds of deals?” While the number of artists and bands currently signed to 360 deals is difficult to accurately estimate, not everybody seems like they could be a winner. For example, we see hip hop artists like Soulja Boy come out with a single that rocks the industry and charts for an extended period of time. Young, talented, and widely accepted, it almost seems like common sense to capitalize on such success with a profit deal. Conversely however, it seems as if hip hop artists may be at a disadvantage to the multiple rights deal. While the costs of a hip hop record may vary, generally hip hop acts are not touring successes. A hip hop show is more effective for the artist throughout smaller venues and nightclubs versus a performance at a large venue. Without that kind of outreach that a larger venue allows them to have, it is almost impossible for them to move merchandise and create different revenue streams. If 360 degrees of revenue cannot be generated from the artist, the multiple rights deal becomes obsolete.

Traditionally, merchandising, touring, endorsement, songwriting, and publishing incomes are all standard, additional revenue streams for the artist looking to profit from beyond record sales. In addition, recently the cell phone industry has opened up a new playing field in the world of music sales. Donald Passman, a well-established author and music lawyer believes that "Cell phones may change the future of the industry" Aside from the instant, downloadable access via cellular technology that may be upon us in the near future, ring tones and ring backs are currently a thriving business. Built on the foundation of being a fashion statement, customized ring tone features have provided over 3.5 billion dollars in revenue this past year. With these new types of income streams available, the industry may be headed towards capitalizing on them by using the 360 deal.

All in all, with new age, becomes new technologies and advancements. The multiple rights deal embraces the new age by awarding the artist with a better compensated career and the label with rightfully earned revenue from the artist they fathered from the beginning. It has been shown that while the 360 deal may look savvy, it isn't for every artist. The profit deals' versatility however, does and will help new talent develop by allowing the record company and the artist to work more cohesively as shown by Paramore's continuing success.