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Posted on Thursday, April 10, 2014

360 Deals: It Depends on How You Splice Them

Some things never change. It is true that the American music industry looks nothing like it did at the dawn of the new millennium, but major industry executives (and smaller, independent players) still have one central goal when signing new talent: high yield with low risk. With traditional streams of revenue, such as album sales and even digital downloads, waning more and more each year, labels are extremely motivated to monetize their investment in new artists. One of the most common means of doing this is the use of so-called “360 deals,” also known as “multiple rights deals.”

Unlike traditional recording contracts, which once confined themselves to taking a percentage of artists’ earnings from sales of records and a few other, related streams, 360 deals can give labels the right to take a percentage of almost any revenue that artists earn ‒ whether from product endorsements, book deals, or branded digital material. Rapper and artist Game has poked fun at the sweeping nature of such deals, quipping: “If I find a dollar on the sidewalk I gotta give (the label) half.” In their own defense, music execs contend that 360 deals incentivize labels to build their artists’ brands, as all parties profit when the artist gains revenue from multiple sources.

In any event, 360 deals have become the norm in the music industry, and show no signs of being replaced any time soon. It is thus important for artists to know about potential pitfalls and ways to guard against them. This is especially so because initial drafts are usually weighted heavily against the artist. They can also be riddled with loopholes that make deals far less profitable for the artist than they might initially appear. Closing these loopholes can be difficult, but there are a number of winning strategies available.

It is important, for instance, to take a stand as to which revenue streams will be off limits for labels and why the result is fair. Victories in this arena may be few and far between, but even minor wins can make a massive difference in the long run. Artists can also try to have the label give them some kind of consideration for each of the revenue streams in which the label is asking to share. If the label is asking for a cut of an artist’s acting revenue, the artist might ask the label to provide a theatrical agent, acting coach, or promotional support. Artists should also push for clear definitions of key terms, such as “net proceeds,” “support,” and “digital media.” Doing so not only saves confusion down the road, it can actually narrow the scope of rights granted to a label under the terms of the deal.

Of course, some are so interested in getting signed that they may be scared to stand up for themselves during contract talks. Artists should know, however, that when labels are genuinely interested in an artist’s content, they are often willing to consider 360 deal modifications that may lead to a mutual benefit for all parties. Yet even (and especially) when a label is strong-arming an artist, it is imperative for artists to seek legal counsel so that they are fully aware of the implications of their deals at the outset; some 360 deal terms have the potential to follow artists for years ‒ or even the whole of their careers.

Ryen Rasmus is an associate attorney practicing in the Entertainment and Music Industry Law Group of Berenzweig Leonard, LLP. He can be reached at RRasmus@BerenzweigLaw.com.

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