Have you wondered what is contained in a 360 deal or if it’s wise for a music artist to sign one? There has been some controversy over 360 deals as some believe they are unfair to music artists. On the other hand, others find the concept beneficial to music artists.
I will provide insight regarding terms of a 360 deal, the advantages and disadvantages, and what music artists should consider when negotiating the agreement.
History of the 360 Deal
To understand a 360 deal, it is helpful to review a basic recording contract known as a record deal. Traditionally, a recording contract only provided a record company with a percentage of revenue generated from a music artist’s album sales.
A record deal was standard since the record label had to manufacture, market, and distribute vinyl records, 8-track, cassettes, and CDs to consumers. Then the internet and technology disrupted the music industry.
As the size of digital music files decreased and fast internet speeds became accessible to the general public, downloading songs or streaming music on demand became more popular.
Record sales began to decline in the 2000s, and record labels began offering 360 deals as an alternative arrangement to a standard recording contract.
What is a 360 Deal?
A 360 deal, or 360° deal, gets its name based on the idea that the contract would encompass all sources of revenue that an artist generates. The use of “360” is a metaphor since the contracts encompass more aspects of an artist’s career than a traditional recording contract but do not necessarily include every possible revenue stream.
In addition to sharing revenue generated from selling recorded albums and singles, a 360 deal also provides a music business with a percentage of revenue from other sources that a music artist earns such as live performances, merchandise, and endorsements.
What Are Terms of a 360 Deal?
There is no standard 360 deal as they vary among labels and depend on the stage of a music artist’s career. Below are some terms that a 360 deal will include.
Active and Passive 360 Deals
There will be terms of a 360 deal that define the record label’s interest as being active or passive. They typically include both active and passive components depending on the type of revenue stream in which the record label is interested in being involved.
The record label has active interest when it participates in aspects of a music artist’s career that is beyond a financial investment. They have the right to participate in the management of merchandising, endorsements, and live performances. Active 360 deals may provide more support to the artist, but results in higher commission rates.
In contrast to an active interest, a passive interest is when a record label does not exert direct control over a music artist’s revenue stream. The record label’s share of an artist’s revenue stream is typically lower with a passive interest.
Advances and Recoupment
Record companies provide an up front payment to the music artist, which is known as an “advance.” An advance is used to support several aspects of the artist’s career such as a “recording fund” to record an album, as discussed later.
In a 360 deal, advance payments are larger than a traditional record deal since record companies are buying into other sources of revenue beyond music sales. From a business standpoint, advances are essentially investments in a music artist’s career.
Record labels are interested in recouping their investment as quickly as possible, and also receive a good rate of return. Those factors will influence how terms related to revenue share are negotiated.
The amount of an advance will depend on a music artist’s history. An established music artist that has data regarding revenue previously generated can have more bargaining power by using those numbers as a basis. New music artists have not proven themselves so negotiating the value of the advance payment will need to be based on anticipated market demand and other factors.
Recording Funds
When a music artist signs with a record label, part of the contractual agreement will likely include a recording fund.
A recording fund is an advance to cover the costs associated with recording and producing an album or a set of musical recordings. The fund typically covers expenses such as studio time, hiring session musicians, engineering and mixing fees, mastering, and other production-related costs.
A 360 deal that provides a recording fund will provide the record label with the right to recover these expenses from the artist’s future earnings such as royalties or streaming revenue until the recording fund is fully recouped. Although the advance is like a loan to a music artist, it is not treated like a loan.
Depending on the deal, an artist may be allowed to retain any portion of an advance that is unused, which essentially serves as a music artist’s compensation.
The recording fund is an important component of a 360 deal, as it enables the artist to create professional-quality recordings without bearing the financial burden upfront. It allows artists to focus on their creative process and bring their musical vision to life with the support of the label’s financial resources.
Term Length of a 360 Deal
The length of a 360 deal will depend on the initial investment they make in a music artist. It’s important to keep in mind that companies in the music industry are businesses that exist to earn profits.
Music companies will want a 360 deal to last over a longer duration, which may require a few albums within a number of years.
An advance payment and providing a recording fund for a music artist’s career is an investment in a business venture. A music company wants the opportunity to recoup their money and earn a profit, so a longer term will maximize their chances of reaching those goals.
Royalties
A music company that advances a recording fund typically seeks recovery of that investment through a music artist’s royalties.
Royalties are a percentage of revenue generated from music sales. The percentage a music artist receives depends on factors such as the music artist’s leverage from past sales. According to ASCAP, the portion royalties that a music artist receives ranges between 10% and 25% of each sale.
Presently, most royalties come from music streaming since music streaming generates the most revenue in music sales. The most popular streaming platform in the world, Spotify, only pays an average of $0.004 for each stream of a copyrighted song.
To put Spotify’s royalty rate of 1/10th of 4 cents into perspective, a song must be streamed a total of 25 million times to earn $100,000 and 250 million times to earn $1 million.
A record label may require all royalty payments earned by a music artist be applied to an advance until it is fully recouped. It’s possible that a music artist will never receive any royalty payments if record sales do not generate enough revenue to pay off the recording fund advance.
The terms of a 360 deal can also require “cross-collateralization” of an advance. That provision will require a music artist’s royalties from other revenue sources, such as later albums or sync fees, be applied to other advances that have not been fully recouped by the record label.
It’s important to carefully review and negotiate royalty terms in a 360 deal to ensure a fair and sustainable arrangement that aligns with the financial goals of all parties.
Live Performances and Touring Income
Live performances and tours generate more income in a music artist’s career compared to sales of albums and singles.
As an example, the top selling album in 2022 was Taylor Swift’s Midnights, which sold over 1.3 million copies. The album can be purchased for $9.99 from Swift’s website. Using that cost, the album has grossed approximately $13 million in 2022.
Additionally, songs from Midnights have been collectively streamed on Spotify over 4 billion times as of May 2023, generating approximately $16 million in royalty payments.
Although revenues generated from the Midnights album total approximately $29 million, that figure does not compare to Swift’s Eras Tour, which is estimated to generate more than $500 million in revenue between March and August 2023.
Although Taylor Swift is an established name in the industry with a large following, her success in live performances is just one example of how tours are a major component of a 360 deal.
What Are Pros and Cons of a 360 Deal
From a music artist’s perspective, there are several positive benefits. One major advantage is greater support from a label.
In a 360 deal, the label has a vested interest in the artist’s success and is more likely to provide resources for artist development, marketing, and promotional support. A label can provide their resources and expertise so the artist can build a stronger brand and fanbase.
A disadvantage of a 360 deal is the loss of control over revenue streams. The label receives a percentage of the artist’s revenue across multiple streams, which can limit the artist’s ability to negotiate certain aspects of their career.
Additionally, the higher commission rates associated with a 360 deal can cut into the artist’s profits. Limited negotiating power is a disadvantage for new and emerging artists.
An artist that does not have an established history of success will not be in a position to demand more than an established artist.
Considerations before signing a 360 deal
Before signing a 360 deal, artists should evaluate their goals and long-term plans. A 360 deal may be beneficial for music artists who want greater support from the label.
The major provisions of a 360 deal involve the financial aspect of the agreement. Although music artists will receive a larger advance compared to a standard record deal, they should be aware that a record label will present terms to ensure they can recoup their investment as quickly as possible and maximize the return on their investment.
Music artists should consider how important it is for them to control aspects of their career. A 360 deal may limit an artist’s involvement in certain aspects of live performances, recording albums, and marketing their identity.
Before 360 deals were offered, music artists had to negotiate and sign separate contracts with different types of companies to monetize their music, live performances, and brand identity. Although music artists will have more control in those situations, that independence may not be the right choice for all artists.
Do I need an attorney for a 360 Deal?
Entering into a contract with the help of an attorney is highly recommended in any business transaction. Contract language can be complex and often takes legal skills to understand and negotiate terms acceptable by each party to the agreement. Before you sign a 360 deal, it’s highly recommended that a music artist hire a lawyer with experience negotiating and drafting contracts to review and explain the impact of the terms, which favor the record label in most cases.