You Need to Know What a 360 Deal Is Before You Sign One
Recording contracts referred to as the 360 Deal are becoming increasingly popular. The major labels now treat 360 deals as fairly standard. Independent labels are increasingly using 360 deals as a way to increase their revenues and protect their investments. You need to know what a 360 deal is before you sign one. An artist can survive a lot of bad contracts. Surviving a bad 360 deal is nearly impossible.
As always, before signing any contract but especially a 360 contract, consult with an experienced entertainment lawyer. No, your dad’s buddy’s slip-and-fall attorney ain’t what you need. You need a lawyer who has worked on recording contracts for artists like you in the past and has familiarity with this kind of contract as well.
How does a 360 deal work?
A 360 deal (sometimes called a multi-rights deal) refers to the label’s intention to take a percentage of all revenue you generate related to your music. This can include
- Digital / streaming revenue
- Live performance and touring
- TV, movie, and video game licensing
- Songwriting publishing
- Everything else
So, for example, if your 360 deal includes 25% of your gross live performance revenue to the label, instead of earning $1000 on a guarantee, you would only get $750, before all your other expenses. When you include all your other potential revenue streams, this can be a significant amount of money being given up to the label. And if not planned for correctly, could end up being a net loss for the artist.
Why would anyone do that?
Interested in having this problem? Check out our recent post on how to get a record deal!
360 deal pros and cons
If you wish to sign a recording contract with a major label, you may not have much of a choice. Major labels have structured themselves to accommodate all of the artist’s career including those parts beyond the sales and streams of the actual recordings. Larger and more established independent labels are following suit. It might be inevitable that all but boutique labels go this direction.
The cons of a 360 deal are perhaps pretty obvious so let’s cover them first.
A multi-rights contract reduces the amount of revenue an artist can earn. The degree to which this impacts the artist depends on the percentages being granted to the label. In the past, an artist could generate significant income from touring and merchandise and publishing. There would be percentages given to management, the booking agent, the publishing company and PRO, and others. But now the record label wants their cut too.
And newer revenue streams like VIP packages and bundles, which provide significant revenue possibilities for the artist, can be impacted as well.
The difference between the gross and the net
When a 360 deal takes a percentage of the “gross” instead of the “net”, it can make a significant impact on the artist’s earning. Gross is the total amount earned. When you perform a concert and get paid $1000 for that performance, that amount is the gross. When you pay out your expenses for that performance – commissions due the booking agent, manager, and business manager, wages to the road manager / sound guy and any other staff, fuel costs to get to the gig, and per diems to the musicians and road manager for meals, what is left is the net.
If not planned for correctly or if the percentage due to the label on the gross is significant, paying the label a percentage of the gross can make the difference between taking home money at the end of the tour and not. If the percentage is on the net, as long as your other costs don’t make the tour unprofitable, you will remain profitable, just less so.
360 deals have become notorious and often with good reason. Artists are seeing their already-challenged ability to generate income for themselves impacted further and, in many instances, it’s not fair.
Mike wrote recently about three unmistakable indicators you’re signing a bad record deal. Check that out!
But there are some instances in which a 360 deal could be a good idea.
The first question to ask any label asking for revenue beyond the sales and streams of the recordings is What are you going to do to help that revenue stream? There are three ways the label can demonstrate their ability to earn a fair percentage of an additional revenue stream.
- Proven capability to increase that revenue stream beyond the percentage they will take
- Investment in the revenue stream on the artist’s behalf
- An advance to the artist
Let’s go through those one-by-one.
The label has dedicated staff and a track record of increasing that revenue stream. Verify those claims with the artists they claim they helped. For example, if the label has a staff member or team dedicated to using their relationships in the film and video game industries to place songs in movies and video games, and they’ve done this for other artists in the past, this can be a positive for both the label and the artist. Monies generated from these placements may not be as significant as they used to be but they can still be a great cash injection while further exposing your music to more people.
The label commits to investing in the growth of this part of the artist’s career. This investment should be specifically identified and apportioned. For example, the label could commit to investing in stage props and costumes to be used to create a more attractive live performance.
An advance is money given to the artist in advance of the artist earning it. For an artist, an advance is usually a great thing to receive as it is money-in-hand. The advance will inevitably be recoupable against future earnings. This means all future money will go to the label until that amount has been paid back. For example, if the label gave a tour advance of $20,000, the artist would have to give back that $20,000 from all performance guarantees and door deals until the amount is paid back. Then the artist and label would split earnings on the agreed percentages for remaining performances.
How much percentage do record labels take?
Labels take percentages from 5 to 50 per cent in a 360 deal. Higher percentages are generally on net amounts and lower percentages are generally on net amounts. But this isn’t always true either. Where a label demands a significant percentage is where the label should demonstrate a capability of really helping that revenue stream for the artist. Or the label commits to a significant investment or advance. It is in the artist’s interest to negotiate as low a percentage on the net amounts as possible for the label.
The best way for an artist to negotiate low percentages for the label in a 360 deal (or to “carve out” some revenue streams from the deal altogether) is to generate significant income in those revenue streams before signing the deal. If you are already generating significant income in publishing and licensing, for example, there would be no reason to give that income up to the label. They can’t increase it much beyond where it is. They haven’t invested in it getting to where it is. And there is no reason to take an advance.
What are some additional concerns you should have?
Are you individually tied to the contract, or is your band / brand alone tied?
When you, as an individual, is named in a 360 deal, all your income from all activities could potentially be implicated. If you quit the band and start painting houses, there is the potential your income from painting the house could have a claim from the label. Make sure you are seperable from the deal.
Do you retain your copyrights?
Most major labels will try to take your copyrights forever and ever. This means you no longer own the songs you wrote nor the recordings of those songs. This could also mean you have lost all control as to how your songs, band name, image could be used.
Do you lose creative control?
Can you imagine being on stage while most of the front row is wearing one of your t-shirts – and you HATE it? It could happen if you don’t retain creative control on every part of your career. In a 360 deal, labels are increasingly trying to take that creative control away from the artist so they can produce and sell without bothering the artist for approval.
Do you lose staffing control?
This is a hidden concern you should have about a 360 deal. If you wish to have control over who is in and not in your band, who your manager or booking agent is, or who produces your next album, you need to retain control of who you work with.
So, should you sign the deal or WHAT?!?
Go see an experienced entertainment lawyer, dummy. I’m not answering that question for you.
And seriously, don’t be a dummy. Take that contract to a really, really good lawyer.