How Music Works (40 page)

SIX DISTRIBUTION MODELS WITH DIFFERENT LEVELS OF ARTIST CONTROL

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360° DE

STANDARD ROYALTY D

LICENSE

PROFIT SHARE P&D (

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Less control

More control

1. THE 360° DEAL

At one end of the spectrum is the 360°, or equity, deal, where every aspect

of an artist’s career is handled by producers, promoters, marketing people,

lawyers, accountants, and managers. Whew. The idea behind this model is that the artist can achieve wide saturation and massive sales because you are being boosted by a powerful machine working every angle—and they stand to profit

from everything you do. That means, in some cases, they keep a major piece of every T-shirt, every bottle of perfume, every concert ticket, and of course every record sold. The artist in this model becomes a brand, owned and operated by the corporation, and in theory this encourages the company to adopt the long view because of enlightened self-interest. The company should have a strong

incentive to nurture that artist’s career because every aspect of it that makes money benefits them, too.

Pussycat Dolls, Korn, and Robbie Williams have made arrangements like

this, selling equity in everything they touch. Jay-Z did a 360° deal as well, and one would assume that an astute, street-smart man like him would not get

ripped off. It does vary, though. U2 did a deal with Live Nation in 2008 that lumped a percentage of their merchandise sales in with the concert income,

but their CD (and download) sales were not included.3 The artist often gets

a lot of money up front in these deals. A
lot
. However, there’s a trade-off. I doubt that every significant creative decision is left in the artist’s hands. Too much is at stake. For an artist, kicking back and not promoting your product would not be an option. Making arty experimental records will be discouraged. As a general rule, as the cash comes in, creative control goes out.

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Madonna just made a 360° deal with Live Nation. For a reported $120 mil-

lion, the company—which until now has mainly produced and promoted con-

certs—will get a piece of both her concert revenue and her music sales. The

following details were reported:4

• $17.5 million: A general advance—money Madonna gets just for being Madonna.

• $50 to $60 million: Advances for up to three new albums. As with a regular record deal, this money only gets handed over when Madonna delivers the

music for each record. So it’s possible that the company won’t have to pay this out entirely. The Material Girl may not be moved to record another thirty-six to forty-five more songs, which is what it would take to fulfill that contract and get the entire advance.

• $50 million in cash and stock for the right to promote Madonna’s concerts and license her name. Note that Live Nation still has to share concert and licensing revenue, which will give her 90 percent of concert sales (probably net) and 50

percent of the licensing money it collects.

I, for one, would not want to be beholden to Live Nation. They’re a spinoff

of Clear Channel, the radio conglomerate that turned much of the US radio-

spectrum into pabulum. But Madge is a smart cookie; she’s always been adept

at controlling her own stuff, so we’ll see.

According to my manager, David Whitehead, “A new band, now at EMI,

signed a deal like that. They didn’t have a track record—no one had heard of them, so they had no negotiating leverage. EMI presumably negotiated a nice

portion of album sales, merch, and a cut of touring.”

One can see the logic in this model as record sales decline and the profits

from downloads don’t offset the loss. Record companies (and even concert promoters) feel that since they are the ones who helped create a popular artist/

brand, they should naturally see a percentage of the profits from all possible revenue streams. And that seems fair, especially when the up-front investment is so high. If I’d spent millions bankrolling Lady Gaga’s records, producing those elaborate videos and marketing plans (and I know nothing of her finances—she may have bankrolled it all herself), I’d sure want a piece of her live shows and any other lucrative sources of revenue that might come down the road.

All the major labels these days tend to want to sign artists to 360° deals. The question is whether the deal is “passive” or “active.” In a passive deal, the label DAV I D BY R N E | 221

skims off some percentage of sales from the licensing income but isn’t involved in an artist’s business in other ways. As long as the label gets their money when they come around asking, they won’t be telling the artist how to run her career.

Labels, however, tend to prefer an “active” deal. For example, since all the majors have affiliated publishing divisions, they solicit interest in the artist from them and the publishers, then make a separate offer to the songwriters

alongside the record deal. If the artist resists and wants to retain their publishing rights, the label will accept a passive participation in the publishing income and counter this less lucrative (for them) deal by offering lower rates on “mechanical” income as a tool to drive the artist to agree to the deal with their affiliated publisher.

Mechanical licenses, a mandatory requirement for any record deal, grant

the right to mechanically reproduce a recording. This generally runs as high as 9.1 cents per song. The writer of a song, who is not necessarily the performer, receives that 9.1 cents per track for songs under five minutes (in addition to the royalties, if they are also the recording artist). Typically these songwriting cuts are negotiated—in favor of the record company—to be limited to ten

tracks. Even if there are twelve or more songs on a CD, they agree to pay only on ten of them. Skits—like the short dramatic or comedic interludes on hip-hop

records—don’t count. If the artist writes his own songs, he has the option to negotiate this mechanical percentage, and often as a result it gets lowered to 7.1

cents. Mechanicals are an important source of income, as I’ll discuss later.

Back to the active deal. If the company can manage to own a portion of the

publishing of a song, then the label stands to reap additional income if that song is licensed by an ad or covered by another act. Typically the label will try to get a 10 percent passive participation in the publishing income, if they’re not able to get an affiliated (active) publishing deal, which will therefore mean that they also get a piece of the mechanicals they are paying to the songwriter.

Touring is of course a big topic in these all-inclusive deals. Normally, touring falls under “passive” participation. The label doesn’t actively promote the tours or help organize them; it’s too much work. They just take a piece of the profit, although some labels try to exert more control and actually make deals directly with concert promoters. The tour participation in 360° deals are all over the place, ranging from those that take 5 to 15 percent of gross tour income to even higher amounts of net income. “Shelters” are often built into the deals so that the label only starts to participate above a certain net-income threshold.

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If, for example, you aren’t netting more than a certain amount on your tour—if you’re only playing clubs, for example—the label won’t be terribly interested and won’t commission your income. This benign neglect can be contractually

formalized, and the artist is therefore “sheltered” somewhat.

Understandably, labels don’t want to be stuck with the “short” dollars

(meaning the debt or losses that the artist might incur while on tour), which will only increase the artist’s tour-support demands. To get their act into the venues that will pull in serious money, and therefore be worth commission-ing, the labels that sign artists to 360° deals aim for blockbuster hits—just like movie studios. If a song is a hit, then the performance venues tend to

increase in size, and the act will actually make money on the tour—which will then be commissioned by the label.

Labels offering 360° deals also like to participate in sponsorship and

endorsement deals, whether tour-related or not. Sometimes those deals can be limited to ones brought to the table by the label, but often not. Again, the company’s commission on these deals ranges from 15 to 20 percent of net income.

Labels are bolstering their staffs in this area, since they believe relationships with advertisers and corporate sponsors will be key to future profitability.

Needless to say, this means artists signed to these deals will be pressured into associating themselves with sponsors and the products they’re selling. The

line between music as a creative act and music as a means of getting you to

buy something will become even fuzzier. As more artists sign these deals, we will have a hard time knowing whether or not we are listening to a song or a commercial—or whether there is any difference between the two.

2. STANDARD ROYALTY DEAL

This is more or less what I lived with for many years as a member of

Talking Heads, and even as recently as 2004, when I released
Grown

Backwards
with Nonesuch. In this model, the record company bankrolls the recording and handles the manufacturing, distribution, press, and promotion. The artist gets a percentage of record sales. The label does not a have financial stake in live shows, T-shirts, or endorsements.

In a typical deal of this type, the record label owns the copyright to the recording. Forever. This doesn’t mean they own the “song,” though. This distinction is DAV I D BY R N E | 223

confusing for many people—we tend to think of a recording as being the same as the song. However, the song itself and the version that the artist recorded are not always the same thing. It could be someone else’s song, for example. In that case, the song copyright is shared by the writer(s) and the publisher(s) of the song.

This goes back to the era before recordings, when sheet music was the published version of a “song.” With the advent of the recording industry, sheet music now brings in a minuscule amount of income, but the recording of a song—particularly one that becomes a hit—is a valuable commodity. Since the record company in this model typically finances the recording, they claim 100 percent ownership of it, with an agreed-upon percentage of record sales going to the artist.

Obviously the cost of all the services a record company provides, along

with their overhead, accounts for a big part of the price of a CD. You, the

buyer, are paying for all those trucks, all those CD-pressing plants, all those warehouses, and all that plastic. Only a small percent of the retail price is for the music. Theoretically, as digital distribution increases and much of

that overhead goes away, those costs should no longer be passed along to the consumer—or to the artist. Theoretically!

Much of the income for songwriters like myself doesn’t come from record

sales, though we do get the mechanical and publishing income before expenses like video budgets, recording costs, and tour support are repaid. However,

I’m going to focus on sales of recordings for now, because the other sources of income—like touring and licensing songs to films or commercials—are

optional. I could make a
lot
more money if I decided to license songs to commercials. Here is the breakdown of how I did on a record that was made under a more or less standard distribution deal.

Talking Heads spent many years with Warner Brothers, and in 2004 I

released
Grown Backwards
through their boutique Nonesuch label. Part of the attraction of Nonesuch was that we felt in good company with their eclectic

roster of acts, like John Adams, the Black Keys, Laurie Anderson, Caetano

Veloso, Wilco (until they left to start their own label, dBpm Records), Buena Vista Social Club, and the Magnetic Fields. Like the Warner Brothers of old

and indie labels today like Warp, 4AD, Tomlab, Daptone, and Thrill Jockey,

Nonesuch’s taste is reflected in their roster of artists. If you like one record on the label, you just might like another.

Trusting that I’d sell some records, Nonesuch offered me an advance

of $225,000. If I had recorded with just myself and a few other musicians,

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my expenses would have been lower and I could have pocketed the left-

over money. Instead, after my recording studio and musician costs, all that

was leftover was about $7,000. Was I crazy? That’s not much to live on for

all the time that writing and recording takes, which in this case amounted to almost a year, though not of continuous work. That record did cost a significant amount to make, because I mixed a rhythm section with strings, winds,

and horns on a lot of the tracks. There were lots of arrangements, players,