mpasses, has been accepted by many musical behemoths, including Jay-Z (right), Nickelback, Shakira, and U2. When these deals first began to materialize, they were seen as outliers to the industry, however they have completely changed the way that major labels are doing business in a very short time. At last week's Web 2.0 summit in San Francisco, Edgar Bronfman, the CEO of Warner Music Group announced that from this point on, all record deals signed with WMG would be 360 deals. A response to the continual falling of record sales, this move will allow Warner to grab a piece of the money brought in not only by record sales, but by concert ticket sales, merchandise, websites, and endorsements as well. While taking money from more places may help to move major labels back towards the black in the short term, it stifles creativity, discourages small artists, and will hurt the labels in the long run.The basic structure of a record deal has remained the same for as long as there have been major record labels. When an artist is signed, they are required to create a certain amount of albums for the label. The label advances the artist an agreed-upon amount of money to be used for the production of each album. Any advanced money not used in the production process can be kept by the artist, upon delivery of the album. Once the album is released, the royalty money that would be given to the artist is kept track of and kept by the label until every penny of the advance is repaid. This system is called recoupment. Only once the label is recouped will the artist see any money for their album. If the album doesn't sell enough to cover the cost of production, they will never make any money from record sales, but they are also not responsible for paying back the money that the record label gave them. The effect of this system is that many artists of all sizes today make most of their money from touring, merchandise, and however else they can monetize their fame, because the record labels do not have any claim in those areas. With the growing prominence of the 360 record deal, labels can take a piece of, and control, every income stream an artist has. This may not affect huge figureheads of the system like Madonna, or Jay-Z much, but it's a different story for small and medium sized artists who may never completely recoup, and require touring money to live.
In the case of Warner Music Group, and whichever labels go to exclusively 360 deals, the situation is viewed as a problem with return on investment. As Edgar Bronfman explained at the Web 2.0 summit: "it doesn’t make sense for labels to pour money into artist development when CD sales, their primary source of
revenue, continue to decline. Without other ways to make money from an artist, they wouldn’t continue to promote artists." Music is becoming more and more easily and freely accessible, and labels don't want to get to a point where their product becomes free, and they have no other income streams. 360 deals, however, can't be a complete and long-term answer for major labels, as the money made from merchandising and ticket sales do not come close to the income from record sales. Labels must change their business structure and spending habits. It is understandable for the labels to want to prevent the loss of their income streams during the paradigm shift caused by new technology, but it creates an environment where musicians don't have much say in their career choices. Although they still currently have many options other than WMG, 360 deals seem to be the way that the industry is headed. The problem for the major labels in the long term is that these poor deals for artists will push musicians towards smaller independent labels who don't have the same requirements, ultimately digging the major labels into a deeper hole.
1 comment:
Thank you for your interesting post on the 360 deal, a contemporary and recent trend. I had never previously heard of something like this, but it seems that the record labels are doing all that they can in attempt to make up for lost revenue due to so much music being pirated today. I particularly like your clear introduction. Your thesis really drives your point that these types of deals can “stifle creativity,” and you look at it dynamically in both the short and long-run. In the beginning of your second paragraph, I really appreciate that you explain the way record labels work when they sign artists. For example, I did not know that the “label advances the artist an agreed-upon amount of money to be used for the production of each album,” and “any advanced money not used in the production process can be kept by the artist, upon delivery of the album.” Your introduction of the process of “recoupment” allows a layperson like myself to feel more informed about the industry as a whole.
The way I view your post now, your second paragraph explains exactly how these record deals work and how a 360 deal is different from the scope of power in the past. This paragraph is very necessary, and I believe serves your purpose well. Your third paragraph is a combination of both short and long-term effects, but I think you would have benefited from breaking these two into separate paragraphs, and elaborating on each topic. You could have gone more into detail about how necessary it is for artists to be signed with a major label. How much of a marketing benefit do they have being signed with a major label as opposed to an independent one? If you anticipate a trend of switching to independent labels, do you think it is possible that these labels will adopt a 360 deal in the future because they will begin to face the same problems as the major labels?
Overall—interesting post with a nice use of hypertextuality. I’m interested to see how widespread these deals become in the future!
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