From the CEO | A must read by @RapCoalition

From the CEO | A must read by @RapCoalition

Like This Post 0 3 By @H3Hugo
Added by October 30, 2011
HOW TO GET A RECORD
DEAL
This free sample is a
portion of Chapter 5 from Wendy Day’s new book, The Knowledge To Succeed: How To
Get A Record Deal. Chapter 5 discusses the different types of Record Deals
available today (this portion of the chapter discusses 360 Deals, what they are,
why they exist, and the financial realities of having one). ©2011 Wendy Day. All
Rights Reserved.

Types of Record
Deals


“You don’t get what’s
fair in this industry, you get what you negotiate.” –Wendy Day, Founder, Rap
Coalition


“The whole music business
in the United States is based on numbers, based on unit sales, and not on
quality. It’s not based on beauty, it’s based on hype, and it’s based on
cocaine. It’s based on giving presents of large packages of dollars to play
records on the air.” –Frank Zappa, recording artist


There are a variety of deals
that labels will offer you, once you are able to garner their attention.  The
deals are offered based on your leverage.  If very few people know who you are
and your buzz is minimal, you will be offered a “standard record deal,” which is
a 360 Deal.  Additionally, it may not be direct with a major label, it may be
through a production deal or a sub-label.  This means there is a middleman
getting a percentage of everything you do.  But it’s often the entry level for
artists who don’t know any better, or who lack the capital (money) to promote
themselves in their own area (build a buzz).
There are a multitude of
different deals out there for any recording artist.  It depends solely on what
you agree to contractually.  There is no such thing as a “standard” contract– a
contract is just an agreement between two people that says who will do what by
when, what happens if they do not do it, and how everyone gets paid.  You don’t
get what you deserve in this business, you get what you
negotiate.
The more leverage you have,
the better the deal should be.  The best deal I’ve seen is an 80/20 distribution
deal (meaning the artist gets 80% and the label or distributor gets 20%).  I’m
about to explain the types of deals now, but understand that you as the artist
rarely get to dictate the type of deal you are offered—your leverage is
responsible for that.  So build up your leverage before you even start taking
meetings, if you want a good deal that has a strong chance of leading to a
successful career.
The following deals are
explained in as basic layman terms as I can find to give you an overall
understanding.  EVERY deal is different, and every offer is different based on
artist, leverage, team, co-sign, timing, situation, whether other labels are
bidding (a bidding war), etc.  This is in very general terms, and most deals are
a combination of factors, not quite as cut and dried as this explanation will
seem, but for the general purpose of knowledge and understanding, it will
suffice.  I am not a lawyer and I do not pretend to be one.  When I negotiate
deals, I have an experienced and powerful entertainment lawyer next to me at all
times and I do not make a move without him or her.  It is the lawyer’s job to
work out the intricate contractual details.
360 Deals
I have to state right up
front that I am biased against 360 Deals. I understand WHY they exist; I just
find them unfairly oppressive in the label’s favor, in an industry with a
draconian history of jerking artists out of money. I stopped negotiating deals
for artists in 2005 because I refuse to do a 360 Deal for any artist! How
strongly do you have to hate something to stop your own income over
it?

In the early 2000s, the
music industry went through a severe change. Music sales plummeted, the
importance of the internet reigned supreme, and there was an influx of artists
into the industry causing an over saturation never seen before. It’s gotten
worse, not better, for the major record labels.

Once used to a healthy
profit margin that afforded grand lifestyles for those at the top of the food
chain, the major labels became disgruntled as sales dropped while they missed
the boat on less profitable digital sales. Taking on the role of dinosaurs
fighting for survival, they tried everything from stopping the new digital
revolution, to fighting it, to suing fans, to band wagon jumping too late.
Nothing worked for them. And they still haven’t learned from their mistakes—they
still continue to fight the ways the consumers want to receive their
music.

So to justify their
continuing existence, they decided to take an even larger share of the pie from
the ONLY aspect of the equation that they controlled—the artist (or the
“content” provided for digital download). Back in the day, labels took roughly
88% of the pie while giving the artists 12% of the money AFTER the artist paid
back from that 12% share, almost everything spent on them (that’s called
“recouping”). This means that if the artist sold $500,000 worth of CDs, and it
cost $50,000 to market and promote that CD (a very unrealistically low example),
the artist share of $60,000 (which is 12% of $500k) would be divided between
paying the label back that $50,000 and a check for the remaining $10,000 for the
artist. The label would receive $490,000 for its investment and belief in that
artist while the artist made $10,000. In exchange for giving up the lion’s share
of the sales in the past, the labels always told the artists that they’d make
100% of the touring. Any show money, was the artist’s to keep!  Not so with a
360 Deal!

When the shit hit the fan
financially for the labels, they decided to tap into the show money, and all
other streams of income for the artists, as well. After all, if the company’s
profit margin is made smaller, they need to eat more of everyone’s income to
keep the fat cats at the top, and the stock holders, happy. Most 360 Deals share
in endorsement income (15% to 30% depending on the artist), performance income
(10% to 30% depending on the artist), merchandising income (20% to 50%) and
Film/TV money (15% to 40%). Before I go any further, I have to thank the good
folks at Warner Bros Records for leaking me two major label contracts for
different artists’ 360 Deals. This enabled me to write about REAL contracts
instead of just what I’d heard from lawyers, artists, and label
folks.

How do labels justify taking
an even BIGGER share of the pie from artists?  They cite the high risk they are
taking in signing an act–they complain that they are doing all of the
developing, investing, marketing, and promoting. Their argument is that they
believed in the artist when the artist had nothing, and they feel that assuming
the lion’s share of the risk should result in receiving the lion’s share of the
profit. If the label is developing and building the artist to a level of super
stardom, they feel they have the right to share in a percentage of everything
that super stardom affords the artist. So if they drive the artist platinum,
they feel they should get a piece of the tour that came from the fame the label
helped the artist build, and a piece of the endorsement deal or film income that
came from the fame that the label helped build. I guess I could see this
argument better, if I actually agreed that the labels did their jobs well when
building artists.

I have a different vantage
point of record labels. I see major labels based in tall glass buildings in NY
and L.A. that have little interaction with the streets, fans, or the artists. I
see them sign artists that have already started to build a buzz or sell music
themselves, and then I see them sit back and let the artists’ teams continue to
do much of the work themselves. I don’t see major labels taking much risk with
their artists, but do continue to put them through a system that is almost an
outdated cookie cutter version of how to sell CDs. The labels rarely interact
with the fans and are quite out of touch about what the fans want or are willing
to buy. They seem to create this assembly line of artists who all sound similar
and fit a certain format at radio. They seem to throw a lot of music into the
marketplace and work whatever catches on quickly and easily. Most labels do
what’s best and easiest for the label, not what’s in the best interest of the
artist. Now, in a way, it’s very unfair of me to make this sweeping
generalization, because there are some amazing people who work inside of major
labels and really go all out for the artists. But I find these people to be the
exception, not the norm, and I also find them to be frustrated most of the time
because they constantly have to fight with their bosses and the status quo to
succeed on a project.  Additionally, like all corporations, I find that with the
downsizing of the labels, the employees who are the best at their jobs are not
always retained, but many bosses keep the most politically correct staff
members, the lowest paid staff members, or the ones who cause the least
resistance within the company.  This is not always what’s best for a project or
the artist.
I can’t begin to tell you
how many artists’ careers I’ve seen stall because the A&R person at the
label lost his or her job before the release date.  Once the cheerleader or
champion for the artist inside the label is gone, it’s rare that the project
ever sees the light of day (a smart negotiator might ask for a “key man clause”
in the agreement to prevent this kind of fiasco, or at the very least state a
release date in the contract so if the label misses that date, at least the
artist has a way out of the contract—a “breach”).

I also find that competitor
labels usually hire the best people away from the labels who are experiencing
some success, thereby breaking up the synergy within a team once they all learn
to work well together. This is why a label like Def Jam or Universal could be so
strong in the late 90s and yet be struggling to succeed today. I find that
artists rarely look at the teams working at labels and they just fiend in
general for a record deal no matter the success of the label or who’s at the
label (staff or other artists).

So labels got further away
from the fans, the staffs got lazier or more frustrated (perhaps more work for
less pay?), the artists took less risk because there were more of them and they
were just happy to have a record deal, and the fans started expecting music for
free because they could download it easily if they didn’t feel like paying for
it. Major labels continued reducing spending, slashing budgets, cutting pay, and
signing “sure things” (whatever that means). And to justify the spending they
were still doing, they decided to offer deals that cut into more of the artists’
income. The argument was that out of 50 artists signed to their label, only one
was successful and funding the 49 losses. No other business on earth has such a
backwards business model. Imagine if Ford built cars and accepted the fact that
every model but the Taurus was meant to be a loss leader, and that the Taurus
sales had to make up the loss of every other brand under their umbrella.
Huh?

Or imagine if banks lent
money for mortgages expecting 99% of the mortgages to default, and 1% of the
mortgages were expected to make up the bank’s profits that year. Further imagine
if each homeowner paying back their mortgage didn’t actually get to keep
ownership of the house after their mortgage was paid back! The bank’s argument
would be that they took all the risk on the house and the borrower, so they
should get to retain ownership. The people that lived in the house would still
have to pay for all the repairs and upkeep, but the bank would own the house.
That’s how the music industry is built. And the folks at the top with the most
to lose are the ones fighting to keep this backwards system
alive.

People ask me all the time
what I think is wrong with the music business. I would like to blame our
troubles on the greed of major labels, the proliferation of bad music that the
fans don’t seem to want, or the free downloading of (stolen) music. But the
truth is that if the artists didn’t agree to these incredibly bad deals, there
would not be incredibly bad deals. If a bank existed that kept ownership of your
house after you paid back your mortgage, you would never do business with that
bank.  No one would. Yet all day, every day, there is a long line of artists
willing to sign their lives away to record labels because they don’t understand,
or possibly don’t know about, the consequences. Or maybe they just don’t care.
Maybe the need for fame overpowers the need for money…until they realize they
aren’t making money but someone else is. I find that it generally takes artists
3 to 5 years to realize they are getting jerked. In that time, a lot of money is
lost and one of two things happens: either the artist is replaced with a new
artist willing to make less money, or the artist has enough value to renegotiate
their deal and share a larger piece of the pie. Sometimes, they even start their
own labels and repeat this onerous process with their own new, unknowing artist!
They got jerked, so they turn around and jerk someone else.

But back to 360 Deals. This
new model will exist until artists are willing to say “no!” and I don’t see any
signs of that happening. What I do see happening are artists becoming more
entrepreneurial, and instead of signing to major labels, I see them finding
their own investors and building their own teams who can help them succeed.
There are enough laid off employees of record labels who’ve experienced some
success out here to hire to run and work at indie labels. There’s a huge void in
the marketplace to deliver the kinds of music fans want…and that’s not just one
kind of music.

What I learned from both the
buzz of Drake (lyrical mainstream artist who succeeds with radio spins) and
Gucci Mane’s buzz (not-so-lyrical street artist with gutter stories and
experiences to share) is that fans still want music. Major labels are slow to
respond to the needs of the streets and the internet is only speeding up and
splintering demand further. There’s still a market for good music that the fans
want. Our job is to give it to them. And if we do so with a fair and equitable
split of the profits, the artists can build lifetime careers and we can all make
money!

I hear the artists who sign
360 Deals say that they feel they have to sign these deals because the label
won’t work their projects if they don’t give up a bigger split. I hear the
artists say they want the labels to help them land endorsement deals, major
tours, and TV Shows and film roles—but I’ve yet to see a major label do this.
Let’s be realistic, these major opportunities go to the biggest stars and the
ones who apply themselves directly in those alternate areas. If you hire a film
agent, and take acting lessons, you may get increased roles in film and TV. If
you increase your fame through hard work and hot music, which leads to music
sales, your endorsement opportunities increase. Beyonce landed a Revlon contract
because she was a star, Revlon did not make her a star. How many new artists are
the major labels building to be stars? In 2009, there were only two big
“superstar” releases that went on to sell in the millions: Taylor Swift and
Susan Boyle, out of all of the releases that came and went that year. And
neither of them was developed by the major label system—one was a product of an
indie label and the other a product of a TV show. The majors had access because
they did deals with middlemen and then applied their systems behind those
movements that were already happening. Maybe that has become the function of a
major label in today’s environment.
In my opinion, a 360 Deal is
an excuse for a major label to take a bigger piece of the pie without doing any
additional work. It’s insurance on their part. If the artist does blow up by
chance, it gives them more opportunity to make a bigger cut. And that’s just
smart business. I guess if they called it what it really is, I’d be less annoyed
by it: the price of doing business with a major label. If they played a bigger
role in building overall success, I’d be happy to see them share in a bigger
piece of the pie at the end of the day.
With a 360 Deal, the label
does everything regarding the marketing and promotion of the music.  They pay
for the recording and often choose the producers and songs.  In many cases, they
even direct the artist’s image, fashion, style, and “gimmick,” if there is one
utilized.  A gimmick can be that the artist was a drug dealer in his
neighborhood, or that the artist is a college dropout, or that he got shot 9
times and lived, or that he hates everyone and everything, or that her followers
are part of an exclusive club referred to as “Barbies” or “Barbz,” or that he’s
a regular dude who just always wants to smoke weed, etc.  It’s whatever
separates you as unique and different from the other million artists out
there.

Example of a “360 Deal”
(this is not an actual artist example):

Male rapper based in Atlanta
with a strong following. He has his own team of inexperienced friends and family
around him and a very strong street following. The DJs, fans, other artists and
industry are supporting him and propelling him forward. With no real single or
CD in the marketplace, demand is high—he’s getting $30,000 a show and performing
three or four times a week for the past few months. This will last about 6
months, approximately. He’s put out a series of mixed CDs, for free, over the
past year. The label signed him a year ago to a 360 Deal but hadn’t begun to
promote him yet because their roster was full. The artist got tired of waiting
and began putting out a new mixed CD every month to build his
buzz.

Advance:
$75,000
Album Budget once popularity
increased: $350,000
Recoupable Marketing and
Promotions: $750,000
Monthly Show Income:
$420,000
Endorsement Deal:
$50,000

Album comes out and sells a
total of 350,000 copies (it was a very commercial album but the artist had been
very street, almost gutter, up to the point of his album release so fans didn’t
really embrace the album as expected).

Album income for label: $3.5
million
Artists’ Share after
Recouping: negative balance of $405,000
$750,000 + $75,000 =
$825,000
12% of $3.5 mill =
$420,000
$825,000 – $420,000 =
$405,000
Artist’s endorsement Deal
Share: $37,500
75% of
$50,000
Artists Share of Touring
Income: $1,764,000
70% of $420,000 x 6
months
Artists Share of Publishing
Income (50%): $100,000 (estimate of mechanicals and ASCAP/BMI
royalties)
Income for Label: $4,773,500
gross income on an investment of $825,000
$3,500,000
sales
$405,000
recoupment
$12,500 endorsement
income
$756,000 tour/show
income
+ $100,000 publishing
income
$4,773,500 gross
income
Less Staff
costs
Less Day to Day operating
expenses
Less Taxes


Income For Artist:
$1,122,375 income
$37,500 endorsement
income
$1,764,000 tour
income
+$100,000 publishing
income
$1,901,500 sub
total
-$405,000
recoupment
$1,496,500 gross
income
Less 20% management
fee
Less 5% Business Manager fee
(Accountant)
Less Tour costs/legal
costs/tour manager/DJ/Operating expenses/taxes

Let’s compare gross
incomes…
Artist made 1.5 million
while label made 4.7 million
Artist share:
24%
Label share:
76%

Let’s compare Net incomes
before taxes…
Artist made approximately $1
million while the label made approximately $4.5 million
Artist share:
18%
Label share:
82%


If the label is taking all
of the risk (they are not), putting up all of the money in all of the right
places (they are not), devoting all of their attention to this one artist (they
are not), and doing most of the work (they are not), then this business model
makes sense for everyone involved. But if the artist is doing the bulk of the
work, risking their career in the hands of the label, and coming out of their
own pocket for many expenses, then this business model is hugely skewed in favor
of the major label.