Music industry contracts that allow a record label to receive a percentage of the earnings from all a band's activities are referred to as 360 deals. The arrangement is somewhat controversial. Other contracts simply pay a percentage from record sales or from money-making activities that the record label has a hand in.
A Changing Industry
These deals have become increasingly common in major label contracts because sales of recorded music aren't as robust as they were years ago.
Recorded music generated about $14.5 billion in revenues in 1999, but that dropped to approximately $7 billion by 2012.
This isn't to say that consumers aren't enjoying and spending their money on music, however. Artists' tours rake in significant revenues, and artists and bands make money through endorsements and merchandise. Radio and streaming services are alive and well. People just aren't purchasing records and CDs the way they used to.
How a 360 Record Deal Works
Also called "multiple rights deals," record labels typically receive a percentage of revenues under 360 deals that would otherwise have been off-limits to them, including:
Digital sales
Tours, concerts, and live performance revenue
Merchandise sales
Endorsement deals
Appearances in movies and television shows
Songwriting, lyric display, and publishing revenue
Ringtone sales
Labels say that they'll commit to promoting the band or the artist for a longer period of time in exchange for a bigger cut from the artists they represent. They'll actively try to develop new opportunities for them. The label will function as a pseudo-manager and look after the artist's entire career, rather than focusing solely on selling records.
Similar to traditional recording agreements, the 360 deal allows the label to acquire the copyrights of the artist’s recordings and options for multiple albums. The 360 deal agreement also includes the traditional deal agreements where producer royalties, net sales, foreign sales, reductions for packaging, budget records, and "new technology" are all deducted from the artist's royalties.
Artists would be paid a small royalty by the record label under a traditional deal, which was even smaller after all these deductions for producing an album or track were made. No recording royalties were expected for an artist unless the album was a major commercial success, but profits from publishing, merchandise, touring, endorsements, and other sources of revenue all belonged solely to the artists.
The Controversy Around 360 Deals
These deals are controversial for a lot of reasons. They're seen as a cynical money grab by labels that are facing dwindling sales and high overheads. Labels survived for a long time without these kinds of deals, so it would seem that they're suffering from a failure to manage their businesses in a changing industry. Asking the bands to foot the bill for this hardly seems fair.
Others object to the whole "band branding" notion that makes 360 deals so potentially profitable for labels. An example is the all-female burlesque-group-turned-music-group, The Pussycat Dolls. The expansion and branding of the group by music business veteran Jimmy Lovine and A&M Records president Ron Fair was a huge success, but the quality of the music didn't necessarily fit into the big picture.
Record labels counter that 360 deals let them sign different kinds of artists because they don't have to be so focused on recouping their investments from album sales. They can stop chasing the instant number-one hit and work with an artist for the long haul. They don't have to rely on big sales figures alone to make signing the artist profitable.
And they reason that all those other sources of income outside record sales are the direct result of their efforts and assistance.