Focusing on Issues In Artist/Label 360-Degree Deals

Major considerations in artist/label 360 deals include:

• The Nature of the Deal. These deals can vary from a traditional record company structure based on a per-unit artist royalty, to formation of a new partnership or joint venture-type entity between label and artist with various degrees of ownership, control, approvals, and/or reversion of rights to the recordings, merchandise, publishing and other deal elements. Revenues are usually split on a 'net' basis between the artist and label. These revenue splits can change at certain sales or revenue benchmarks overall, or per revenue stream. Another consideration is how actively the label will participate in the deal. Will the label be only a 'passive' partner, merely insisting on multiple revenue-stream participation as a condition of entry into the deal with the artist? Or will the label be providing material input into the artist's merchandise, touring and sponsorship endeavors? Will the label serve any type of personal-management function? Does the label have any experience or abilities in any of these areas?
• Cross-Collateralization. The relationship between the various revenue streams, their advances and how the artist and label split these revenue streams needs to be addressed. For example, how do the various revenue streams' advances and expenses get recouped? Are some or all revenue streams cross-collateralized?
• Handling 'Traditional' Label Deal Concepts. These include such items as mechanical royalties, record and release commitments, tour support, videos, album/master cycles, recording commitments and recording procedures.
• Label 'Commission.' Some labels want a management-type commission on one or more of the 360-deal revenue streams, such as publishing, touring and sponsorships. This is in addition to the label's other revenue participation in these streams. These commissions can be based on either a 'gross' or a 'net' calculation, after deduction of certain costs and expenses 'off the top.'
• Artist's Existing Deals. The parties need to address whether the artist already has merchandise, sponsorship, publishing/administration, personal-management and/or tour-promotion deals already in place.
• Artist Cash Flow and Living Expenses. Because the label is getting portions of advances and revenues that traditionally go to the artist, the parties need to address how the artist's cash-flow and living-expense needs will be accommodated under the 360 deal. Will the artist be receiving a monthly or weekly 'salary'? Is all or a part of it considered an advance against one or more of the artist's revenue-stream splits? Is it derived from certain revenue splits or from a 'pot' of all revenues? Is it paid 'off the top' or on some type of 'net' basis? Does it come out of any of the label's revenues? Is all or part of it recoupable? If so, when and by whom?
• Artist and Label Strengths and Weaknesses. These overriding factors can greatly influence how various revenue streams are split between the parties. An artist with proven strength in certain areas (e.g., touring, merchandise, Web site sales) and/or an existing quantifiable fan base can govern the value of certain revenue streams and foster an argument for disproportionate treatment between revenue streams. So can a label's expertise and ability to add value, or the lack thereof, in certain revenue-stream-related areas.

There are also several issues to consider that are specific to certain revenue streams:

• Merchandise. These rights are usually exclusive to the label or venture. The rights could distinguish between tour and other, retail merchandise, have different splits for each, or exclude one or more types of merchandise from the deal. They can also be limited to certain specific designs that currently exist and/or are later created. Some deals can designate the record label as the artist's exclusive licensing agent for the artist's various trademarks, both related and unrelated to recordings made under the deal. Some deals only include a split of this revenue, and some exclude any licensing component or revenue participation.
• Publishing. Some labels, indies and majors both, have traditionally required artists to part with some of their publishing, to sign with the label's affiliated publishing company and/or to grant the label exclusive administration rights, primarily for compositions recorded during the term and for a defined period of time. These publishing components are also a desired standard in a 360
  deal. Considerations here involve: whether the label obtains a part-ownership interest in the artist's existing and/or new musical compositions written during the deal's term; if so, is there any reversion of same and/or the label's portion of its income and if so, when; the handling of administration obligations and fees; how mechanical and controlled composition rates and 'caps' are set or changed based on the level of label involvement on the business component attached to these; whether the artist accounts to the label for some or all publishing-derived revenues, if the label's more of a passive revenue participant; and the handling of the artist's new-composition delivery requirements and its affect on the artist's 'recorded and released' obligations. Revenue splits may also vary based on certain circumstances, such as whether the label or the artist procures a synchronization license. Certain categories of placements can also be excluded from label participation.
• Touring. A tour-support commitment should still exist in a 360 deal. But the nature and amount of the tour-support commitment can be based on different criteria than in a traditional artist/label deal. For example, a label's participation and tour revenue can begin and/or end at certain revenue benchmarks. It can also vary or change depending on sponsorship procurement and/or financial participation in the tour and whether one or more of these sponsorships was procured by the label or the artist.
• Sponsorship. Many of these issues are similar to those involved in merchandising, such as who procures a sponsor, whether the sponsorship is tour-related or tour-exclusive, and whether it stems from a song placement.

Paul Menes is a partner based in the Los Angeles office of Duval & Stachenfeld LLP and Co-Chair of the firm's Entertainment and Media Practice Group. He can be reached at [email protected].

Major considerations in artist/label 360 deals include:

• The Nature of the Deal. These deals can vary from a traditional record company structure based on a per-unit artist royalty, to formation of a new partnership or joint venture-type entity between label and artist with various degrees of ownership, control, approvals, and/or reversion of rights to the recordings, merchandise, publishing and other deal elements. Revenues are usually split on a 'net' basis between the artist and label. These revenue splits can change at certain sales or revenue benchmarks overall, or per revenue stream. Another consideration is how actively the label will participate in the deal. Will the label be only a 'passive' partner, merely insisting on multiple revenue-stream participation as a condition of entry into the deal with the artist? Or will the label be providing material input into the artist's merchandise, touring and sponsorship endeavors? Will the label serve any type of personal-management function? Does the label have any experience or abilities in any of these areas?
• Cross-Collateralization. The relationship between the various revenue streams, their advances and how the artist and label split these revenue streams needs to be addressed. For example, how do the various revenue streams' advances and expenses get recouped? Are some or all revenue streams cross-collateralized?
• Handling 'Traditional' Label Deal Concepts. These include such items as mechanical royalties, record and release commitments, tour support, videos, album/master cycles, recording commitments and recording procedures.
• Label 'Commission.' Some labels want a management-type commission on one or more of the 360-deal revenue streams, such as publishing, touring and sponsorships. This is in addition to the label's other revenue participation in these streams. These commissions can be based on either a 'gross' or a 'net' calculation, after deduction of certain costs and expenses 'off the top.'
• Artist's Existing Deals. The parties need to address whether the artist already has merchandise, sponsorship, publishing/administration, personal-management and/or tour-promotion deals already in place.
• Artist Cash Flow and Living Expenses. Because the label is getting portions of advances and revenues that traditionally go to the artist, the parties need to address how the artist's cash-flow and living-expense needs will be accommodated under the 360 deal. Will the artist be receiving a monthly or weekly 'salary'? Is all or a part of it considered an advance against one or more of the artist's revenue-stream splits? Is it derived from certain revenue splits or from a 'pot' of all revenues? Is it paid 'off the top' or on some type of 'net' basis? Does it come out of any of the label's revenues? Is all or part of it recoupable? If so, when and by whom?
• Artist and Label Strengths and Weaknesses. These overriding factors can greatly influence how various revenue streams are split between the parties. An artist with proven strength in certain areas (e.g., touring, merchandise, Web site sales) and/or an existing quantifiable fan base can govern the value of certain revenue streams and foster an argument for disproportionate treatment between revenue streams. So can a label's expertise and ability to add value, or the lack thereof, in certain revenue-stream-related areas.

There are also several issues to consider that are specific to certain revenue streams:

• Merchandise. These rights are usually exclusive to the label or venture. The rights could distinguish between tour and other, retail merchandise, have different splits for each, or exclude one or more types of merchandise from the deal. They can also be limited to certain specific designs that currently exist and/or are later created. Some deals can designate the record label as the artist's exclusive licensing agent for the artist's various trademarks, both related and unrelated to recordings made under the deal. Some deals only include a split of this revenue, and some exclude any licensing component or revenue participation.
• Publishing. Some labels, indies and majors both, have traditionally required artists to part with some of their publishing, to sign with the label's affiliated publishing company and/or to grant the label exclusive administration rights, primarily for compositions recorded during the term and for a defined period of time. These publishing components are also a desired standard in a 360
  deal. Considerations here involve: whether the label obtains a part-ownership interest in the artist's existing and/or new musical compositions written during the deal's term; if so, is there any reversion of same and/or the label's portion of its income and if so, when; the handling of administration obligations and fees; how mechanical and controlled composition rates and 'caps' are set or changed based on the level of label involvement on the business component attached to these; whether the artist accounts to the label for some or all publishing-derived revenues, if the label's more of a passive revenue participant; and the handling of the artist's new-composition delivery requirements and its affect on the artist's 'recorded and released' obligations. Revenue splits may also vary based on certain circumstances, such as whether the label or the artist procures a synchronization license. Certain categories of placements can also be excluded from label participation.
• Touring. A tour-support commitment should still exist in a 360 deal. But the nature and amount of the tour-support commitment can be based on different criteria than in a traditional artist/label deal. For example, a label's participation and tour revenue can begin and/or end at certain revenue benchmarks. It can also vary or change depending on sponsorship procurement and/or financial participation in the tour and whether one or more of these sponsorships was procured by the label or the artist.
• Sponsorship. Many of these issues are similar to those involved in merchandising, such as who procures a sponsor, whether the sponsorship is tour-related or tour-exclusive, and whether it stems from a song placement.

Paul Menes is a partner based in the Los Angeles office of Duval & Stachenfeld LLP and Co-Chair of the firm's Entertainment and Media Practice Group. He can be reached at [email protected].