The Final Nail In The Major Label Coffin?

The new so-called “360 Deals” offered by major labels are simply an attempt at taking a piece of everything an artist makes—from record sales, touring, licensing, publishing, merchandise, etc. These deals offer big bucks and higher percentages, and they look and feel like major-label deals of yesteryear, what with the press releases and label executives shaking your hand in offices perched high amongst some big-city skyline.

But are they fair to the musicians?

Could it be that maybe these deals are merely a façade—one where the label may be committing fraud right at the onset of the deal? Over the next two months, I will be giving special attention to this “new deal” and its repercussions for artists. But first, let us consider an interesting paradox. While labels want more from artists to justify their services, last year Radiohead got away with self-releasing In Rainbows, allowing fans to pay whatever they chose to download the release. After the stats came in, it seems the average consumer paid about $9. The bad news was that many chose to pay nothing at all.

“Pay-what-you-want” verses “pay-the-label-everything-they-want” may be the model that’s more likely to attract the up-and-coming artist, but it’s certainly not what will keep the 10 billion dollar music business from becoming a footnote in history. And it doesn’t matter that the public thinks an album is worth $9, as a civil jury, in 2007, made a value judgment for them should they choose to download over a P2P site: $9,700 per song (about $100,000 per album.) Now that “the people” have put a price on using illegal P2P sites, you would think that everyone would flock to the “pay whatever you want” model. But no, studies show that P2P file sharing is alive and well—even in the case of Radiohead, who offered In Rainbows on an honor system, and, afterwards, went the route of the traditional CD release to bump up revenue.

It wasn’t just the invitation that made the Radiohead attempt a failed business endeavor. There were logistical issues, as well. Many people who were attracted to the offer complained the lack of bandwidth caused time delays, and that the Shopping Cart utility jammed. These issues resulted is some people waiting so long for the transmission that they lost interest in acquiring the release.

These problems were are all solvable, but none of them were solved. Why didn’t Radiohead hire the best IT people to account for the extra traffic and glitches? It’s probably because artists don’t think that way. They think about their fans and their product—not about technical minutiae—and, as a result, the very qualities that make you a great artist, often make you a lousy businessperson. And the majors are counting on this lack of business acumen as the commodity they peddle in these new 360 Deals.

But does this mean that, once again, artists are stuck with accepting junk contracts from labels? Maybe. But there are several Achille’s heels to the 360 Deals that majors will likely not realize until years from now—after they are already entrenched in them. So why are these deals a stupid move for the recording industry?

Aside from CD and download sales, the 360 Deal dips into revenue from merchandising, licensing, and touring. These facets of the business are formally handled by other vendors to the artist—mainly the agent, manager, producer, and publisher (if the artist is a songwriter). If the label takes this cash, where is the vig for these other professionals going to come from? And what if producers and managers want a similar structure? You can’t co-op 100 percent of your revenue streams with everyone. This would be like donating your vital organs to several hospitals.

So what will happen then? Two possible conclusions leap to mind. One, the artist will pay a second set of commissions, on top of the split they give the label. This means the artist makes less money—a lot less. Two, the artist will decide not to pay two parties for one job, and will not contract with outside vendors.

As number two is the more likely scenario, let us look at its ramifications. It will mean the inevitable extinction of the manger, booking agent, and (some) producers, and their managers and handlers. We are talking about roughly a third of the people listed in the Music Business Registry.

Labels gauging the income from about a third of the professionals in the business will not be met with any degree of aplomb, I can assure you. They will fight back, exploiting some very alarming weaknesses in the 360 Deal that will leave the labels wondering, once again, how they could have been so short-sighted.

How the fight will be conducted—and what weapons industry pros and artists will use—will be the subject for next month’s article in EQ.

Click here to read part two of this article.