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The music industry seems to be in turmoil as major record labels scramble to find novel ways to keep profits high and expenses low. Island Def Jam recently took two drastic steps by severing their indie counterpart Stolen Transmission Records after less than two years of partnership, and firing Rob Stevenson – the man that helped them sign popular acts like Fall Out Boy and The Killers. Victory Records has taken to giving some of their touring bands a $5 a day living allowance in order to keep their expenses down. But none of these changes are boosting revenues – only cutting expenses.
Cue the introduction of the new “360” deals that are popping up across the board. These deals are useful for assisting labels in achieving their business goals while claiming to be beneficial to the artist involved. The 360 deals offer new flexibility, since they can be customized to the interests of a label or artist while creating new types of financial arrangements.
Under a 360 deal, a label can choose to supply more money to an artist up front, in exchange for a cut of their merchandise and/or ticket sales, which under traditional contracts are untouchable. This offers a label the chance to take a piece of all of an artist’s revenue rather than just record sales – hence the “360.” A label’s increased interest in merchandise can lead to more widespread marketing as band merchandise expands from the typical t-shirts and hoodies to include school supplies, winter gear, and limited edition items. But since merchandise and ticket sales are the sole revenue for most touring alternative and rock artists, some are hesitant to share those earnings with the label.
“If there’s no money to be made from selling records then the record label can’t exist in the traditional sense so finding new ways to have revenue seems to make sense,” said Robb Nansel, one of the owners and founders of indie giant Saddle Creek Records. Although the label has yet to offer any 360 deals, Nansel has been paying attention to the buzz surrounding the new approach and taken it into consideration. However, he is careful to note that a label must be prepared to follow through on its promises “We’d have to start doing other, different things to try and propose a 360 deal to a band. We’d have to sharpen our skills in term of managing a band,” Nansel said, stressing that the new deals put an emphasis on the label taking on the overarching role of a manager and learning to handle their artists in new ways.
But there are pros and cons, even in 360 deals. Bringing all aspects of a band – touring, merchandise, booking and managing – underneath one “umbrella” enhances communication and ensures everyone is on the same page, Nansel says. At the same time, having fewer people involved limits the creative process by cutting down the number of ideas being bounced off people in different companies and locations.
The success of the 360 deal depends on the artists being receptive to unconventional contracts. “This seems like a logical direction but who is going to be the first independent label to go to their bands and say ‘We’re going to take a percentage of your touring revenue?’ That’s not going to go over very well,” Nansel added, using his past experience as a touring member of legendary indie group Bright Eyes to view the deals from an artist’s perspective.
Jeremy McKinnon, vocalist for hardcore band A Day to Remember, agreed. “It can be a good thing but it can be a very bad thing. It has to be handled right by both parties, and it just wasn’t something we were interested in doing with our band,” McKinnon said about the deals after a sold-out show opening for the Victory Records Tour. McKinnon added that when signing to Victory Records in 2006, A Day to Remember had not been offered a 360 deal but would have “definitely turned it down” if they had.
Not all artists share McKinnon’s sentiments. One success story of this new experiment is Tennessee based pop-punkers Paramore. Paramore, who signed to Fueled by Ramen, an affiliate of Atlantic Records, two years ago was one of the initial guinea pigs of the new blueprint. The first album wasn’t pushed on radio, and the band spent their time touring and building up a strong fan base until the label felt it was time to push forward. Their new release, “Riot!” has been receiving heavy airplay while the first two music videos were in constant rotation on MTV. The band was recently nominated for a Grammy for Best New Artist, despite having released their first disc nearly three years ago. In exchange for funding the band’s slow growth, the label now receives a cut of their merchandise sales.
Critiques of these new business practices have sprung up on message boards across the Internet. Most seasoned music listeners seem skeptical, insisting that its just another marketing ploy on the behalf of music giants to rip-off young, burgeoning talent – after all, the mean age of Paramore when they signed to Fueled by Ramen was 17. Most of the critiques, however, arise from another question: are music labels really struggling as much as they claim to be?
Major labels have banded together with the RIAA to try to put a stop to illegal downloading, claiming that record sales are plummeting. Even though physical record sales have dropped, digital music sales have soared over the last few years.
In 2006, overall digital sales (including albums, singles, music videos and other digital content) surpassed 1.1 billion units, rising 19.4% from 2005 when sales just topped the 1 billion mark. The sale of digital albums jumped 101% from 16.2 million units in 2005 to 32.6 million units in 2006. This rise, coupled with the drop in sales of current physical albums of 9.1% resulted in a net drop of only 6.5% between 2005 and 2006. However, the industry often ignores the rise of digital sales while focusing on the drop in physical sales.
Rather than pursue lawsuits, some labels, including Saddle Creek, have established new marketing protocols to help boost sales. More focus is being placed on the appeal of the physical product by enhancing the packaging and including extra digital content such as live footage and downloadable bonus tracks. One of the keys is minimizing the way records “leak” before their release dates, Nansel says. Although Saddle Creek does not copy protect their CDs, they have taken to protecting advance copies that are sent out to writers and reviewers in an effort to prevent the content from making it onto the web months before a scheduled release date. Heavy online promotion has also been added to the mix to try to maintain a profitable level of sales.
Although a myriad of options are available to labels, forking over a larger cash sum in the beginning, while allowing for a slow growth that will provide long-term stability and income seems to be the favored option. If physical sales continue to fall, the future of record labels will lie in the hands of not only the digital revolution but also the savvy A&R (Artist & Repertoire) representatives who are responsible for forging profitable new relationships between labels and artists. | 