Download - Lecture Notes Record Contracts
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Recording Contracts
• Overview Business percent by label group• Do you need a label deal?• Some basic royalty computations• The 360 Deal
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Recording Contracts
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Current Market Share
32.06
29.31
19.07
9.99
9.57
Total Album Market Share 2010
UMG SME
WMG EMI
Indie
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New Market Share
42.05
29.31
19.07
9.57
Total Album Market Share After Acquisition
UMGSMEWMGIndie
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Do You Need A Record Deal?
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Subjective -> Depends on your ultimate goal? Where do you want to be in five
years?
Image by Jean Scheijer cc
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Why Sign With A Major Label?
• Funding
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Why Sign With a Major Label?
• Funding• Marketing Expertise
• Image by Celal Teber cc
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Why Sign With a Major Label?• Funding• Marketing Expertise• Radio Promotion Clout
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Why Sign With a Major Label?
• Funding• Marketing Expertise• Radio Promotion Clout • Distribution Domestic
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Why Sign With a Major Label?
• Funding• Marketing Expertise• Radio Promotion Clout • Distribution Global
image by ilco cc
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Global Presence -> Majors are globally integrated
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In essence, if your ultimate goal is…
• Radio Airplay• Physical Distribution• Mainstream artist regardless of most
formats• Desire global presence circling back to
physical distribution
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The flip side An indie artist can leverage the power of the internet and social media to build a network and fan base
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As an example…..Adele
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…..or Rebecca Black
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Engagement with your social network = viral promotion
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Assumption Traditional Record Royalty
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Record Royalty
• New artist 10% - 15% of wholesale
• Midlevel 15% - 17% of wholesale
• Superstar 17% - 20% of wholesale
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• Wholesale price for frontline physical product $12.00
• Artist royalty rate 12%
$12.00X 12% $1.44 per unit sold
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Escalation Clause always include in your contract
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Escalation example Initial deal 12%
0 – 500,000 units sold 12%
500,000 – 1 Million units sold 13%
1 Million + units sold 14%
**If album does reach the escalation goal only applies for this album
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What about digital royalties?
Image by Abby M cc
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Profit Opportunities
• Digital downloads• Webcasting• Streaming-on-demand• Ringtones/ Ringback• Satellite Radio
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iTunes Download
iTunes price .99 centsWholesale to iTunes .70 centsArtist royalty 12%
.70 X 12%
8.4 cents per download to artist
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Ringtones
• Cost to consumer $2.00• Label receives $1.00 • Artist royalty 12%
$1.00X 12% .12 cents per
download
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Webcasting & Satellite Radio
• Licensed master• Royalty distribution rate set by the
government• Collected by Sound Exchange
• 50% to labels• 45% to artist• 5% to American Federation of Musicians
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360 Deal Points
Why did the 360 deal develop? the 360 deal develop
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Historically Labels only made income from product sales and license deals
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What happens when your business model is disrupted?
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Two choices
• Go out of business
• Adapt
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The 360 deal is the record label solution
• If you lose close to 50% of total revenue in ten years while the cost of doing business is increasing….
• No choice but to look for alternative revenue streams
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Record label revenue
• Music sales physical, digital, licensing and any future delivery forms
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Artist income sources
• Record royalty• Mechanical royalty• Performance royalty• Synchronization royalty• Merchandise• Ticket sales• Publishing• Sponsorships
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The 360 deal is a record contract within a record contract
• In reality it is a revenue sharing model
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360 deal points
• Label receives between 10% to 35% from all non-record sources
• Always net income • Sources include:
• Ticket sales•Publishing• Sponsorships•Merchandise
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Good news for the artist this is a passive deal
• You have the right to sign with any support company you desire, i.e. publishing company
• Usually……
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The label could “recommend” their publishing company
Image by Bob Smith cc
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360 Deal Variations
• 50 / 50 equity deal• Aggregate all label and artist expenses• Aggregate all label and artist profits• The difference is the net profit• Net profit is split 50/50
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360 Deal Variations
• 360 on steroids• Superstar deals•Madonna• Jay-Z• Signed with Live Nation received multi-
million dollar advances
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Is the 360 Profitable?
• Potentially, but over time• New artist income (on average) is minimal the
first few years• The 360 becomes profitable when the artist
becomes profitable
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Comparative Numbers
• Traditional deal label makes approximately $5.00 per unit
• Assume sales of 250,000• Revenue = 250,000 x $5.00 = $1,250,000
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Add the 360 Deal Points
• Label makes on 250,000 $1,250,000• Assume 360 deal at 25% of artist net income• Assume artist makes $500,000 in non-record
revenue
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Label Makes….
$1,250,000 Record sales
$ 500,000 Artist income 25% Label Royalty$ 125,000 To label$1,250,000$1,375,000 Total label profit with 360 deal
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Leave you with this thought…
• Success is what you believe it to be not what someone else believes!
• We are very fortunate to be involved in music in whatever capacity
• Dreams can start at any age!
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• Image by Leslie Watts
• Image by Leslie Watts