This article was originally published in (April, 2007) The Lawyers Weekly Vol. 26, No. 45, and has been republished with permission.
Focus on media law
Regardless of which side of the debate you fall on, there is no question that digital downloading, peer-to-peer file sharing and home burning technology has had an impact on the behaviour of the major record labels in Canada.
In the "olden days" the major labels were willing to "adopt" a new artist, investing substantial resources in developing the artist's image and talent and building his or her catalogue of recordings. While those days have not completely gone the way of the 8-track tape, this type of long-term investment is becoming increasingly rare as record company resources shrink in the digital age and the return on investment becomes much riskier.
In Canada, it appears as if this void is being filled by a proliferation of smaller, leaner independent record companies that offer the full circle of management, music publishing and recording services; hence the term "360" deal. Some labels even serve as artist merchandisers and tour agents. On the one hand, the increasing presence of these "all-in" deals can be attributable to the label's need to earn revenues from secondary sources given the dwindling returns from recordings alone. On the other, a growing recognition of the artist as a "brand" has led these industry players toward the realization that centralization of all artist activities is necessary to maximize the value of the artist brand.
360 deals raise several interesting issues for both artists and labels.
For artists, the question is whether it is beneficial to consolidate all of these rights and obligations in one place, and at the same time. The all-in nature of the deal eliminates the element of choice for the artist: e.g., does the artist want to do a music publishing deal at all? For the label, a host of conflict issues arise: e.g., if the label acts as manager, is it properly advising the artist by directing him or her to sign with its affiliated company as recording company and/or music publisher?
With respect to the recording agreement, today's all-in deals are much more likely to include a split, often Page 2 50/50, of net receipts received by the label for record sales and other exploitations of the masters rather than royalties based on retail list price or wholesale prices.
This is a large divergence from the past when complicated royalty provisions obfuscated the fact that the artist was receiving mere pennies as compared to the label's share.
The publishing agreement component of the 360 deal, unlike stand-alone music publishing agreements, often limits its applicability to musical compositions recorded and released under the recording agreement rather than including all songs written by the artist during the term of the agreement.
In respect of the management agreement, artists will want to ensure that the label/manager is not able to "double-dip" between the sub-deals by requiring the manager to forego a management commission on any royalties or advances received by the artist pursuant to the publishing or recording sub-deals. The label/manager, on the other hand, will want to ensure that in the event the label is replaced by another party in those sub-deals through an assignment or other mechanism, the manager's commission on this type of income resumes.
As 360 deals become increasingly common some standard practices can be expected to develop but until that time it is prudent for all parties to carefully examine the implications of entering into these deals and the interaction between their component parts.