Recording Contracts

• Overview Business percent by label group• Do you need a label deal?• Some basic royalty computations• The 360 Deal

Recording Contracts

Current Market Share

32.06

29.31

19.07

9.99

9.57

Total Album Market Share 2010

UMG SME

WMG EMI

Indie

New Market Share

42.05

29.31

19.07

9.57

Total Album Market Share After Acquisition

UMGSMEWMGIndie

Do You Need A Record Deal?

Subjective -> Depends on your ultimate goal? Where do you want to be in five

years?

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Why Sign With A Major Label?

• Funding

Why Sign With a Major Label?

• Funding• Marketing Expertise

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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

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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

The flip side An indie artist can leverage the power of the internet and social media to build a network and fan base

As an example…..Adele

…..or Rebecca Black

Engagement with your social network = viral promotion

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Assumption Traditional Record Royalty

Record Royalty

• New artist 10% - 15% of wholesale

• Midlevel 15% - 17% of wholesale

• Superstar 17% - 20% of wholesale

• Wholesale price for frontline physical product $12.00

• Artist royalty rate 12%

$12.00X 12% $1.44 per unit sold

Escalation Clause always include in your contract

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

What about digital royalties?

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Profit Opportunities

• Digital downloads• Webcasting• Streaming-on-demand• Ringtones/ Ringback• Satellite Radio

iTunes Download

iTunes price .99 centsWholesale to iTunes .70 centsArtist royalty 12%

.70 X 12%

8.4 cents per download to artist

Ringtones

• Cost to consumer $2.00• Label receives $1.00 • Artist royalty 12%

$1.00X 12% .12 cents per

download

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

360 Deal Points

Why did the 360 deal develop? the 360 deal develop

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

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

Record label revenue

• Music sales physical, digital, licensing and any future delivery forms

Artist income sources

• Record royalty• Mechanical royalty• Performance royalty• Synchronization royalty• Merchandise• Ticket sales• Publishing• Sponsorships

The 360 deal is a record contract within a record contract

• In reality it is a revenue sharing model

360 deal points

• Label receives between 10% to 35% from all non-record sources

• Always net income • Sources include:

• Ticket sales•Publishing• Sponsorships•Merchandise

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……

The label could “recommend” their publishing company

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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

360 Deal Variations

• 360 on steroids• Superstar deals•Madonna• Jay-Z• Signed with Live Nation received multi-

million dollar advances

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

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

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

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

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!

• Image by Leslie Watts

• Image by Leslie Watts