Lecture Notes Record Contracts
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Transcript of Lecture Notes Record Contracts
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?
Image by Jean Scheijer cc
Why Sign With A Major Label?
• Funding
Why Sign With a Major Label?
• Funding• Marketing Expertise
• Image by Celal Teber cc
Why Sign With a Major Label?• Funding• Marketing Expertise• Radio Promotion Clout
• Image by Andre Habermann cc
Why Sign With a Major Label?
• Funding• Marketing Expertise• Radio Promotion Clout • Distribution Domestic
Image by Abby M. cc
Why Sign With a Major Label?
• Funding• Marketing Expertise• Radio Promotion Clout • Distribution Global
image by ilco cc
Global Presence -> Majors are globally integrated
Image by ilco CC
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
Image by Hilde Vanstraelen cc
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?
Image by Abby M cc
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
• Image by Mansee cc
What happens when your business model is disrupted?
• Image by Christian Ferrari cc
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
Image by Bob Smith cc
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