A Look At 360 Agreements: “Multiple Rights Deals”
By Justin M. Jacobson, Esq.
With physical music sales evaporating and an overall decline in total earnings across the entire music business throughout the last decade; many music distributors have begun entering into more extensive arrangements with the talent they sign. There has been a shift from traditional record distributors “signing” artists solely to a recording agreement to now signing artists to much more elaborate contracts. These new agreements are commonly referred to as “multiple rights deals” and are also known as “360 degree deals.” We will examine some of the pros and cons of entering into a “multiple rights” agreement as well as look at some clauses utilized in these agreements that are rarely seen elsewhere within the music industry.
This new breed of music distribution deal provided by many labels is characterized as a “multiple rights” deal. They are also referred to as a “360° deal”, a “270° deal” or a “180°deal”, depending on which rights are contracted for. For example, a typical “360° deal” entitles the label to receive a set percentage from four of the artist’s revenues streams. These would include a portion of the artist’s record sales, touring and personal appearance income, as well as publishing income, and the merchandise revenues. A “270°” or a “180°” multiple-rights deal may only cover two or three streams of an artist’s income, such as the label solely receiving a percentage from the musician’s record sales and publishing monies (180°) or a percentage from the artist’s record sales, publishing and touring incomes (270°).
Additionally, some agreements include “catch-all” clauses, which entitle the label to a portion of the musician’s “collateral” or “ancillary” entertainment activities. Essentially, this means the label is entitled to a percentage of income generated from anything related to the musician’s entertainment career that does not fit into one of the above categories (touring, publishing, record sales, merchandise, etc.). Thus, the record company will not only be entitled to their traditional stream of revenue from recorded music (CDs, MP3s, Vinyl); but, they will also be entitled to percentages of all of the artist’s entertainment related revenues. This could include portions of the artist’s merchandise sales, endorsement and sponsorship fees, motion picture and television appearance fees, digital sales and music streaming royalties, tour and live performance revenues, songwriting and publishing revenues, ringtone and ring-back sales in addition to fan clubs. In a nutshell, the label receives a portion of anything and everything related to the signed talent’s entertainment career.
Generally, in these situations, an artist enters into a few separate agreements with separate contractual “advances” that encompass the entire “360°” arrangement. Similar to the recording agreements we looked at in a prior installment, all of these agreements are usually cross-collateralized with each other. This means that any income earned from the different revenue streams (i.e. recording, publishing, touring, etc.) can be used to recoup any advance provided by the label to the artist as opposed to the label solely utilizing the publishing revenues to recoup the publishing agreement advance and so on. It is advisable for an artist to attempt to negotiate that the different streams are not cross-collateralized. However, this is a hard sell, as most labels will not accept such an accommodation, as they want ample opportunity to recoup their full investment from as many income sources as possible.
Another important negotiation consideration is whether the company has an “active” or “passive” interest. A “passive” interest exists when a label merely earns their set percentage under the agreement without having any control over the rights involved. This means that the artist is free to enter into any deal, such as a publishing or merchandising agreement that they desire as long as they ensure the record label receives their compensation.
Conversely, an “active” interest is one where the company has rights over the work, which permits the label to insist that an artist signs with their publishing or merchandise company. In these instances, a musician should try to negotiate a smaller percentage for the particular stream of income that the label is “active” in. For example, if an artist is obligated to sign with a label’s publishing company, the artist should try to reduce the percentage the label receives under the “360°” deal from publishing revenues as the label would essentially be getting paid twice (once as a publisher of the song and once through the label’s “multiple rights” deal) for the same material.
While there are many benefits as well as drawbacks to these extensive “multiple rights” deals, it has become the norm for many major labels and entertainment companies. Since there have been many more unsuccessful artists than commercially successful ones throughout history, the labels started seeking new ways to attempt to best recoup the funds they expend. Robbie Williams is an example of one of the first artists to sign a “multiple rights” deal. Additionally, in recent years, top artists such as Jay-Z and Madonna have signed similar “multiple rights” deal with the “tour company” Live Nation. These entities justify the new agreements and the increased ability to earn from the artist’s non- recording revenues in a variety of ways. For instance, the record label feels that they take all the risks with minimal chances of recouping their investment.
This is true as a label generally issues a non-refundable advance of the recording costs to the artist. The artist does not need to pay back the advance(s) to the record distributor, even if the musician’s work fails to generate any income for them. The company would then end up losing all of the funds advanced to the artist without any recourse against them. The label typically supplies all of the upfront recording costs necessary to create the music through the recording costs “advance.” These advanced funds are then utilized by the artist to pay for studio time, production, mixing and mastering costs, which the artist typically would otherwise not be able to afford on their own.
Furthermore, the label may also provide “tour support” to an artist to cover any deficient touring costs to ensure that the talent can adequately perform as they envision. The label also expends substantial funds to market, promote and manage the artist’s released music, including on radio promotion and press. Since the label invests so much upfront money and the potential return from the traditional record sales has bottomed-out; they justify these new more extensive agreements as a way to recoup the expenses they invested in the artists they sign. In these instances, the label may envision functioning as a pseudo-manager by looking after and assisting in building the artist’s entire career rather than only focusing on selling records.
One common agreement included in the “multiple rights” deal provided by most traditional record labels covers the formation and operation of an artist’s official “fan club.” Standard language, such as that listed below, discusses the label’s right to run a fan club on behalf of a signed artist.
Fan Club – Label shall have the exclusive right throughout the Territory to establish, register, maintain, control, administer, promote, and monetize the Fan Club, including the right to create, update and manage website(s) related to the Fan Club and to sell, advertise and promote the Fan Club and products and services offered for sale by the Fan Club on behalf of the Artist. A “Fan Club” shall mean any Artist-based subscription or registration-based subscription services.
Artist shall have prior approval over the so-called “look and feel” of the Fan Club. The parties contemplate that the Fan Club shall include but not be limited to a home page, message board, early ticket purchasing opportunities, exclusive merchandise, contests, unreleased recordings, interviews and VIP Fan Experience packages.
This paragraph means that the label has the right to create and monetize an artist’s official fan club; however, the artist shall have prior approval over the “look and feel” of the club. Therefore, the artist will have some creative input over the marketing and promotional materials created to advertise the club as well as the designs of any websites or other publicly distributed materials bearing the artist’s name. In addition, the clause mentions some of the fan club offerings such as exclusive merchandise, contests and early ticket purchasing opportunities.
Fan Club Obligations – Artist shall provide Label with timely information regarding Artist’s entertainment-related activities (including public appearances, endorsements, advertisements sponsorship, and performances). Artist shall provide Label with materials as Label reasonably requests for use in connection with the Fan Club, including but not limited to Artist Identification Assets, Special Greetings, audio and audio-visual messages. Artist shall also make itself reasonably available for a reasonable number of Fan Club interviews and to make personal appearances and participate in “Meet and greets” in connection with the Fan Club. Artist shall be responsible for answering fan mail; however, all reasonable out-of-pocket costs (e.g. cost of Fan Club stationary, postage, photos of Artist) shall be reimbursed pursuant to a mutually agreed budget.
As indicated above, the label imposes a variety of obligations on the artist. One such obligation is to inform the company of any upcoming appearances or tours, in order that the label can create contests or other “fan club” exclusive promotions tailored to those appearances. It is advisable to limit the number of appearances and “meet and greets” in connection with the fan club’s promotion. In addition, similar to the reimbursement of the artist’s “out-of-pocket” expenses in responding to fan mail; an artist should try to request some sort of budget to cover or mitigate some of their expenses in complying with the label’s other requests such as creating an audio-visual greeting or attending a fan “meet and greet.”
In addition to the artist’s obligations to the fan club, the artist and label typically have an equal 50/50 split on any income earned from the operation of the club. In these instances, it might be advisable for an artist to attempt to negotiate a larger percentage of the revenues earned due to all the obligations the artist has undertaken. Conversely, since the label normally advances most of the costs to run the fan club, it may be a hard sell to increase the artist’s percentage.
Another common agreement that is part of the “multiple rights” a label acquires is one that covers the artist’s “collateral” or “ancillary” entertainment activities. This clause applies to any stream of income not covered by the other existing agreements between the parties.
Typical language stating this is as follows:
Artist hereby grants Label the right to participate financially in the results and proceeds of the Ancillary Entertainment Activities. “Ancillary Entertainment Activities” refers to Artist’s activities in and throughout the media industry as a performer, singer, musician, writer, composer, author, lyricist, producer, engineer, mixer, DJ, or otherwise in connection with the Artist’s songwriting and music publishing, exploitation of merchandise and fan clubs relating to the Artist, but excluding Recordings exploited by Label pursuant to a Recording Agreement with Artist.
As discussed above, this paragraph entitles the label to a percentage of all entertainment related activities that the label is currently not already entitled to under any existing agreements. Typically, the percentages earned by the label for non-record income ranges from 10% to 25% of gross or net income, depending on the specific agreement and specific source of income. However, under some agreements, the percentage can be as much as 50% of the net income from each and every source of revenue.
One final “right” included in a standard “multiple rights” deal is an artist’s merchandise right. A typical clause granting the label rights to the artist’s merchandise is displayed below.
Merchandise – Artist grants to Label the exclusive rights throughout the universe (“Territory”) to utilize the Artist’s Identification Materials, in connection with the manufacture, advertisement, merchandising, promotion, distribution and sale and/or license of any Merchandise bearing Artist’s name and/or likeness. Artist grants the Label the exclusive right to sell Merchandise to wholesalers and retailers, including internet-based wholesalers and retailers, for resale. Artist grants the Label the exclusive right to sell Merchandise directly to consumers through the Internet, mail order sales, and CD inserts. Artist grants the Label the exclusive right to enter into License Agreements for Merchandise. “Artist’s Identification Materials” include: posters, stickers, patches, lighters, buttons, keychains, novelty items, souvenir tour merchandise, toys, dolls, lunchboxes, t-shirts, jerseys, sweatshirts, hats, and other apparel bearing Artist’s name and/or likeness.
This clause provides the label with the exclusive right to sell the artist’s merchandise to physical and digital retailers and whole-sellers as well as selling the items directly to consumers (“D2C”) through the Internet or “CD” insert offerings. It also grants the label the exclusive right to enter into third-party licensing agreements for the sale of the merchandise. It also lists the various artist branded apparel items subject to the merchandise agreement.
Merchandising income is often calculated in a variety of ways. Sometimes, the label receives a flat percentage, such as 15-25% of any and all merchandise income. In other instances, as shown below, the different items sold by the record label entitle the talent to different percentages.
Royalties – Label shall pay to Artist the following royalties on Net Sales of Merchandise:
(1) Wholesale/Retail Sales
1. 22% of Net Retail Receipts for t-shirts;
2. 20% of Net Retail Receipts for hoodies and sweatshirts;
3. 15% of Net Retail Receipts for headwear and other items.
(2) Direct To Consumer Sales (“D2C”)
a. 25% of Net Receipts
(3) Licensing Income
a. 60% of Net Licensing Receipts.
As depicted above, the amount the artist is entitled to vary based on the type of items and channels through which they are sold. This difference could be due to the associated production, manufacturing and/or distribution costs associated with each item. In these instances, a musician should try to negotiate the highest percentages they can in order to ensure they receive most of the monies grossed from the sale of their merchandise.
One final clause that provides protection for the artist is the inclusion of a “sell-off” period at the expiration of the merchandise agreement. An example of this type of clause is listed below.
Sell-Off Period – Label shall be entitled for a period of six (6) months after the expiration or termination of the Merchandise Agreement (“Sell-Off Period”) to continue to sell, on a non- exclusive basis, any already existing Merchandise in Label’s possession. Label will not manufacture quantities of the Merchandise in excess of the amount Label reasonably expects to sell during the Sell-Off Period. Label shall pay Artist in accordance with the terms and conditions of this Agreement during the Sell-Off period.
This clause permits the label to sell off any remaining merchandise it has in inventory after the expiration of the agreement. It also limits the amount of new merchandise the label can manufacture. An artist should try to limit the time frame that the label’s “sell-off” period lasts for. In addition, the musician should try to ensure that the label does not sell the merchandise at a substantially reduced rate as to undercut any sales efforts taken by the artist after their exclusive merchandise deal ended.
There are a variety of reasons that an artist may or may not accept a “multiple rights” deal with an entertainment entity. The biggest reason for these extensive arrangements is to create a “partnership” between the label and artist. Since the label is now much more invested in the artist, due to the extensive financial investments (separate advances for each agreement) and all the potential avenues of possible return; the label may see the benefits of having a dedicated staff or representative(s) committed to collect monies generated by the artist, to actively pitch and market the songs to publications and music supervisors for potential placements in movies, television and video games. If the label is not as invested in the artist and does not foresee substantial returns, it may be hard for the label to dedicate their limited resources and time to build such an artist.
In contrast, there are several drawbacks to entering into such extensive agreements. One is that the label typically has extensive control and approval over the artist’s career, including the artist’s “image,” selection of songs, appearances and sponsorships. Another negative aspect is that although the label takes a cut of all a musician earns, most labels have begun paying much smaller advances than in prior years. They have also down-sized personnel, so they do not have sufficient staff to actively and vigorously work on behalf of all its signed artists. In an effort to balance this, an artist should work to acquire some sort of creative control over the label’s use of the artist’s name and likeness as well as who the music can be licensed to.
The music business has undergone a monumental shift caused by the decline in recorded music sales and aided by an increase in music streaming and illegal music downloading. In an effort to alleviate some of the traditional record label’s losses, they crafted new “multiple rights” agreements. These agreements have benefits and drawbacks; but, are here to stay.
This article is not intended as legal advice, as an attorney specializing in the field should be consulted. Some of the clauses have been condensed and/or edited for content purposes, so none of these clauses should be used verbatim nor do they act as any form of legal advice or counseling.
(c) 2017, 2020 The Jacobson Firm, P.C.