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Deal Or No Deal? The Great Artist/ Label Trade-Off

5th February 2008 @ 6:30 pm - 9:00 pm

Venue: The Basement, PRS for Music, Copyright House

TOPIC:

“We need to enter into a new relationship with our artists, where they see us as partners rather than the enemy” – Ged Doherty, Chairman & CEO Sony BMG, 2007.

“We need a relationship with our artists based on a true partnership, in which we jointly share both the risks and the benefits” – Guy Hands, EMI, 15 January 2008

For the last half-century, physical sales have formed the bedrock of the music business. From touring to merchandise, sponsorship to broadcast royalties, all were secondary to the mighty album. Given the primacy of recorded music, album (and to a lesser extent single) sales accounted for the overwhelming majority of label, and hence artist, income.

Meanwhile, a much smaller proportion of label income was generated via wholesale deals encompassing the entire catalogue (e.g. MTV). As such deals were not artist-specific, labels have always maintained that there was no fair (or even plausible) way of reimbursing artists for use of their rights, and so retain these monies in accordance with the provisions of the artist contract.  Not ideal for the artist, but hardly a problem: the dominance of physical music meant such sums were trivial in comparison to selling product.

The business is moving away from the unit sales model however, and with deals for emerging media increasingly covering a label’s entire repertoire, traditionally ‘non-attributable’ revenues are increasingly becoming core business.  With physical sales in decline and downloads failing to take up the slack, artists can no longer afford to ignore these monies.

Given the pace of technological advancement, it’s not hard to see why labels might shy away from the mammoth task of apportioning such revenues. While fair distribution is almost certainly within the realms of technological possibility, you can understand labels dragging their feet, especially in light of today’s more meagre sales.

Those meagre sales are also driving labels to increasingly question the sense in only benefiting from one of several artist income streams when their considerable marketing spend builds an artist’s complete brand, with knock-on effects for live, merchandise and sponsorship.  This discrepancy lies at the root of the majors’ keenness to promote the 360 model, explaining both their recent acquisitive behaviour (e.g. Universal’s purchase of Sanctuary, Warner’s purchase of Front Line Management), and a renewed interest in rolling an artist’s publishing into the overall deal.

It’s worth noting that 360 deals of this kind can be the norm in other markets with low record sales, such as Latin America. Historically too, it was not unusual to include both publishing and recording income under the same overall contract, with some companies also running live arms as part of their overall business.  But a series of lawsuits in the 70s and early 80s hinging on restraint of trade (eg. Gilbert O’Sullivan v Gordon Mills) led to a much greater separation of role. In many ways labels’ wishes to develop 360 models mirror managers’ own desires for adequate sunset clauses within their own management contracts. Managers are seeking to earn for longer, while labels are seeking to earn from more areas – in a sense there’s an argument for both the management and label contracts to mirror each other more closely.

Nonetheless, managers are reluctant to consider such changes without reciprocity on the “non-attributable” question, having identified three key areas where they feel attempts should be made to split non-attributable revenue more fairly.

•    Copyright infringement settlements: The major labels have reached out-of-court settlements with the likes of Napster, Grokster and Morpheus for widespread copyright infringement. Disclosed settlement monies up to March ‘07 totalled over $350m, with the total likely to have increased since. Thus far, none of this money has been distributed between the artists whose work was shared illegally, although settlements have apparently been made with certain licensors in Europe.

•    Emerging media deals / blanket licenses: December ‘07s deal between Nokia and Universal is the latest and most high-profile example of an entire label’s catalogue being signed away wholesale. Other examples include deals struck between major labels and YouTube, as well a groundbreaking deal between Universal and Microsoft. The latter of these two deals involved a pre-agreed payment (rumoured to be around $1) being made to the major for every Zune sold. To date, none of this licensing money seems to have been distributed among the artists in question.

•    Blanket Deals for Interactive Broadcast: PPL has signed blanket deals with the BBC for “interactive” use of their content (podcasts, listen again on radio, iplayer etc.) Despite the obvious similarities with conventional radio, such deals are not treated as “public performance”. This means that artists are only paid under the terms of their recording contract rather than receiving the half share of revenues they would receive under a public performance licence.

Would a movement towards 360, where labels benefit in multiple areas of an artist’s career (thus spreading the risk of their investment), mean they take a more progressive view of revenue distribution in “non-traditional” channels? Would managers be more willing to sign artists to 360 deals if they knew concerns over non-attributable income were to be addressed?

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