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Lecture Notes Record Contracts

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Very basics on record contracts, 360, and label share breakdown

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Lecture Notes Record Contracts

  1. 1. Recording Contracts• Overview  Business percent by label group• Do you need a label deal?• Some basic royalty computations• The 360 Deal
  2. 2. Recording Contracts
  3. 3. Current Market Share Total Album Market Share 2010 9.57 9.99 UMG 32.06 SME WMG 19.07 EMI Indie 29.31
  4. 4. New Market ShareTotal Album Market Share After Acquisition 9.57 UMG 19.07 42.05 SME WMG Indie 29.31
  5. 5. Do You Need A Record Deal?
  6. 6. Subjective -> Depends on your ultimate goal? Where do you want to be in five years? Image by Jean Scheijer cc
  7. 7. Why Sign With A Major Label?• Funding
  8. 8. Why Sign With a Major Label?• Funding• Marketing Expertise• Image by Celal Teber cc
  9. 9. Why Sign With a Major Label?• Funding• Marketing Expertise• Radio Promotion Clout• Image by Andre Habermann cc
  10. 10. Why Sign With a Major Label?• Funding• Marketing Expertise• Radio Promotion Clout• Distribution  Domestic Image by Abby M. cc
  11. 11. Why Sign With a Major Label? • Funding • Marketing Expertise • Radio Promotion Clout • Distribution  Global image by ilco cc
  12. 12. Global Presence -> Majors are globally integrated Image by ilco CC
  13. 13. 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
  14. 14. The flip side  An indie artist can leverage thepower of the internet and social media to build a network and fan base
  15. 15. As an example…..Adele
  16. 16. …..or Rebecca Black
  17. 17. Engagement with your social network = viral promotionImage by Hilde Vanstraelen cc
  18. 18. Assumption  Traditional Record Royalty
  19. 19. Record Royalty• New artist 10% - 15% of wholesale• Midlevel 15% - 17% of wholesale• Superstar 17% - 20% of wholesale
  20. 20. • Wholesale price for frontline physical product $12.00• Artist royalty rate 12% $12.00 X 12% $1.44 per unit sold
  21. 21. Escalation Clause  always include in your contract
  22. 22. 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
  23. 23. What about digital royalties? Image by Abby M cc
  24. 24. Profit Opportunities• Digital downloads• Webcasting• Streaming-on-demand• Ringtones/ Ringback• Satellite Radio
  25. 25. iTunes DownloadiTunes price .99 centsWholesale to iTunes .70 centsArtist royalty 12% .70 X 12% 8.4 cents per download to artist
  26. 26. Ringtones• Cost to consumer $2.00• Label receives $1.00• Artist royalty 12% $1.00 X 12% .12 cents per download
  27. 27. 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
  28. 28. Why did the 360 dealdevelop? the 360deal develop 360 Deal Points
  29. 29. Historically  Labels only made income from product sales and license deals• Image by Mansee cc
  30. 30. What happens when your business model is disrupted?• Image by Christian Ferrari cc
  31. 31. Two choices• Go out of business• Adapt
  32. 32. 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
  33. 33. Record label revenue• Music sales  physical, digital, licensing and any future delivery forms
  34. 34. Artist income sources• Record royalty• Mechanical royalty• Performance royalty• Synchronization royalty• Merchandise• Ticket sales• Publishing• Sponsorships
  35. 35. The 360 deal is a record contract within a record contract• In reality it is a revenue sharing model
  36. 36. 360 deal points• Label receives between 10% to 35%  from all non-record sources• Always net income• Sources include: • Ticket sales • Publishing • Sponsorships • Merchandise
  37. 37. 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……
  38. 38. The label could “recommend” their publishing companyImage by Bob Smith cc
  39. 39. 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
  40. 40. 360 Deal Variations• 360 on steroids • Superstar deals • Madonna • Jay-Z • Signed with Live Nation  received multi-million dollar advances
  41. 41. 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
  42. 42. 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
  43. 43. 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
  44. 44. 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
  45. 45. 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!
  46. 46. • Image by Leslie Watts • Image by Leslie Watts

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