It was the Monday after the 2006 Grammy Awards, I picked up the phone and heard my otherwise laidback client YELLING into the phone before I could say “Hello.” “I can’t believe that MF came over here, shoving papers in my face, asking me to rearrange my deal! I told him to go f^%* himself and threw his ass out of my hotel room,” he said.
You see, my client was among the last bastion of artists who signed to a major label before the recorded music industry shifted its paradigm to the 360 model. The night before that fateful visit, he’d won a Grammy Award and Craig Kallman, the President of Atlantic Records, now wanted a piece of EVERYTHING and my client was having none of it.
A few years earlier, in 1999, a couple of teenage coders named Sean Parker and Shawn Fanning sent the industry into a tailspin when they invented Napster, a peer-to-peer music file-sharing service. Napster allowed users to illegally download and share artist’s copyrighted music with no accountability, monetary or otherwise, to the artist, publishers or labels. David had slain Goliath: two kids with a computer created a platform that forced the music industry to change its economic model to make up for lost revenue from the resulting piracy and now declining music sales.
Pre-Napster the music industry was on fire and labels reaped money from the sale of their artists’ music. In 1999, income from CD sales was at a record high (no pun intended) at $14.5 billion. According to The New York Times, by 2006 income from recorded music sales had dropped to $9.4 billion due in large part to the bastardization of music sales due to piracy. To offset these economic losses, the record companies changed their revenue model; they would now seek to commission everything in the artist’s entertainment repertoire and then some with “360 deals.” By 2006, gone were the days when signing to a major label meant the artist only relinquished ownership of his or her masters. Now, with 360s, the labels were commissioning 360 degrees of the recording artist’s entertainment ventures. They were coming for a piece of their publishing, touring, merchandising, sponsorships, endorsements, and modeling money, as well as a piece of the artist’s income from appearances in film and television. You name it, the labels now wanted in.
Many of the artists pushed back while lawyers, including myself, were horrified as 360s came across our desks with record companies seeking monetary compensation of upwards of 50 percent from artist’s merchandising, 25 percent from publishing, touring, endorsements, and other entertainment business ventures to account for the decline in record sales. The labels justified this commission with the “but for” argument: “but for our investment in the artist, the artist would have no endorsements, film or TV monies.” This was now the nature of the major-label beast, the new normal: you’ve gotta pay to play. As Craig Kallman recently admitted in Billboard Magazine, “Yeah, we’re still 100 percent believers in 360s…Most of the roster since we started a decade or more ago, almost everybody” is signed to 360 deal. My client, in particular, never did.
Contractually, at least, with 360 deals the labels had addressed how to capitalize on lost revenue due to piracy. Their challenge now was to encourage people to buy the music so they could actually collect revenue from the sale (versus pirating) of that music. Napster evolved into Rhapsody and eventually spurred several music file streaming services like Spotify and Pandora, only now these sites were on notice from various court decisions that piracy was illegal. These services had the means to get the music into the hands of the consumers but the record labels controlled the music. The record companies were in a quandary: consumers were used to downloading music, often for free, and they couldn’t put the genie back in the bottle. The labels now needed to support a platform that would encourage people to pay for the consumption of the music. And by striking deals with these streaming services, the labels would be able to get their artists’ music in the hands of fans through ad-supported free streaming services or premium services where listeners pay up to $10 per month for ad-free music, listener-curated playlists and unlimited downloads. It was successful. The co-author of a recent study on streaming told TechTimes that they “found there was a high migration of people who were pirating music moving across to streaming music because, they found it cost-effective and convenient…a solution to what they were looking for in terms of their digital needs for music consumption.”
The streaming services are probably here to stay, at least for now until the next big thing comes our way, but these file-sharing services are giving a big boost to independent artists who now have a platform to directly release their music to consumers, rendering record companies even more irrelevant. And thanks to the vast libraries, previously unknown artists now have their music included on playlists with well-known artists in their genre, and their music becomes a part of the seemingly endless catalogue of music. Both ultimately translate into increased exposure and income for the artist, which in turn is troublesome for record companies.
Times have certainly changed. These streaming services are now the unlikeliest of promotional tools, social media acts as marketing, the artist can directly books gigs through Sonicbids, TuneCore acts as publishing administrator and the artist keeps all ancillary entertainment income. So once again, record companies are being bested by the tools of the Internet, which means, now more than ever, some independent artists can now afford to stay independent.
Lisa Bonner is a veteran entertainment attorney with more than 20 years in the industry representing clients in all areas of the music, television, film, print and digital industries. Bonner is also a television commentator speaking on legal issues as well as pop culture topics and is a veteran host of an entertainment radio show in Los Angeles. She is also host of “The Laws of Entertainment,” a podcast produced by Entertainment Studios (on iTunes) and a freelance journalist for various publications, including The Grio, Essence.com and EBONY. Bonner’s essay, “A Retrospective of Recorded Music Deals: From the ‘90s, to 360s, and the Rise of Independents” is part of the Living Legends Foundation’s series on “The State of Black Music and Beyond.”