360 contract of Live Nation - Admission/Application Essay Example

360” This paper describes the concept of the “360” contract offered to music artists by companies in the live music industry such as Live Nation. The first part contains a brief discussion of the evolution of the “360” contract as a business model in the music industry and the reasons for the contract’s popular but controversial nature. The second part outlines the “360” contract’s advantages and disadvantages for both artists and artist managers and the positive and negative effects on both record labels and recorded music consumers. The third part concludes the analysis and speculates on the contract’s future impact on the music industry. Brief History The “360” contract is an agreement between an artist and a company where the latter handles all the management aspects of the artist’s performance and output, marketing and organization of tours and concerts, sales of merchandise and endorsement deals, and the management of the artist’s fans club [3, 4, 7]. The contract outlines how both parties share in the cash proceeds generated from all these revenue sources. While most artists who enter in “360” deals are unknown, famous ones like Madonna, Jay-Z, and Shakira signed similar contracts recently [2, 9, 11]. The “360” contract is so-called because the deal covers the whole range of an artist’s outputs. Using the image of a circle-shaped pie, the traditional business model in the music industry is one where an artist enjoys more control over the different slices of the so-called income pie. In the past, a major record label such as Warner Music, Sony, or EMI licenses the artist’s songs and handles the marketing and production of the media (tapes or CDs) in which those songs are sold to the public. The artist, either on her own or with other companies, signs a separate contract for live tours, merchandise (such as clothes and knickknacks), and fan club management and the sharing of income [6, 7]. In this traditional model, record labels earn their money selling or licensing the music and does not earn from the artist’s live performances and endorsement or merchandise sales. Major developments in the past decade shrank the income pie of both artists and major record labels, hitting the latter with a double whammy [10]. Brought about by Internet file sharing started by Napster in 2000, music sales crashed by 25 percent by the end of 2007 [5]. File sharing allowed consumers to download music for almost free, a main factor for the decline in CD sales. At the same time, it opened opportunities for both established and budding artists to use the Internet to sell and market their music without the help of the labels. While purchases of digital singles and ring tones for mobile phones grew at double digits, the music industry experienced growth in the music performance and publishing businesses that licenses songs to video games, radio plays, online subscription services, TV shows, and movies [5, 11]. Before the current economic crisis, revenues from live tours and concerts and merchandising grew to $3.1 billion in North American concert ticket sales from $1.7 billion in 2000 [2, 3]. The “360” contract, also known as a “360-degree contract” or “multiple rights contract”, allows the major record companies to recover some of their lost revenue from traditional sources by getting a share of the growing revenues from other sources. Ironically, a major record company came up with the first high profile “360” contract when EMI signed British singer Robbie Williams in 2002 [8]. The first such deal, however, where a company managed multiple revenue streams from the performance of an artist was between Iron Maiden, the British heavy metal band, and Sanctuary Records, founded by Rod Smallwood and Andy Taylor. Sanctuary successfully managed the full range of revenues of Iron Maiden [12]. While they operated a highly successful model until the 1990s, they too were affected by the decline in music sales and the financial failure of many bands Sanctuary launched after Iron Maiden [6, 12]. After Universal Records bought Sanctuary in 2006, Taylor and Smallwood put up Phantom Music Management Ltd. to continue managing Iron Maiden that continues to be successful worldwide [11]. Some upcoming artists with “360” contracts are Paramore with Atlantic Records and Fueled by Ramen, and Chelsea Handler with Live Nation. Live Nation is emerging as a major player in the music business after inking “360” deals with Nickelback and U2 [3, 5, 9]. In the recent Web 2.0 Summit in San Francisco, Warner Music Group CEO Edgar Bronfman Jr. declared that “his company would sign every new artist with a “360” contract, giving the company a share in all the artist’s future revenue streams from ticketing, touring, merchandising, and sponsorship” and claimed that “over a third of their artists have signed “360” rights” [1]. The “360” contract is controversial because the big and rich record labels see it as a way to recover lost revenues by getting a bigger share of the artist’s income. What’s in it for all? Four parties are affected by the change in the business model from the traditional to the new model with the “360” contract: the artist, the artist manager, the record label, and the consumer. While it may neither be possible nor realistic, each wants to get the best deal: greater creative expression, more value for money, higher income, better and affordable entertainment, but each must be ready to give up something. Artist The main advantage for the artist is having more time to be creative. For young and budding artists, a “360” deal could help their careers take off with the help of the professional manager who deals with the complex side of providing capital, getting endorsements, organizing, marketing, and selling the songs and developing the brand [3, 4]. Hopefully, an artist like Brad Paisley improves his artistic outputs, satisfies more fans and consumers, and earns more. The main disadvantage is sharing revenues with someone else (artist-manager) instead of the artist getting most or all of it. The “360” deal assumes that the artist manager would enlarge the pie, giving the artist higher income in the end. At least, this is what everyone hopes to happen. Artists may lose creative control, having to produce music that sells instead of one that gives fulfillment. “360” deals usually require up-front payments, pressuring the artist-manager to sell more merchandise and concert tickets to recover the investment [6, 7]. Artist Manager An artist manager like Live Nation gambles on the potential of a budding group like Il Divo or the staying power of a famous one like Madonna. If the gamble pays off, the manager gets a substantial share of income that, under the old model, would have gone mostly to the artist. Good managers have the skills set, extensive networks, and concert venues to achieve synergy and be more efficient in generating income. Controlling revenue streams gives them tremendous earning potential [9]. All these are worth the main disadvantages [2, 7]: first, the upfront fee usually paid in cash to the artist must be recovered within a reasonable period; second, the risk the artist’s career would fail; and third, the hard work to manage the artist and events. Record Label Record labels are rushing like lemmings to close “360” contracts with the hope of recovering lost revenues from lower traditional CD sales. This is hopefully the main positive effect for them. If the labels opt to forego these deals, they can focus on finding and developing new groups. This is risky, but it can push the labels to be more creative, certainly a positive thing for the arts and artists in the long-term. The challenge can lead labels to a new business model to solve their current problems. The record labels continue to experience the negative effects of “360” deals: losing artists to managers like Live Nation, losing potential royalties from future creative outputs from artists they have developed over the years, and a downward spiral of lower CD sales, less shelf space in stores like Wal-Mart, and growing frustration from artists earning less because record labels just cannot sell enough music. In addition to finding ways to satisfy consumers, record labels would have to learn how to compete with the professional artist managers and their “360” deals [4, 5, 10]. Record labels must learn to balance the need to sell music from new groups they are nurturing and to sell the output of non-“360” artists. Labels would not earn as they used to because “360” deals eventually give artists and their managers a larger share of music sales. It would do well for labels to learn how to move on. Consumers The consumers who decide with their wallets ultimately decide whether they like the artist and the music and whether the “360” contract is worth the hype. Otherwise, “360” or not, the artist, artist-manager, or record label will all fail. Consumers hope that by separating the works of creativity (artist) and management (artist manager), they would enjoy better music, better concerts, and affordable entertainment. The free market competition in the music business would hopefully achieve all these. However, this does not seem to be the case, as some concerts are not sold out, ticket prices are too high to let artist managers recover upfront fees, and venues are not filled up. These frustrate consumers and depress them like in recent concerts of Maroon 5 and My Chemical Romance, two groups managed by Live Nation [6, 7]. All these hopefully are just the result of adjustments in the market structure as artists, managers, and labels learn the ropes, and not the final shape of things to come. As the “richest” group in the industry, consumers are concerned with these changes. They have to “tell” the artists, labels, and managers what they want. What the Future Holds The music-loving public are the ultimate decision-maker whether or not the “360” model will be good and financially viable for all. The artist, manager, and record label need to create value and come up with a range of products attached to the artist’s brand that would entertain and at a reasonable price the customer is willing to pay. The public and the music industry wait to see if the “360” model succeeds in profitably bringing artists and their fans happy and fulfilled together. The “360” contract has advantages and disadvantages, positive and negative effects for all. It may not be able to please everybody and so everyone must give up something in the exchange. Each of the four parties needs to know and decide what they would be happy with and what they are willing to give up, since none of them would want to be on the losing end. It is just not realistic. This is the challenge for the music industry. They have to find a way where everyone wins according to what they value most. Artists and consumers want creativity and enjoyment. Artists, managers and labels want profits. Consumers want affordable music and entertainment. After Internet file sharing, the “360” contract seems to be the latest wave of disruptive “technologies” driving the industry forward. History has shown that, in the end, business competition is good for all. Bibliography [1] Bronfman, E. Jr. (November 6, 2008). “A conversation on the future of music with Chris DeWolfe and Edgar Bronfman.” Web 2.0 Summit 2008, Palace Hotel, San Francisco, USA. Retrieved December 4, 2008 from . [2] Economist, The (January 10, 2008). “From major to minor.” London: The Economist. [3] Economist, The (July 5, 2007). “A change of tune.” London: The Economist. [4] Economist, The (October 11, 2007). “The slow death of digital rights.” London: The Economist. [5] Hiatt, B. and Serpick, E. (June 28, 2007). “The record industry’s decline.” Rolling Stone Magazine. Retrieved December 1, 2008, from: . [6] Idolator.com (November 12, 2007). “So-called “360” deals offer a full spectrum of dubious advantages for bands.” Retrieved December 2, 2008, from: [7] Idolator.com (October 29, 2007). “Rearranging the deck chairs: Concert industry rushing to make shows more intimate.” Retrieved December 2, 2008, from: [8] Leeds, J. (November 11, 2007). “The new deal: Band as brand.” New York Times. Retrieved December 2, 2008, from: [9] Live Nation (2008). 2007 annual report. Beverly Hills, CA: Live Nation. [10] McGee, A. (2008). “Alan McGee speaks out against 360 degree record deals.” TheTripwire.com. Retrieved December 3, 2008, from: . [11] Michaels, S. (July 2, 2008). “Shakira signs 70m deal with Live Nation.” Retrieved December 2, 2008, from: . [12] Will, M. and Ingham, C. (2004). Run to the hills: Iron Maiden, the authorized biography. London: Sanctuary. Read More