Have Labels Bit Off The Hand That Feeds Them?

by Anne Freeman, The New Business Model: Extract Yet More Revenue From Artists  In recent article in the Nashville-based trade magazine MusicRow, Michael Milom, Esq., an entertainment attorney with Bass, Berry & Sims, PLC, observes a "new business model" that the majors and some larger independent labels are implementing to increase their profitability.

In his article, "The Impact of New Business Models on Artists," Milom identifies five

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 contract strategies now being employed by labels for the purpose of increasing and diversifying label revenue sources, and three contract strategies being employed to increase label profitability from existing revenue sources. Unfortunately, all of these new contract strategies come at the expense of new artists. I've done my best to summarize some of Milom's major points, below:

1. Labels are requiring that they own and control artists' "official websites" and labels may generate income by selling advertising on the artists' official websites.

Milon adds that labels may also require from artists that the labels be permitted to license and sell label-created merchandise on official artist websites. But, he warns, if and how the artists will participate in these revenue streams is up for negotiation, not a given. Finally, Milon points out that just a few years ago, labels would have been prohibited from such activities in most recording contracts.

2. Labels are requiring control over the licensing of album cover artwork.

Specifically, the labels are requiring that they control licensing for artwork that incorporates the artists' names and likenesses. Milon points out that the net revenue from licensing deals, which was traditionally a 50-50 split between the label and artist, can now dip to as low as 12 percent for new artists.

3. Labels are requiring that artists pay a portion of their touring and/or merchandise revenue to the record company.

Milon says that the amount of the artists' touring and/or merchandise revenue that labels are now requiring to participate in "varies widely." However, he reminds us that this is a new contractual requirement that "significantly reduces a source of income that has previously belonged solely to the artist."

4. Labels are increasing the market for authorized electronic sales and similar electronic revenue sources such as subscription music services - but are decreasing the revenue share for artists.

Milon states that the artists' revenue share in these cases is often significantly lower than revenue "derived from a comparable sale in CD configuration." He also states that "many contracts still apply deductions for packaging, free goods and returns reserves in calculating an artist's royalties from electronic sales even though there are no packaging costs incurred, no free goods offered or return rights granted by the company or its licensee in connection with those sales."

5. Labels are requiring artists to create new products for the mobile communications market, but with no financial renumeration to the artist.

Milon notes that these products are frequently being used for what labels are considering "promotional purposes" and no royalties are paid to the artists. These products include "voice tones," "ring backs" and "electronic wallpaper for computers." The net result: artists are not gaining revenue from this quickly expanding market.

6. Labels are increasing the percentage of record company expenditures that are recoupable from artist.

Milon warns that labels are both increasing percentages of traditional recoupments as well as attempting to "shift other costs traditionally borne by the label to the artist's side of the ledger."

QUESTION: Can artists survive this new record label business model?

LABELS: Are you implementing this "new business model?" If so, why? If not, why not?

Call for Papers: Send us your thoughts, observations, experiences to the editor at editor

Read Milon's full article, "The Impact of New Business Models on Artists," on MusicRow.

Provided by the MusicDish Network. Copyright © Tag It 2005 - Republished with Permission