The Deals Of The Future (Al Branch Featured In Billboard Magazine)

As a result of the significant decline in album sales, record labels are exploring new and drastically different business models. The model du jour is called a 360 deal, which allows labels to get income from live performances, merchandise sales and other revenue streams. Although none of my clients are signed to such a deal, this model could help revolutionize the label as we know it by giving it a way to make up for the loss of revenue from sales of recorded music.

Some industry executives believe these deals go too far. But it’s also possible they don’t go far enough—that ultimately labels will need to evolve into full-service entertainment firms that use music as an entry point—and sometimes a foundation—to an artist’s career. On the surface, this might sound like the work of a well-connected manager. But the majority of managers wouldn’t be able to provide the same level of finances or staff. In contrast, one of these full-service entertainment firms could work like a well-oiled machine to discover, shape, nurture and position artists into superstars while maximizing their earning potential—and turning a profit at the same time.

It’s no secret that labels have plenty of qualified, passionate, influential executives. Many of them can see an artist’s potential before others. Most can also develop an artist’s sound, voice and image.

So what happens then? These days, once an artist develops a rabid fan base—and fans can’t get enough of his sound and style—his management works with agents to find lucrative, fulfilling opportunities. If the system works, they make deals with major companies to sponsor existing products—or make new ones—in a way that makes the artist money and brings in new fans at the same time. Meanwhile, the label is stuck with a recorded-music project that doesn’t have the same kind of revenue potential.

This isn’t a cry-me-a-river story. If labels had stepped in with their own staff to fund and create these opportunities, they would reap the benefits and get the chance to cash in on their multimillion-dollar investments.

Now more than ever, artists are brands waiting to be discovered and defined. Superstars can go on to sell movies, clothing and just about anything else, often while the label waits at the door. Often, these outside endeavors are funded by other entities that haven’t made similar sacrifices in terms of time and dollars.

The full-service entertainment firm of the future will not only bankroll the ideas of superstars, it will hire qualified executives to maximize the resulting profits. Labels can no longer sit by and operate in uncertainty. They must convince artists and managers that they see them as partners and are willing to put their money where their mouth is.

This is certainly possible. Already, managers and other organizations realize that artists can sell jeans and other consumer products. Recent research from PricewaterhouseCoopers shows that consumers have a propensity to buy products endorsed by musicians more than other celebrities. Labels have always known that, but they haven’t been able to take advantage of it. They should focus more on triple-threat artists who are talented at performing (whether that’s singing or rapping), creating (whether that’s writing or producing) and acting. Labels that sign these types of talents won’t have to depend solely on record sales to make a profit. Instead, they can guide the careers of artists in the ways that will matter most to their bottom lines.

Artists are more viable now than ever. Whether it’s Facebook, MySpace or Twitter, people can’t leave home without their music. From Barbra Streisand and Madonna to Will Smith and Jay-Z, music has always been the gateway to larger careers—a way to create superstars. These days, these talents aren’t always evident from album sales. So it’s up to labels—or, rather, the full-service entertainment firms of the future they will evolve into—to harness their brands and use them to create new businesses. ••••

Al Branch is GM for the management firm Hip Hop Since 1978, whose roster includes Kanye West, Lil Wayne, Drake, Young Jeezy and the producers Noah “40″ Shebib and Just Blaze.

Source:
Billboard Magazine (November 21st, 2009 Issue)