The Artist Business

Sometimes it feels like “The Music Business” is too general a term, with too much baggage. The Music Business includes so much bad history, so many scams, and so much ego and toxic narcissism, and so so SO much overthought, overwrought music. So much of the industry, past and present, is just embarrassing. But mostly, it’s an industry with a deep history of disrespect for the creative individuals who create the value of this multi-billion dollar global industry with their outstanding work. On the business side of the equation, the highest and best thing we can do is provide the support, encouragement, and resources for artists to realize their full value as creators and innovators.

With the stability of streaming, music royalties have become a hot asset class for institutional investors. The rise of the consumption model has opened the doors to more institutional investors in the music space. As a result, there are individuals and companies ostensibly in the music business who don’t really care about the challenges and struggles of artists working in the space. There’s a huge part of the industry that has no reason to care about artists because the focus is on the value of their creations without connection to the creative process or communities that supported that process. Music is, above all, about human connection and community that begins with the artist and their work. Therefore, when I describe what I do within the music space, I like to say I’m in the Artist Business.

I often work directly with artists, which is simple to understand - I work with artists, therefore I’m in the Artist Business. But it’s more than that. I don’t always work directly with artists. Sometimes I’m on the other side of the table from artists, such as when I worked for a record label owned by a company that innovated music earnings as an institutional asset class. My thinking has evolved since that experience, but I did always strive to be “artist friendly” as a label within my employer’s business model. That’s a challenging proposition. It’s easy to be in the Artist Business representing artists as legal counsel; it’s my duty to understand the goals and interests of my client and zealously pursue and protect those goals and interests. On the company side, however, it’s about finding a balance between the value a company contributes or creates and the value the company extracts. It’s about understanding that for most artists, the greatest risk they face is losing control of their creative process because they signed a shit deal. Sometimes “creative services” involve taking a seat at the creative table, but this should only be undertaken with respect, transparency, and understanding of the artist’s goals and boundaries.

These concepts are especially important when the artist is in development, and therefore the copyrights don’t yet have any clear investor value. Once a copyright has obtained value, then parties can agree on a purchase price based on quantitative research and risk calculus, like any other asset class. In the development stage, however, the artist is trying to create that value by building an audience, which leads to stable, consistent “consumption” on platforms - that’s the main measure of value. Buying and selling music copyrights based on honest valuation doesn’t necessarily require that someone is in the Artist Business, because once an artist has decided to sell an asset or catalogue, then it’s mostly just a financial transaction - might as well be a commodity at that point.

There are a few things that have shaped my values that make me want to be in the Artist Business. Being a full-time artist into my thirties is a big one. Finding my way into the business through hardcore punk and its ethos is another. It’s also significant when I came to the business side of music. I became a lawyer in 2004, but I didn’t do any substantial work in music until around 2007. That was a time of crisis for the music business, one of the greatest crises in its history. Revenues were declining year over year as music piracy ran rampant. Smart people saw the access model of on-demand streaming in the future, but the technology wasn’t quite there yet.

In times of crisis people lose their jobs, the industry literally shrinks. Music wasn’t considered the land of financial opportunity in the mid-2000s; by and large, the people who stuck around are the people that wanted to be there, who cared about the music - that is, in addition the most brilliant and risk tolerant of institutional investors who went bargain shopping at the industry’s lowest ebb. The one-two punch of massive disruption and a financial crisis meant there wasn’t a lot of dealmaking in those days. I handled a lot of small deals for developing artists, some of which opened the doors for big artist careers. But I didn’t do any major label deals back then, and there are a couple good reasons for that. First, some background.

Record deals held to a fairly standard structure for decades prior to the disruption of the late 90s and early 2000s. Labels - majors and most indies - signed artists to a multi-option contract, structured around producing and releasing albums. The label almost always owned the recording and paid the artist an “all-in” royalty that was a percentage of the wholesale price¹ of the product - LPs, CD,s cassettes - whatever format happened to be in vogue. The royalty was (and sometimes still is) a percentage of the price of the unit. It’s “all-in” because the artist allocates a portion of its royalty to their producer and sometimes mixer. The artist’s advance is recouped by the label from the royalty, and once the label has recouped, the producer and mixer royalties are paid “from the first sale,” as a constructive lump payment. The artist is paid last, and back in the boom years of the CD it was extremely rare for an artist to recoup.

Then, when the wheels began to come off following the rise of digital piracy, labels introduced the “360” model, where the label commissioned practically every artist revenue stream, including live performances, publishing, merchandise, fan club, ticketing, and brand partnerships. I remember sitting in the audience at a SXSW continuing legal education session on 360 deals in 2004, when the head of business affairs from a major label fielded a question from the audience. “Why should we agree to these deals?” In one of the most unguarded and transparent moments I’ve ever witnessed from a music executive, he answered “Because you need us to exist.”

I’m not here to rip on major labels. They’ve been through an existential crisis. They handled the Napster crisis horribly by suing their customers. Rather than seek to change the revenue model for recorded music, they sought more money out of the artists’ pockets, without offering much in return. That moment had a huge impact on me, and I was very grateful that early in my law career I didn’t see any 360 deals. My clients tended to be art-forward, with a strong desire to control both the business and the creative output. That meant partnering with smaller, independent labels that offered seemingly more artist-friendly structures, such as license terms on the masters and profit share deals, whereby the label recouped their costs “off the top” before splitting the profits with the artist 50/50.

Since then, however, pretty much everything has changed. We don’t see that many 360 deals anymore, and the product-centric royalty model is in decline as well. Record deals have been disrupted and effectively reinvented by “label services” platforms that bundle some of the services of a label with digital distribution for a fee, ranging from 10 to 50 cents on the dollar. Whereas labels used to compete against each other for similarly-structured deals, with the focus on the in-pocket payment, now labels compete with all sorts of different business models. This has led to a power shift that favors artists - at least those who have an established business. Artist development today is the process by which an artist builds an audience and a business that gives them power in commerce. Thankfully, we seem to have moved on from the old concept of “selling out,” so that now artists can make deals that make sense to them, whether that means engaging minimal services that enable the artist to keep most of the power, revenue, and ownership in their hands, or simply cashing out by selling to the highest bidder. The point is, it’s the artist’s informed choice.

So what does it mean to be in the Artist Business today? On the artist side of the equation, the fundamentals remain unchanged. We seek to understand an artist’s goals, creative ambitions, and unique sensitivities and advise accordingly. You wouldn’t likely encourage and artist who is very art-forward and uncompromising into the same sort of deal as an artist who is primarily focused on massive worldwide commercial success. You look at the services the artist needs, and you figure out how to gain access to the best services while giving up the least control, ownership, and money. When you charge or commission an artist for services, it’s commensurate with the value add.

When I’m on the company side, it’s about growing businesses with a constant awareness of how the business model affects artists’ creativity and livelihood. There is very little “industry standard” these days, because everything is in flux. That means there are opportunities to innovate in ways that structurally favor artists. I don’t think in absolutes - royalty deals still make sense in some situations. 360 deals might even make sense if the company’s investment exposes them to significant risk. If we look at transactions in terms of balance of equities, with the artist’s interests and sensitivities in mind, then we can represent companies and still claim to be in the Artist Business. For me, I am humbled to have the opportunity to work with great artists, and I strive to always be as good an advocate as I can be. But my bigger goal is to innovate in ways that make the industry better for artists. That innovation mostly happens on the company side.

1. Before wholesale or “PPD” became the standard, royalties were based on retail price “SRLP” with a host of deductions to arrive at something approximating wholesale. It was challenging to determine a penny rate under SRLP (suggested retail list price), which made it tempting for labels to obscure the penny rate behind all these deductions and adjustments.