Music biz lawyers wary of labels' new grab

By Susan Butler

NEW YORK (Billboard) - Like it or not, major record companies are expected to continue drafting their artist contracts so that labels share a piece of most -- if not all -- of the artists' rights in all types of revenue streams, not just record sales, but also concert tickets and t-shirts.

Artist lawyers say that their responses are as varied as the rights and terms in each label's "360-degree" deal. Some labels want to be the merchandiser, while others want rights only in certain types of merchandise connected to album cover artwork. And when it comes to artist royalties, some labels pay a royalty based on wholesale prices, while others are offering profit-sharing arrangements.

Billboard asked four top lawyers how they will respond to 360 deals in the upcoming year: GARY GILBERT (Sugarloaf, Death Cab for Cutie, Kenny G) with Manatt Phelps & Phillips in Los Angeles; ELLIOT GROFFMAN (Dave Matthews Band, Pearl Jam, Clap Your Hands Say Yeah) with Carroll Guido & Groffman in New York; J. REID HUNTER (John Mayer, the Fray, Manchester Orchestra) with Serling Rooks & Ferrara in New York; and ANDY TAVEL (the Cheetah Girls, Grace Potter & the Nocturnals, James Taylor) with Greenberg Traurig in New York.

WHAT IS YOUR TOP CONCERN ABOUT A 360 DEAL?

GARY GILBERT: Labels having a piece of things like touring, where bands can make money without having a hit record, makes no sense if they don't sell (enough) records.

ELLIOT GROFFMAN: The most important thing we want from the labels is distribution. The new distributors (are) cable companies, phone companies and Internet portals. Too many people are falling for the cry that they can't sell CDs so they need more rights. My concern is that we are going to allow (labels) to eat part of the artist's lunch while (labels) are starting to figure out the new distribution models, then in five to 10 years they're going to control distribution again and control a good portion of the artist's income.

J. REID HUNTER: Many of the labels don't just want a participation -- they want to have approvals over decisions traditionally made by the artist manager or they want to become your exclusive (merchandise) fulfillment partner. In negotiations, we're having to educate the business affairs folks on how the business runs in areas outside of records. That makes me worry about how prepared the majors are to get into these areas.

ANDY TAVEL: Labels need a different mind-set to pull it off. I want them maximizing income and focusing on the artist's career as a whole, not only on marketing and selling records.

WHAT SAFEGUARDS CAN YOU BUILD INTO THE CONTRACTS IN CASE

THE LABEL DOESN'T PERFORM WELL?

GARY GILBERT: Unless they sell a certain number of records in two LPs, there should just be a notice and an out. The performance level is different depending on the artist. If they don't sell 250,000 units on a new artist on album one, I wouldn't want to go to album two -- or maybe an aggregate of 500,000 on two albums. It is hard to meet, but if they only sell 100,000 units, I'm not sure that's good enough to merit participation in other income streams.

ELLIOT GROFFMAN: I have not seen standards evolve yet. It's important to inject some objective criteria so the labels don't skim off what is important development money. Early merch(andising) and touring aren't profitable unless you have a hit. Participation in touring shouldn't kick in, for example, until the group is regularly playing 3,000-seaters or more, or the group is running profitable legs for six months or more.

J. REID HUNTER: A new artist's leverage is rarely strong. Sadly, I simply don't see majors agreeing to reciprocal accountability anytime soon.

ANDY TAVEL: It all comes down to money -- enough for the artist to survive and thrive. Otherwise, the artist should be able to end the deal.

WHAT RIGHTS ARE MOST PROBLEMATIC -- PUBLISHING, TOURING,