Top Attorney Donald Passman Discusses 360 Deals, Streaming Royalties and Other Key Issues

Donald Passman has been one of the leading attorneys in the entertainment field for over three decades. Practicing law at the Los Angeles-based firm of Gang, Tyre, Ramer & Brown, Inc., he represents such top music artists as Green Day, Pink, Mariah Carey, Stevie Wonder, Paul Simon and many others. He is also the author of the definitive music business book, All You Need To Know About The Music Business, which has sold several hundred thousand copies and is now in its eighth edition.

Passman was responsible for the record-breaking “mega” deals for both Janet Jackson and R.E.M., and has negotiated deals for many other major artists. A graduate of the University of Texas and Harvard Law School, Passman is listed in The Best Lawyers In America.

In addition, Passman has lectured extensively on the subject of the music industry, including teaching a course at the University of Southern California Law School’s Advanced Professional Program, and lecturing for the UCLA Entertainment Law Symposium, Harvard Law School, the American  Bar Association, and other institutions. He is also the author of three novels, including The Amazing Harvey, The Visionary and Mirage.

With all the changes and developments in the music industry, we thought Donald Passman would be an excellent person to discuss such issues as 360 deals, streaming royalty rates, and other key issues. Here’s the Q&A interview with Passman:

DK: Are 360 deals (where an artist assigns to a record label a percentage of all income, including touring, merchandising and publishing) now the norm?

Passman: Yes. These days, it’s rare that an artist can sign with a record label without agreeing to a 360 deal. Even independent labels now do 360 deals with their artists. It’s really difficult for a label (in this era of declining record sales) to make money without doing the 360 deal.

DK: What percentage of income (from touring, merchandising & publishing) would an artist need to assign to the label?

Passman: Most 360 deals are for 10% to 25%, based on the artist’s leverage. If an artist is in a bidding war situation (with several labels wanting to sign them), the percentage in the deal could be 10% to 15%.

DK: What happens if an artist signs a music publishing deal first? Would the publisher give up part of their share to the record label that signs the artist?

Passman: The publisher would never give up part of their publishing to the record label which signs this artist. They wouldn’t relinquish any share which they’ve negotiated and paid an advance for. The artist, though, would pay a percentage of what they earn under the deal.

DK: If a label signs a 360 deal with an artist who’s already signed a publishing deal, how do they collect their percentage of the publishing royalties?

Passman: The artist writes them a check. By the way, the publisher would need to recoup any advances paid to the artist before the label could collect their percentage.

DK: Should an artist still sign with a major label, knowing they’ll be giving up a percentage of all their income?

Passman: If you’re a niche band, you might want to stay independent. Labels can still supply the dollars and marketing resources to boost an artist’s career. Even Macklemore, who had built a giant fanbase and following, eventually decided to sign with a major label. But the decision to sign with a label is not as clear as in the past—labels have less to offer than before. Distribution is now easy—anyone can do it.

DK: Currently, if an artist is seeking a label deal, what’s the best way to impress labels?

Passman: If you’re an artist, you now have to take a Do-It-Yourself approach to getting your career started and I now have a section on this in my book, All You Need To Know About The Music Business. Labels want to see if an artist has a following when they’re considering signing a new artist. Labels will check an artist’s or band’s social media sites—you need to build a buzz yourself. Pretty much every artist who lands a label deal now has a major social media buzz, unless the artist is represented by a powerful manager or is part of an unique package which the label wants.

DK: Streaming has become an important way for audiences to consume music. I’ve heard that songwriters & publishers believe they should be getting a larger percentage from this source. What do you think?

Passman: What’s “fair” is in the eye of beholder. There are different kinds of streaming. Pandora is a non-interactive streaming service (where you can create your own “radio station” by identifying an artist you want to listen to, but you don’t select specific songs). Spotify and Beats are interactive (where you can select specific songs) which is a different (and higher) payment rate. A recent court ruling (U.S. District Court in New York) involving Pandora was to decide if its service was non-interactive or interactive. The Court ruled that Pandora was non-interactive, for which there is a statutory rate (meaning the rate is set by law, and the record companies can’t refuse to do a license because they don’t like the rate).

DK: What’s the current state of performance income royalties (distributed by ASCAP, BMI & SESAC) for songwriters & publishers? Are royalties higher or lower than in the past?

Passman: Performance income is not quite what it was a few years ago. Performing rights organizations (known as PROs) are getting squeezed on their fees because radio and TV stations are earning less money from advertisers—a lot of advertising dollars are moving online. Therefore, advertising income from broadcasters has been less. As a result, the PRO license fees have gone down some. So the PROs are collecting a little less money and thus are paying writers & publishers a little less.

DK: With the decrease in royalties from record sales, many artists are hopeful that income will remain strong from touring and merchandising. Is this the case?

Passman: Touring and merchandising can be very lucrative for an artist or band. You can especially do well on the high end and the low end, but it’s much harder if you’re in the middle. The low end would be if you’re a band with a local following and you can draw 500 people to your shows—you can stay local and not incur traveling expenses. The high end is if you’re a famous, established band who can play arenas. Being in the middle can be more challenging—for example, a band that plays theaters with about 1,500 to 3,000 seats. It’s harder to make money in this middle range, because expenses from being on the road are high, though legacy acts can do well in this area because they can charge a higher ticket price.

DK: How would you describe the current state of the music business?

Passman: We’re in a serious, transitional phase. The future could be gigantic. Getting music via subscriptions can be a great income source. If subscription works, for example with 10 million people paying $10 per month for their music subscription, that would generate about $1.2 billion a year. Subscription is a big key, but people need to be convinced to pay the $10 per month.

And streaming may be a way for the music business to generate income from people who wouldn’t have gone to record stores (when they existed) and people who don’t listen to the radio. There’s a growing number of consumers who prefer to get their music online, and a subscription service would be a way for the music industry to generate income from this large sector of music fans. No one thinks twice about paying for their cable TV bill, but music? We’re not used to it. However, if you think about it, it’s the same thing.