You can read the long version here, but the gist of it is that Korn just signed a deal with EMI that gives the label a share of Korn’s merchandise/touring profits as well as album sales. In exchange, the band gets about twice as much upfront as it would from a regular deal.
Given the discussions we’ve been having lately about file-sharing, this seems interesting and timely. Is this the new direction, or did EMI make a colossal misstep?
Well, it’s a good deal for KORN, as long as they don’t mind betting against their own success. If they become super hot, then they lose money over their previous contract. Of course, EMI has a lot to do with whether they become super hot or not… and EMI can probably also influence whether they completely flop as well.
I think they did well: $15M up front, which is “more than twice” what they’d expect from a contract. So assume they might see $7M up front instead, which puts them ahead by $8M. The stipulation is that instead EMI takes a bigger piece of the touring & merchandising revenue (25%). So, is 25% of Korn’s touring and merchandising worth $8M?
That’s clearly not it - let’s say that, due to increased promotion, the tour clears $4M. That’s still only $1M for each tour. Mr. Munns (cuoted in the article) seems to think they have the staying power to pull in big touring numbers like that for the next eight years. That might only be ticket numbers, though!
A Korn T-shirt can probably be mass-produced for $2.00 or less, and each shirt sells at the show for at least $20. Let’s say they sell it to the vendor for $10 and he takes that $10/shirt and pays his concession fee (back to the venue owner and/or the band!), so the band is making $8/shirt. The label is now making $2/shirt that they weren’t making before…
Neither side would sign this if they didn’t think they were coming out ahead. But imagine if you went to the lottery office and bought a ticket, and the guy said “do you want a winning ticket or a losing ticket?” You ask for a winning ticket, and the gentleman says “I can do that for you – but I want half.” I’d sign that contract, you betcha, and sink that $8M into CDs and any tax shelters I could find, and I would pay an accountant a hefty sum to do it for me.
Well, EMI also gets a cut of the publishing … and the LA Times story says they have a stake in Korn “over at least the next five years.” My question would be HOW long they have to recoup that advance. Owning 25% of Korn for 5 years may not be enough. Owning 25% of Korn in perpetuity? Perhaps. I wonder if EMI also has a right of first refusal on future projects, or a brutal buyout clause of their share of the band if Korn wants to go somewhere else.
Also, for a long-term view: it may be worth $15 million to EMI just to initiate this sort of practice as standard operating procedure in everyone’s minds. In other words, they may never get that back on Korn, but if spending that money now sets the precedent that record companies own a piece of all bands they sign, then they’ll more than make that back on the next five “Korns” they sign.
That’s something I hadn’t considered, and I could definitely see EMI thinking that. You probably only need to sign one future superstar on this sort of contract to make a killing.
I’ll also be curious to see whether the minor labels do this too. Outside of the mainstream scene, touring and merchandise probably represents a much bigger percentage of a band’s income.
Bands reap the lions share of profits from touring. That’s been the driving force behind the rocketing ticket prices for concerts. They’re also trying to recoup money that would go to the scalpers instead.
Sorry about being lazy and not wanting to read the thing, but my question is this:
Is it, as it so often is, simply a payment up front against potential earnings, so that, if Korn tanks on the recent tour and doesn’t sell all that well, they’ll actually end up owing EMI money?
On paper, yes, though usually a band just gets dropped and that’s it.
I can’t fathom why a band that is that experienced would sign a deal like that. They’re idiots, is all I can guess. Idiots for giving away future profits, idiots if they spent all their money and need an advance.
Beware young bands: Do NOT go for the big advance. Repeat ad infinitum.
I don’t think so–it doesn’t quite read that way.
And, unless you can give me a cite, I don’t think advances usually work that way–yes, the money is an advance on future earnings, but I don’t think the artist “owes” money to the label, in the sense that EMI is going to come to them and say, “OK! Time’s up! Pay us back the rest of your advance.” What COULD happen would be that an artist’s eventual album sales might not be enough to cover the advance, and then that artist would not receive royalties from album sales for a long, long time, if ever. At least, that’s how it works in book publishing–for many types of books, authors try to get as big an advance as possible, because they don’t expect to ever see royalties (i.e., the book won’t sell that much, will get remaindered, game over for that book). But if the book doesn’t make back the advance, the publisher can’t come to the author 2 years later and say, “Well, it didn’t sell that well after all; we demand you pay us back the $5,315.67 from your advance that we didn’t recoup in sales.”
Anyway, back to Korn–it appears that the $15 mil they’re getting up front is a combination of typical advance on future sales of an album and purchase of percentage of other types of revenue the band might make. In either case, though, I should think that, if Korn crashes and burns and only nets EMI $3 million over the next 5 years, then that’s EMI’s loss, and Korn has made out like bandits. EMI is making a bet. They’re hoping that their investment will pay off. Like many investors/bettors, they might lose.
From my reading of the articles, and all the professionals’ reactions, it seems that Korn would only lose (monetarily) if they earned much more than $32 million from their publishing, touring, and merchandising over the course of the contract (assumed to be about 5 years), in which case they would have to fork over more than $8 million to EMI (which appears to be the amount EMI has invested above Korn’s typical album advance) to cover EMI’s 25% stake. And frankly, considering that Korn only made $3 million last year on those endeavors, I find it doubtful that EMI is going to make back its investment. I think Korn made a great deal, EMI made a lousy deal for this band, but, as I said in a previous post, may simply consider this $8 million an investment in changing the status quo so that they will own a 25% stake in ALL artists in the future–which would certainly be a great return on investment.
Personally, I find this whole thing fascinating. Korn, on some level, is saying that all artists will benefit from this in the future. But perhaps they are, in fact, helping to sell all future artists into deeper slavery to the labels.
I’m reminded of something I recently learned about book-to-film deals. As a matter of course now, all movie studios require that authors sign over all rights to make video games from the property when they sign a movie deal (unless those rights have been sold before the movie rights were sold). And the thing is, the studios have enough clout to pull it off. If the author wants to retain the game rights, too bad–the studio won’t touch the book. And neither will any other studio.
I wonder if, in a few years, we’ll see that it’s the case that no major recording label will agree to sign a new artist without getting a 25% stake in all of the artist’s other revenue streams. Granted, the record indutstry is in a much weaker position than the movie industry–there are many more small labels than there are small movie studios (since making an album is just plain cheaper than making a movie), and non-traditional distribution channels are much more robust for music than for movies; many artists are perfectly happy to record with a small label that has limited resources (as compared to the big labels) and reach consumers via small-time or regional distribution, the Internet, or live shows–not so with movies (yet, anyway).
One quick look at the article again–Korn’s 2002 tour grossed $16 million. (Even though the 2004 tour grossed just $3.3 million.)
So, while I might sit back and say, “Korn’s washed up now, they’ll never have a tour like in 2002 again–and they’ll be lucky to have one like in 2004 again,” EMI might say, “Last year was just a misstep; hearing the album they’re working on right now, we have no doubt that album sales will be huge and the band will easily have two–or maybe even three–tours as profitable as 2002’s over the next 5 years.”
If Korn DOES have 2 more tours like in 2002 ($32 million total), then EMI will have made back its investment in the band’s other revenue streams.