The Problem With Artist Endorsement & Equity Deals

Many claim the entire music industry model is broken.  I’m not one of them.  Several components however do need minor tweaking while others need considerable overhaul.  One are of repair is with the basic endorsement deal and artist equity agreement.   Absolutely this statement is biased, but I believe the missing ingredient with any broken industry model is the lack of indie relevance.  Indies have a voice, and a loud and large one at that; but not all indie artists have the opportunity to obtain massive exposure often introduced via “the endorsement deal.”   Yes – hundreds, if not thousands of indie groups have endorsement alignments but most of these deals lack out of the box creativity and none are on par with endorsements presented to major acts.  Understand endorsement deals are based upon many obvious factors (radio, touring exposure, fan base) and other non obvious factors (label partners, publishing, management, etc.), none of which I’ll discuss here.  These are huge factors that can dictate the success and strength of the endorsement – far too detailed to address in a single blog post.   The purpose of this piece is to hopefully shed light on a new age of endorsements, a new world of artist equity, a world where not only artists generate money but so does the endorsee and labels by generating a tight knit community of brand and band loyalty.
Now whoever the village idiot that created the mass endorsement / music model needs to disappear.  Call me a pessimist, but I don’t dub anything a successful model if it only works for less than half a percent of artists.  The chances you’ll land an endorsement deal (one with monetary meaning) is equal to the chance I’ll let you sleep at my house and give you a bag of money as a hosting gift.  To combat the growing opposition to the endorsement deal, some industry folks have begun hyping up the “equity endorsement” as if it’s some sort of new age brainchild.  The counsel of village idiots continues.  So we’re clear, allow me to briefly distinguish endorsement deal v. equity deal:
ENDORSEMENTS:
In its simplest form, endorsement deals are nothing more than a performance contract.  Company X pays Band X to perform (i.e. – talk about the company, perform wearing the product, wrap their tour bus with signage, act in commercials, etc..).  Endorsements are mutually beneficial – the artist gets paid handsomely and the company in return gets to develop public connections between the artist and product.  Not a bad gig for either party.  This years high profile endorsements include Lil Wayne and Nicki Minaj with Pepsi, Tim McGraw with Pennzoil and Lady Antebellum with Lipton.  On paper, there’s nothing wrong with an endorsement deal – hell, they just make sense.  However, two particular components dilute the effectiveness of artist endorsements: (1) authenticity, and (2) indies don’t receive equal opportunities.
EQUITY:
A slight wrinkle to the endorsement model, equity deals allow artists to capitalize from their fame by owning a piece of the company in which they partner.  These are typically seen between artist and liquor companies but have seeped into other brands as well.  Currently, the bigger equity stake deals include Cee-Lo and Ty-Ku Sake, Puff and Ciroc and Toby Keith with Wild Shot Tequilla.  Equity stake may happen as a trade (i.e. – artists exchanges leverage of fame for a percentage of the company), or sometimes it’s a combination of a monetary endorsement in conjunction with a buy-in for a percentage of the product.   Equity deals are a good model because both artist/company have skin in the game therefore developing an organic endorsement on the backend in which both feel passionate about the product – however two problems with the equity deal: (1) only the artist and company reap the benefit (if any), and (2) they lack creativity.
So what is wrong with today’s endorsement & equity model?  What works?  For starters, both lack partnership creativity.  All relationships (good relationships), develop naturally.  They develop because of shared interest.  Equity and endorsement relationships are born purely from money, and further only develop between the endorsee and the artist.   This “business” we call music, it is about money but it’s also about lasting relationships – and typically that’s where things fall short.  There is another model, a model where creativity is the driving force.  People will say it doesn’t work, I’m here to tell you it does.  Speaking from the attorney standpoint, when the perfect storm is formed between label, artist, endorsee, and publisher the result is truly something beautiful (i.e. – the “new” endorsement deal) – and I see it happen weekly, unfortunately it’s not the norm.
The model applies to major acts wiling to take a chance and indie bands looking to hustle.  Recall the Lady Gaga and Polaroid endorsement?  Essentially Polaroid paid Gaga an inappropriate amount of money to endorse their cameras.  As I’m unaware of the deal points, I imagine Lady Gaga granted Polaroid permission to use her name/likeness in relation to the product resulting in commercial spots, billboards, print campaigns, etc.  Possibly it went a step further where Gaga wrote a quick 15 second jingle for specific use by Polaroid.  Either way, at this point the relationship between Gaga and Polaroid ends.  Gaga has no incentive after being paid to continue pushing Polaroid.  Now imagine the difference in the equity model where Gaga would receive backend funds because she owns stock equity in the company which could result in a major win or a major loss.  What if Gaga did the endorsement for free – neither an endorsement model nor equity model?  Polaroid doesn’t offer Gaga a nickel and Gaga doesn’t demand a dollar.  Who wins?  Answer – Everyone!  This is the new model.
Companies don’t need to pay for endorsements or a synch license and Artist don’t need to demand it.  What both sides must demand is a “temporary” partnership.  There is too many hands in the pot, most of which aren’t necessary.  The song placement business has become as congested as the digital music marketplace; and the true visionary bands and labels will break this mold (I’ll reserve my thoughts on how the Publisher makes money – got to protect some ideas!).  Example – instead of Nike paying an artist $10,000 for song rights in a commercial spot, the artist gives Nike the track for free.  In return, Nike forms a partnership, trading an upfront price tag for potential backend results.  Nike becomes the music distributor, plugging the particular song via 30second commercials spots intertwined with their product campaign, channeling all potential traffic to their site.  On the site visitors have the opportunity to purchase the song in the commercial campaign “exclusively” on the Nike website.  Essentially Nike becomes a distributor, a record label for a brief moment of time.  If a track sells, Nike gets a distributor cut and the artist (or artist/label) receives the rest.  It’s no different than a record store or a digital download.  The result is a company who is loyal to the band because they obtained song rights for $0 with an opportunity to actually make money (not spend it) on tracks.  On the flip side, the band receives massive benefit from exposure, direct sales via a unique distributor and a mutually beneficial relationship spearheaded by a visible company.  Would labels love this?  Absolutely.  It’s free promotion on particular tracks (for a limited window of time) which inevitable results in a backend album sale, exposure, touring, merch sales – all profit bundled within the 360 deal (aka. Multiple Rights Deal, aka. Collateral Entertainment Activity Agreements).  The only thing the endorsee cares about is (1) paying the lowest price for a popular song (in this case FREE music), (2) obtaining loyal customers, and (3) making money.  I’m certain the rebuttal at this point is “sure this works for major acts but who cares about a partnership with an indie group?”  Answer – nobody, if you present it to the endorsee the same way as millions of other groups via a licensing broker.  Answer #2 – everyone, if you pitch it in a way that makes sense.  Indie bands are illusive, they can attempt several things without breaking the bank and more importantly have die hard loyal fans.  All of which are massive attractions to potential endorsees. What indie bands lack is a team component which helps bring plans to fruition, especially when securing proper endorsement deals.  In this respect, challenge your team, don’t just hire a manager because you need a manager.  Don’t hire an attorney because you need someone to review a contract.  Don’t sign with a label because you think it’s necessary.  Build your organization – an organization that thinks differently, performs differently and is passionate about the entire team moving upward as opposed to individual interests.  A basic endorsement deal and/or equity deal is a quick buck with a short life span.  Challenge the system and be different – establish longevity.
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