Cheating and 360-Degree Contracts in the Recorded Music Industry
33 Pages Posted: 24 Jan 2015 Last revised: 6 Feb 2015
Date Written: February 2015
A new type of contractual arrangement in the music industry – the so-called “360-degree” or “equity” deal – allows a firm (e.g., a record label) to manage all of an artist’s activities, such as sales of recorded music, touring, merchandising, etc. Since these contracts internalize the positive externalities that exist between the recorded music market and the ancillary markets, it should be profit-enhancing for both record labels and artists to strike such deals. However, very few equity deals have been signed in the music market so far. In this paper we argue that artists who currently have a recording contract, or who have had one in the past, are reluctant to sign a 360-degree deal because they fear unfair behavior in income-sharing on the part of their record label. Using a representative survey of 710 professional musicians in France, we provide empirical evidence that past contractual experience with a record label does indeed reduce the incentives to sign a 360-degree deal. Moreover, the more artists perform on stage, the more reluctant they are towards 360-degree deals.
Keywords: Cheating, Information asymmetry, Contracts, Recorded music industry, 360-degree deals
JEL Classification: D82, L82, O33
Suggested Citation: Suggested Citation