2020 Grammys

Behind the Deal: The State of the Music Industry -- An Interview With Kenny Meiselas

As 2004 came to a close,Billboard sat down with a dozen lawyers to discuss the state of the music industry.

As 2004 came to a close,Billboard sat down with a dozen lawyers to discuss the state of the music industry.

Their work in connection with the industry varies. For example, Attorney General John Ashcroft and Deputy Chief of Staff David Israelite enforce laws against those who steal copyrighted works.

Two federal appellate court judges, Alex Kozinski (Ninth Circuit) and Richard Posner (Seventh Circuit), occasionally review cases involving copyright issues, technology or music.

Other lawyers litigate, advise clients, broker and negotiate deals and watch the trends around the world.

Kenny Meiselas is a deal maker and negotiator. He is a member of Grubman, Indursky & Schindler in New York. The following is an edited version of his interview on Nov. 15, 2004.

With what types of clients do you work?

I represent a diverse number of superstars, and hopefully tomorrow's superstars, including Sean "P Diddy" Combs and his Bad Boy Records label -- since its inception and when he was an A&R employee at Uptown in the early '90s. Mary J. Blige, Jennifer Lopez, Norah Jones, Whitney Houston -- a lot in conjunction with Alan Grubman. Artists, labels, publishing interests, [clothing line] Sean John, Steve Stoute who used to be president of black music at Interscope, was at Sony and is now an independent consultant who works with Reebok and others.

What have you seen in 2004, in your day-to-day business, that was different from previous years?

I think that the real issue in 2004 going into 2005 is creativity in deal making. I think that the labels have responded in very creative ways to [changes in the industry].

Given the economy, given the music economy, given the issues that music has endured over the last X number of years, where they had to come to grips with illegal downloading and the effects that's had on business, I think that now that it has been identified as a problem and now that it's being attacked, I've seen a lot of very, very creative approaches from some of the new leadership at the labels, as well as the entrepreneurs.

For example, the Warner Music Group set up a new division -- new labels, that might be called "incubators" -- that is giving an opportunity to young entrepreneurs.

It's doing two things. One, it's developing the next young entrepreneur, hopefully the next record executive/president 20 years down the road, the person who can find talent, develop it and so forth, by giving the entrepreneur the ability to sign artists and deliver the product to the incubator label on a [pressing and distribution] basis.

The deals are creative. Some of them are straightforward P&D; some have components of marketing and promotion.

Two, it's helping to develop new superstar groups, hopefully, that might not otherwise get signed in a difficult music economy. The young entrepreneurs are close to it; they sign it cost-efficiently. If it hits, then the record company helps you once you deliver the product.

Will these types of deals be good for the industry after years of declining sales?

The solutions to the problems have to be things that work on the level of the record label, the level of the entrepreneur who they're doing business with and on the artist level. If you can have something work on all three levels, it's a success.

So here the labels get the benefit, for a fairly cost-efficient investment. They get the benefit of possibly developing tomorrow's superstar groups and tomorrow's superstar entrepreneur. The groups get opportunities that they otherwise wouldn't get, and the entrepreneurs get an opportunity that they otherwise wouldn't get.

That's something creative and new. There weren't too many of these deals out there previously, and that's a new model.

I'm doing some deals with them now, and I can tell you that the young, unproven entrepreneurs that are getting this opportunity, no one would give them a label deal before. In this system [the majors are] willing to take a shot on it, and the person has an opportunity to hit with an act or a couple of acts and really develop his own label and reputation with the help and support of a major label.

How does this differ from traditional production deals between a production company and a major?

Generally a production deal is a one-off [where the major releases only one artist's record]. It's a royalty deal [paying the production company a royalty close to the percentage that an artist would receive from the major]. If one act is successful, and if the person with the production company gets appropriate credit for developing a new superstar act, hopefully he then could command in the marketplace a major deal.

But that major deal would be a fairly costly deal -- a joint venture, a label deal [where the major doesn't simply take a smaller percentage to press and distribute].

The type of deal Warners offers is a different type of commitment. One, they're not being structured as royalty deals -- they're being structured as P&D deals with certain components to them, [such as marketing and promotion in some cases for additional fees].

Two, they're basically committing across the board instead of offering only a one-off: "We'll put out X number of acts of yours. It's a three-year deal (or whatever the term is), whatever you bring us -- not to be less than X number of acts and not more than Y number of records per year -- we're going to put out." So it's a label-level commitment without the kind of economic obligations of the label deal.

What about other types of deals?

Other labels have also gotten creative, and the entrepreneurs have gotten creative.

Under the old traditional record deal, you get a couple of demos. If the record company likes them, then the record company makes a record and they promote it to radio or whatever.

Now, I've had entrepreneurs go out there into the marketplace and make sure they get their record hot. They actually do the A&R, and these days with Pro-Tools and with home studios being able to develop digital sound on the level of regular recording studios, you have people who can develop projects on their own. Depending upon what their abilities are, they can actually get [the recordings] played on radio. They can have a hit record before they even have a record deal.

So what they do is they basically prove to the record companies: "We can get a hit record." If you already own the album [copyright] and the product, you can structure one of these types of deals with a major record company to distribute the product on a P&D basis, with the [major] providing independent services -- marketing and promotion services -- to help you get it to the next level.

If you already have a hit, record companies will come to you and offer you variations of the P&D deals. If you're really a creative entrepreneur with some skills, you can also shoot a video and get it played on BET or on some of the local channels. If you're getting a response, you're getting heat and everybody wants to do a deal with you, [the majors] will make you a good deal.

Is the basic, traditional record deal between a major and a new artist dead?

There are always artists and always a need for artists. Record companies are being more conservative in their approach to what they sign and who they sign. They're not signing 50 acts and hoping that one hits.

A new-artist deal is a new-artist deal. It hasn't been significantly reduced in scope. If there's heat around an artist, the record companies will go out and, within the context of economic cost-efficiency, make an appropriate deal.

The number of artists being signed is less, but the artist deals are still there. You can't have a music business without artists.

Will broadcast radio still play a role in years to come?

Radio will continue to be part of the music business. Satellite radio will have an emerging role, but I don't think it will destroy radio, in the same way that cable television hasn't destroyed television. It just gives different options to programming.

Will illegal downloading continue to hurt the industry?

There was a time in the early cable days when people would get the box and not pay for it. The cable industry did a few things that are analogous to what the music is doing and can do.

The [cable industry] basically has an enforcement procedure. They got technology to identify who had the illegal box, they had the ability to change how they configured it so the box would be good only for a couple of months, and they would send letters [to those using illegal boxes, fine them and so on].

That in and of itself wouldn't work, but they also made cable more cost-efficient. They brought the cost down. If they have a good product like digital on demand, [TiVo], etc., you've hit every area: enforcement, cost efficiency and a good product.

The music industry is hopefully doing the same thing.


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