Korn, MCR Cut New Deals

As digital music soars and CD sales sag -- down seven percent in the first six months of 2005 -- record labels are desperate to earn profits elsewhere. In a historic two-album deal, EMI Music reportedly paid Korn $15 million for a percentage of the band's touring, merchandise, publishing and licensing revenue. Warner Bros.' deal with My Chemical Romance includes part of their merchandise sales, and Interscope recently signed L.A.'s Pussycat Dolls and subsequently launched a series of ventures with the group, including a Las Vegas nightclub and a cosmetics line.

"Record companies' profit margins have been savaged by piracy and CD burning and other problems," says Gary Stiffelman, one of the lawyers who engineered the Korn deal. "They're looking for a solution that will enable them to continue to be viable enterprises. It's in everyone's best interests to try and find a solution both for the artists and for the companies."

For labels, the new deals mean they can still earn revenue if album sales continue to slide. "It's a hedge for them against a declining CD market," says Stiffelman. For artists, the deals may mean that labels are more committed to their cause, because if the band makes money in any of its ventures, the label makes money too. "For too long, I've felt like I was just working for a recording company," says Jonathan Davis of Korn, who release their first album under the deal, See You on the Other Side, on December 6th. "Now I believe we have real partners and are all working together for a common goal."

So far, few labels have been as bold as EMI, but some have been testing the waters. When Warner Bros. signed My Chemical Romance in 2003, the band had a small but loyal following, and the label added merchandising into the contract to maximize profits and to create a unified marketing plan.

"Everybody knows our business has been in a slump, so this might be a nice little addition to the pot," says Warner Bros. A&R exec Craig Aaronson, who signed My Chemical Romance and engineered a similar merchandising and record contract with emo rockers the Used. This year, My Chemical Romance's gear is second only to Green Day's among the top sellers at Hot Topic, the country's largest retailer of band merchandise.

Interscope's projects with nubile popsters the Pussycat Dolls go a lot further. The label has partnered with the group -- originally a burlesque act at L.A.'s Viper Room -- on a Vegas club that reportedly earns about $1 million a month, as well as tour dates, ring tones, a line of cosmetics with Estee Lauder and, oh, yeah, an album: PCD debuted at Number Five in September. The first single, "Don't Cha," featuring Busta Rhymes, has topped singles charts around the world and spurred plans for another two nightclubs and a reality-TV series.

"I saw it as Rocky Horror, Moulin Rouge and the Spice Girls," says Interscope chairman Jimmy Iovine, who spearheaded the Pussycat Dolls ventures, along with other non-record deals like U2's iPod and Eminem's Shade 45 radio station on Sirius. Of the Dolls deal, he says, "I said, 'Why don't we just partner in this thing and see what we can build out of it?' The next thing we knew, we were firing on all cylinders."

Aside from the financial benefits, some say the changing label-band relationship could re-energize an industry creatively. "I've watched firsthand with the staff," says Matt Serletic, Virgin's chairman and CEO. "You can see the eyes light up as we realize there are no fence posts."