<PAGE>   1
                                                                       REDACTED

                                                                    EXHIBIT 10.1

        The following shall constitute the agreement, between THE RCA RECORDS
LABEL, a unit of BMG ENTERTAINMENT ("RCA") and ARTIST DIRECT LLC ("AD"), dated
as of November 15, 1996, with respect to creation of a record label ("Label") to
be managed by AD and funded by RCA as set forth below. The parties hereto agree
to negotiate reasonably, in good faith a more formal agreement consistent with
the terms of this Agreement (the "Formal Agreement"), provided that until the
Formal Agreement is fully executed, this Agreement shall be deemed binding and
fully effective and shall constitute the entire agreement between the parties.
RCA's good faith reasonableness in negotiating the Formal Agreement shall be
judged by reference to RCA's customary business practices relating to comparable
deals.

I.      PURPOSE:

        A.      The Label will identify, secure, and develop recording artists
                ("Artists").

        B.      Initially, AD's participation in the proceeds from the
                exploitation of master recordings by the Artists will be on a
                royalty basis as set forth in paragraph V below (the "Label
                Deal"). However, if the provisions of paragraph III.C are
                applicable, AD's participation in the proceeds from the
                exploitation of master recordings by the Artists shall be
                converted into a profit participation (the "Profit Deal").

        C.      In either event, the Artists' records will be released under the
                AD label throughout the world. In the United States, the
                Artists' records will be distributed through BMG Distribution,
                it being understood and agreed that RCA will not release the
                Artists' records in the United States through "independent"
                distribution channels without AD's consent. The release of
                records through "independent" distribution channels outside of
                the United States shall be governed by subparagraph VI.B.2
                below.

        D.      An affiliate of AD ("NT Affiliate") will have the right to
                purchase Artist's records from BMG pursuant to its standard
                "price card" to customers in the United States. RCA represents
                and warrants that the "price card" attached hereto as Exhibit
                "A" is in effect as of the date hereof. The NT Affiliate shall
                have the benefit of all appropriate discounts on a
                product-by-product basis offered by BMG to any of its customers
                [for example, discounts based on the purchase of catalog albums
                (i.e., records which have been released for more than one (1)
                year and are not currently on the sales charts, and discounts to
                induce the sale of records by new artists. At such times during
                the term of this Agreement that BMG changes its "price cards" to
                its regular customers in the United States, the prices set forth
                in said Exhibit "A" shall be automatically increased or
                decreased accordingly. Subject to paragraph I.E.3 hereof, the NT
                Affiliate shall have the right to sell such records through
                non-traditional developing distribution channels throughout the
                world (e.g., sales over the Internet and other similar networks
                and sales at tour locations) (collectively, "Non-Traditional
                Channels").




                                       1


<PAGE>   2
        E.      RCA acknowledges that the NT Affiliate will also be in the
                business of entering into agreements with recording artists
                specifically for the purpose of distributing product through
                Non-Traditional Channels ("NT Product"). In this regard, RCA
                recognizes that it is the intention of the NT Affiliate that
                these agreements will pay the artist small or no advances and a
                substantial share of profits and possibly give the artist
                reversion rights in the NT Product.

                1.      If the NT Affiliate acquires the right to distribute the
                        NT Product through traditional channels of distribution,
                        it shall first offer such rights to RCA in writing. If,
                        within fifteen (15) business days after RCA's receipt of
                        such offer, RCA does not make a written offer to the NT
                        Affiliate for such rights, then the NT Affiliate shall
                        have the right to license to any third party such
                        rights. Alternatively, if RCA makes an offer to the NT
                        Affiliate as aforesaid, but the parties are unable to
                        consummate a deal, then the NT Affiliate shall have the
                        right to license to any third party such rights,
                        provided the economic terms offered by such third party
                        for comparable rights are no less favorable to AD than
                        the economic terms last offered by AD to RCA. If the
                        economic terms of the third party's offer for comparable
                        rights are less favorable to AD than the economic terms
                        contained in AD's last offer to RCA with respect to such
                        rights, then the NT Affiliate shall notify RCA of such
                        terms, and RCA shall have the right to match the third
                        party's offer within ten (10) business days after such
                        notice.

                2.      If the NT Affiliate at any time during the Term (as
                        defined below) desires to enter into an agreement
                        ("Financing Agreement") with a "strategic partner" or
                        other person or entity to acquire financing for the NT
                        Affiliate, the NT Affiliate shall first negotiate with
                        RCA. If the parties are unable to consummate a Financing
                        Agreement within thirty (30) days, then the NT Affiliate
                        will have the right to enter into a Financing Agreement
                        with a third party. RCA will have the right to match the
                        terms of that agreement if they are equal to or less
                        favorable to the NT Affiliate than the terms of AD's
                        last offer. Notwithstanding the foregoing, if the
                        distribution of audio-only records through
                        Non-Traditional Channels at the time is a meaningful
                        alternative to distribution through traditional
                        distribution channels, RCA shall have the right to match
                        any third-party offer.

                3.      Prior to entering into any agreement with any other
                        manufacturer or distributor, the NT Affiliate shall
                        negotiate in good faith with BMG, an agreement for BMG
                        to manufacture and/or fulfill orders for finished goods
                        of the NT Product for Non-Traditional Distribution in
                        audio-only configurations ("Fulfillment Agreement").
                        (The parties understand and agree that such finished
                        goods may include product by recording artists in
                        addition to the Artists signed to the Label.) If the
                        parties are unable to consummate a Fulfillment Agreement
                        within thirty (30) days, then the NT Affiliate will have
                        the right to enter into a Fulfillment Agreement with a
                        third party. BMG will have the right to match the terms
                        of that agreement if they are equal to or less favorable
                        to the NT Affiliate than the terms of AD's last offer.
                        If AD enters into a Fulfillment Agreement with a third
                        party, RCA's rights under this paragraph I.E.3. shall be
                        reinstated upon the expiration of such agreement.

II.     TERRITORY: The world.

III.    TERM AND PROFIT SHARING CONVERSION:

        A.      Subject to paragraph III.C below, the term of the Agreement will
                be three (3) years commencing upon January 1, 1997. However, if
                as set forth in paragraph III.C below, the Label Deal is
                converted to the Profit Deal (the "Conversion"), then the term
                of Profit Deal shall be equal to six (6) years minus the term of
                the Label Deal. All references herein to the "Term" shall mean
                the term of the Label Deal and, if applicable, the term of the
                Profit Deal.

        B.      Subject to paragraph III.C below, RCA will have the option to
                terminate the Term as of the end of the third year of the Term
                ("Early Termination Right"). In which event:

                1.      If the Label has had (i) less than $20,000,000 in net
                        billings during the term of the Label Deal, or (ii) less
                        than $5,000,000 in net billings in the 3rd year of the
                        Label Deal, the assets of the Label will not be divided
                        between RCA and AD.

                2.      If the Label has had (i) more than $25,000,000 in net
                        billings during the Label Term, and (ii) more than
                        $8,000,000 in net billings during the 3rd year of the
                        term of the Label Deal, the assets of the Label will be
                        divided between RCA and AD, with AD having the first
                        pick of the Artists.

                3.      If the terms of paragraph III.B.1 and III.B.2 are not
                        applicable, the assets of the Label will be divided
                        between RCA and AD, with RCA having the first pick of
                        the Artists.


                                       2


<PAGE>   3
                4.      The party who has the first pick can elect to transfer
                        such first pick to other party. The party who has the
                        second pick pursuant to either paragraphs III.B.2 or
                        III.B.3 above will pick the next 2 Artists; thereafter,
                        the parties will alternate by picking 1 Artist until all
                        of the Artists have been divided.

                5.      Rights and Royalty Overrides After the Exercise of the
                        Early Termination Right:

                        (a)     RCA shall retain the ownership to all product
                                ("Pre-Conversion Product") released by RCA prior
                                to the date (the "Termination Date") of RCA's
                                exercise of the Early Termination Right.

                        (b)     With respect to all Artists kept by RCA under
                                any of the above scenarios ("RCA Retained
                                Artists"), RCA shall have the unilateral right
                                to exercise all creative decisions thereafter,
                                subject to good faith consultation with Marc or
                                Don provided either of them are available. Prior
                                to the execution of the Formal Agreement, the
                                parties agree to negotiate in good faith a
                                procedure which would allow either party to
                                pick-up an Artist after the Label Term (without
                                a royalty override or other participation) if
                                the other party should decide thereafter not to
                                exercise an option under an Artist Agreement.

                        (c)     RCA shall continue to advance the Artist
                                advances and recording funds with respect to
                                records to be recorded by the Artist after the
                                Termination Date.

                        (d)     RCA will continue to account to AD on a royalty
                                basis (the "AD Royalty Participation") for all
                                records subject to an Artist Agreement in
                                perpetuity. With respect to product recorded by
                                a RCA Retained Artist prior to the Termination
                                Date and all product recorded by a RCA Retained
                                Artist as of the date a RCA Retained Artist
                                delivers under the applicable Artist Agreement
                                the second album recorded after the Termination
                                Date, the AD Royalty Participation shall be the
                                amount (the "Label Royalty Spread") by which the
                                royalty payable to AD pursuant to paragraph V
                                hereof exceeds the "all-in "royalties payable to
                                the applicable RCA Retained Artist (including
                                producer royalties) ("Artist Royalties"). With
                                respect to product recorded after the delivery
                                of such second album, the AD Royalty
                                Participation shall be the Label Royalty Spread
                                less 50% of any increases in the Artist
                                Royalties agreed to by RCA after the Termination
                                Date. Notwithstanding the foregoing, in no event
                                shall the Ad


                                       3


<PAGE>   4
                                Royalty Participation be less than [***] of the
                                SRLP with respect to 100% (less free goods and
                                discounts) of top-line net sales of albums
                                through normal retail channels in the United
                                States ("USNRC Album Sales"). The AD Royalty
                                Participation shall be calculated, reduced and
                                paid in accordance with the terms of the Formal
                                Agreement with respect to USNRC Album Sales and
                                with respect to all other exploitations of the
                                applicable master recordings. The payment of the
                                AD Royalty Participation shall continue to be
                                subject to the recoupment provisions contained
                                in paragraph IV.G hereof.

                        (e)     Notwithstanding RCA's exercise of the Early
                                Termination Right, AD will continue to own the
                                name of the Label; it being understood and
                                agreed, however, that all prior and future
                                product under an Artist Agreement shall be
                                released under the Label's name.

                        (f)     With respect to each Artist that is picked by
                                AD, RCA shall be entitled to an override royalty
                                ("RCA Override"). With respect to 100% (less
                                free goods and discounts) of USNRC Album Sales
                                sold by AD on a "p&d" and/or profit sharing
                                basis, the RCA Override shall be the lesser of
                                (i) [***] of the SRLP, or (ii) the amount by
                                which [***]* exceeds the royalty rate payable to
                                the Artist, the applicable record producers and
                                all other third party royalty participants. In
                                such event, the RCA Override with respect to
                                USNRC Album Sales and with respect to all other
                                exploitations of the applicable master
                                recordings shall be calculated, reduced and paid
                                in accordance with the applicable Artist
                                Agreement. With respect to sales of records
                                through a third party distribution agreement
                                where AD is paid a royalty and does not pay or
                                is charged with the manufacturing costs of the
                                records, the RCA Override shall be equal to
                                [***] of the difference between the royalty
                                rates payable to AD under such agreement and the
                                "all-in" royalties payable to the Artists,
                                producers and other third party royalty
                                participants. The RCA Override shall only be
                                payable to RCA with respect to master recordings
                                recorded by each Artist prior to the release of
                                the second newly-recorded album after the
                                exercise of the Early Termination Right
                                (including those master recordings contained on
                                such second album), but shall not be payable
                                with respect to product distributed by RCA or
                                any affiliate controlled by RCA. The RCA
                                Override shall be payable in respect of each


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       4


<PAGE>   5
                                applicable LP prospectively after recoupment of
                                the recording costs and artist advances paid in
                                connection with the LP concerned. Such
                                recoupment will be calculated at a royalty rate
                                of [***] of the SRLP with respect to USNRC Album
                                Sales, whether AD is paid on a royalty basis or
                                a profit sharing (or "p&d") basis.

        C.      The Label Deal will automatically convert to a Profit Deal at
                the end of the first 3 years, unless RCA exercises the Early
                Termination Right. However, if prior to the end of the first 3
                years, the aggregate net billings of the Label exceed either (i)
                [***] in Qualified Sales, or (ii) [***] in Aggregate Sales, the
                Label Deal will automatically convert to the Profit Deal at the
                end of the first semi-annual accounting period during which such
                sales are achieved ("Conversion Date"). For purposes of the
                above calculation, as used herein:

                1.      the term "Qualified Sales" shall mean all net sales
                        other than (A) net billings over [***] from the
                        master recordings contained on any album by an Artist
                        signed to a exclusive term recording agreement, and (B)
                        aggregate net billings from the master recordings
                        contained on any one-off albums (e.g., soundtrack
                        albums, albums developed by the NT Affiliate, etc.) in
                        excess of [***];

                2.      the term "Aggregate Sales" shall mean all net billings
                        other than aggregate net billings from the master
                        recordings contained on all one-off albums in excess of
                        [***]; and

                3.      the term "net billings" for purposes of determining
                        Qualified Sales and Aggregate Sales shall mean:

                        (a)     in the United States, (A) the gross wholesale
                                receipts to BMG from its customers on all
                                records shipped less actual returns and a
                                reasonable reserve for future returns, but
                                without any other deduction (e.g., any
                                distribution fees or charges or manufacturing
                                costs), (B) RCA's receipts the licensing of
                                master recordings by the Artists, and (C) monies
                                paid to BMG Distribution by the NT Affiliate;
                                and

                        (b)     on sales outside of the United States, 100% of
                                the all-in inter-company "matrix" (as defined
                                in BMG's Inter-Company License Agreement, such
                                definition being attached hereto as Exhibit
                                "B") (the "Matrix") paid or credited to RCA by
                                its foreign affiliates and all monies paid or
                                credited by its non-affiliated licensees.
                                In determining the amount of foreign
                                income under this subparagraph II.C.3.b. RCA
                                shall include its good-faith estimate of
                                so-called "pipeline" royalties in the EEC,
                                Australia, and Japan.

IV.     LABEL FUNDING AND RECOUPMENT UNDER THE LABEL DEAL:

        A.      Signing Payment: [***], payable on January 2, 1997.

        B.      Overhead Advances: [***] per year, [***] of which will be
                payable at the commencement of each quarter-annual period
                (the first installment shall be payable on January 1, 1997).

        C.      Sales Bonus Overhead Payments: Promptly after the following
                events, RCA will pay AD:

                1.      a sales bonus of [***] for the first album which sells
                        more than [***] USNRC units, of which [***] shall be
                        non-recoupable;

                2.      a sales bonus of [***] for the first album which sells
                        more than [***] USNRC units, of which [***] shall be
                        non-recoupable;

                3.      a sales bonus of [***] for the first album which sells
                        more than [***] USNRC units, of which [***] shall be
                        non-recoupable, and


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       5


<PAGE>   6
                4.      a sales bonus of [***] for the first album which sells
                        more than [***] USNRC units, of which [***] shall be
                        non-recoupable.

                For the avoidance of doubt, each bonus payment will be a
                one-time only payment, which shall be paid in respect of the
                first album to achieve the applicable threshold during the Label
                Term.

        D.      A&R:

                1.      AD shall sign at least 3 Artists during each year of the
                        Label Term. If at the end of any year of the Label Term,
                        AD has signed less than 3 Artists in such year, RCA
                        shall have the right, by written notice to AD, to
                        suspend its obligations to AD (other than the payment of
                        Artist and producer advances and royalties) and the term
                        of the Term until such artists are signed. If any such
                        suspension continues for 12 months, RCA shall have the
                        right, within 30 days thereafter, to terminate the Term,
                        and the assets of the Label will not be divided between
                        RCA and AD.

                2.      If at the end of the second year of the Term, less than
                        [***] albums have been delivered by the Artists, RCA
                        shall have the right, by written notice to AD, to
                        suspend its obligations to AD (other than the payment of
                        Artist and producer advances and royalties) and the Term
                        until such albums are delivered. Further, if at the end
                        of the third year of the Term and each year thereafter,
                        less than [***] albums have been delivered by the
                        Artists in such year, RCA shall have the right, by
                        written notice to AD, to suspend its obligations to AD
                        (other than the payment of Artist and producer advances
                        and royalties) and the Term. If any such suspension
                        continues for 6 months, RCA shall have the right within
                        30 days thereafter to terminate the Term, and the assets
                        of the Label will not be divided between RCA and AD.

                3.      Initial Product Commitment: Subject to paragraph IV.D.3
                        hereof, RCA will make available to AD [***] ("Maximum
                        A&R Funding") in each year of the Label Deal to be spent
                        on Artist advances and recording costs (including
                        producer advances) for the initial product commitment
                        for each Artist. As used herein, the "initial product
                        commitment" means all product intended to be recorded
                        under an Artist Agreement prior to the exercise of an
                        option under the applicable Artist Agreement. The Artist
                        advances and recording funds for the initial product
                        commitment will be subject to the mutual approval of AD
                        and RCA, provided that if RCA does not


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       6


<PAGE>   7
                        consent to the Artist advances and/or recording funds
                        for an initial product commitment, neither RCA nor any
                        company controlled by RCA shall sign the Artist directly
                        (unless RCA has knowledge of such Artist independently
                        from AD), and AD may elect to either take the Artist
                        (each a "Rejected Artist") to another record company
                        (subject to subparagraph 3(d) below) or, notwithstanding
                        RCA's non-consent, AD may enter into the Artist
                        Agreement with the applicable Artists ("AD Selected
                        Artists") so long as:

                        (a)     the Artist advances and recording fund for a 1
                                album firm deal do not exceed [***] for the
                                first album, and the Artist advances and
                                recording funds for a 2 album firm deal do not
                                exceed an aggregate of [***] for the first 2
                                albums:

                        (b)     the aggregate of all Artist advances and
                                recording funds for the initial product
                                commitment for all of the AD Selected Artists in
                                any 1 year of the Term ("Annual A&R Commitment")
                                do not exceed [***];

                        (c)     with respect to AD Selected Artists after the
                                first one in each of the second and third years
                                of the Label Term, the signing of an AD Selected
                                Artist in the second or third year of the Label
                                Term would not cause AD to exceed the "Aggregate
                                Maximum." The Aggregate Maximum would occur in
                                the second or subsequent year of the Label Term
                                whenever the "Outstanding Amount" equals or is
                                more than [***] in the applicable year of the
                                Term. As used herein, the term "Outstanding
                                Amount" shall mean the amount, if any, by which
                                (i) the aggregate of unrecouped and expensed (in
                                accordance with GAAP) Artist advances and
                                recording costs for all AD Selected Artists
                                previously signed to the Label (but excluding
                                any other charges recoupable from AD or the
                                Selected Artists) exceeds (ii) all royalties
                                therefore credited to accounts of all of the AD
                                Selected Artists previously signed to the Label
                                and all royalties credited to AD's account with
                                respect to AD Selected Artists previously
                                signed to the Label. For purposes of this
                                calculation; (i) AD may require RCA, up to a
                                maximum of two (2) times in any calendar year of
                                the Term, to include in its calculation of
                                royalties a good-faith estimate of so-called
                                "pipeline" royalties in the EEC, Australia, and
                                Japan; and (ii) all royalties credited to AD's
                                account with respect to the AD Selected Artists
                                shall first be applied to recoup such artists'
                                advances and recording costs, prior to the
                                recoupment of other recoupable charges; and


                        (d)     Notwithstanding anything to the contrary set
                                forth herein, AD shall not have the right to
                                sign more than [***] Rejected Artists to another
                                record company during any Contract Year of the
                                Term; provided, however, that AD shall not sign
                                any Artist to another record company on terms
                                less favorable than the terms last offered to
                                RCA by AD unless AD first offers to enter into
                                an agreement on the same terms.


                4.      Unused A&R Funds: If AD spends less than the Maximum A&R
                        Funding for initial product commitment in any one year,
                        then AD can use the lesser of [***] of the difference or
                        [***] to increase the Maximum A&R Funding for the
                        next year of the Label Deal.

                5.      Optional Product: RCA will advance all Artist advances
                        and recording funds payable with respect to all product
                        after the initial product commitment, provided that the
                        Label will not exercise an option under an Artist
                        Agreement without RCA's consent, not to be


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       7


<PAGE>   8
                        unreasonably withheld. Prior to the execution of the
                        Formal Agreement, the parties agree to negotiate in good
                        faith a procedure which would allow AD to pick-up an
                        Artist (without a royalty override or other
                        participation to RCA) if RCA should decide not to
                        exercise an option under an Artist Agreement.

                6.      Creative Control: AD will meaningfully and fully consult
                        with RCA on all creative matters. With respect to each
                        album, AD will regularly furnish copies of recordings
                        made during the recording process so that RCA may take
                        advantage of its consultation right, and so that RCA can
                        begin to make plans regarding the marketing of the album
                        concerned.

        E.      RCA's Marketing and Promotion: RCA will commit to spend at least
                [***] to market each album released in the United States. Those
                amounts will be spent in accordance with RCA's marketing plan.
                RCA will fully consult with AD regarding each marketing plan.

        F.      AD's Marketing and Promotion:

                1.      In addition to RCA's committed marketing expenditures,
                        RCA will spend at least [***] as directed by AD for each
                        album released in the United States. AD will allocate
                        these amounts for traditional record marketing purposes
                        (e.g., independent promotion and marketing, tour
                        support, etc.) in the United States. AD will have the
                        right to use the lesser of [***] of any unused portion
                        of this $100,000 marketing fund or [***] per album
                        for the marketing and promotion of other albums in full
                        consultation with RCA.

                2.      In addition, during the Label Term, RCA will make
                        available to AD a minimum of [***] in the aggregate for
                        use in non-traditional marketing in full consultation
                        with RCA.

        G.      Recoupment:

                1.      Artist Advances. Artist advances including [***] of
                        recording costs, [***] of video costs up to [***] in
                        video costs for a single video and [***] of video costs
                        for a single video in excess of [***] , [***] of
                        independent promotion marketing costs, and [***] of tour
                        support will be recoupable by RCA from [***] of the
                        royalties set forth in paragraph V below with respect to
                        the applicable Artist. There will be no
                        cross-collateralization between Artists' accounts.

                2.      Signing Advance, Overhead Advances, and Sales Bonus
                        Overhead Payments. [***] of the Signing Advance and the
                        Overhead Advances and the recoupable portion of the
                        Sales Bonus Overhead Payments (as set forth in paragraph
                        IV.C hereof) shall be


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       8


<PAGE>   9
                        recoupable from the aggregate of [***] of the royalties
                        set forth in paragraph V below from all Artists from the
                        first record sold.

V.      ALL-IN ROYALTY RATES UNDER THE LABEL DEAL:

        A.      RCA will pay AD a royalty of [***] (the "Base Rate") of the SRLP
                with respect to [***] of USNRC Album Sales. The Base Rate will
                escalate prospectively to [***] with respect to any album by an
                Artist which sells more than [***] USNRC units. If any album by
                an Artist sells more than [***] USNRC units, the Base Rate for
                all subsequently released albums by that Artist will be [***].
                RCA will pay AD a royalty of [***] of the SRLP with respect to
                [***] of top-line singles sold through normal retail channels in
                the United States.

        B.      The royalty for compact discs will be [***] of the otherwise
                applicable royalty rate. However, if an album in all
                configurations has USNRC Album Sales in excess of [***], then
                the royalty rate for units of that album sold through USNRC in
                excess of [***] will be [***] of the otherwise applicable rate,
                and the rate for all compact discs of an album by the applicable
                Artist released thereafter shall be [***] of the otherwise
                applicable rate.

        C.      If an Artist's record is released on another type of audiophile
                record, then, until such time as particular type of audiophile
                record equals [***] of the aggregate of industry-wide sales of
                all other configurations, the royalty rate for that record and
                all other records by that Artist released in that particular
                audiophile configuration during such period will be [***] of the
                otherwise applicable royalty rate. Thereafter, the parties will
                negotiate a royalty rate for the applicable audiophile record.

        D.      The foregoing royalty rates assume a standard free goods
                allowance of [***] for albums sold in the United States in the
                cassette configuration, [***] for albums sold in the United
                States in the compact disc configuration and [***] for singles,
                and standard packaging deductions of [***] for vinyl, [***] for
                analog tape, and [***] for compact discs.

        E.      On sales through normal trade channels outside the United
                States, RCA will pay AD a royalty calculated as a percentage of
                the otherwise applicable rate as follows: Canada - [***]; the UK
                (including Eire) and Japan - [***]; the rest of the EEC
                Countries, Switzerland, Australia and New Zealand - [***]; and
                R.O.W. - [***].

        F.      The other royalty terms will be subject to negotiation prior to
                execution of the Formal Agreement.


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       9


<PAGE>   10
VI.     VARIOUS PROVISIONS APPLICABLE TO BOTH THE LABEL DEAL AND THE PROFIT
        DEAL:

        A.      Artist Agreements: The terms of the Artist Agreements will be
                mutually approved as to total product, royalty rates, etc.
                However, RCA will pre-approve certain terms so that AD will not
                have to obtain RCA's approval as to the pre-approved terms. With
                regard to mechanicals, AD will use its best efforts to secure a
                [***] controlled composition rate in its Artist Agreements with
                a [***] times cap on albums ([***] times cap on CDs) and subject
                to an allowance for [***] covers per album at the full minimum
                statutory rate.

        B.      Release Commitment:

                1.      RCA will be obligated to release each album delivered by
                        an Artist in satisfaction of its recording commitment in
                        the United States.

                2.      Each time an Artist delivers an album, AD shall provide
                        a pre-release copy of the album to BMG. BMG shall notify
                        AD within 60 days thereafter whether it will release
                        such album. If BMG notifies AD that it will release the
                        album, BMG will release the album in Canada, the EEC,
                        Japan, and Australia ( the "Release Territories") within
                        120 days after the initial release of such album in the
                        United States. Notwithstanding the foregoing, if the
                        album concerned is submitted to BMG less than 60 days
                        prior to its initial release date in the United States,
                        such 120-day period will be extended by the number of
                        days by which 60 days exceeds the number of days the
                        album is submitted prior to the initial release date in
                        the United States. If BMG does not release the album in
                        any Release Territory within such time period, AD shall
                        have the right to enter into a licensing agreement in
                        such Territory, provided that, without the approval of
                        RCA, (i) the foreign licensee shall not have the right
                        to release more than the applicable album (such licensee
                        shall also have the right to release singles derived
                        from such album), and (ii) the foreign licensee shall
                        not be affiliated with [***] (or any company affiliated
                        with [***] or [***]. If BMG notifies AD that it will not
                        release the album, AD shall have the right to cause a
                        licensing agreement to be entered into with respect to
                        territories outside of the United States on the terms
                        and conditions set forth above, provided that the
                        parties will negotiate at the time whether such license
                        will be granted by BMG or directly by AD. Under the
                        Label Deal, each foreign licensee not controlled by RCA
                        shall pay [***] of


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       10


<PAGE>   11
                        all monies to RCA. After paying the applicable Artist
                        royalty, RCA will take [***] of the proceeds for its own
                        account and will apply the remaining [***] of the
                        proceeds to AD's account. Notwithstanding the foregoing,
                        at AD's election, up to [***] of such proceeds may be
                        used for international tour support. During the Profit
                        Deal, the revenues from AD's foreign licensees shall be
                        deemed income in computing net profits.

        C.      Finished Goods Purchases: AD and the NT affiliate will be
                entitled to purchase finished goods from BMG (at prices to be
                mutually agreed upon prior to the execution of the Label Deal)
                for the NT Affiliate's exploitation and distribution over the
                internet or other networks, at tour locations and other
                non-traditional distribution channels.

        D.      Record Clubs: No record will be sold through a record club in
                the United States earlier than 9 months after its initial
                release.

VII.    DON'S AND MARC'S ENGAGEMENT:

        A.      Exclusivity: During the Term, neither Don, nor Marc, nor AD nor
                any other company owned by either or both of them will have the
                right to enter into any agreement with any other company which
                involves the sale of records through traditional record
                distribution channels. (If RCA becomes a "strategic partner" in
                the NT Affiliate, then the exclusivity shall include all
                exploitations of master recordings.) Don and Marc will be free
                to pursue any other business, including, without limitation, a
                talent agency, music publishing, internet website, and the
                production, acquisition and/or exploitation of goods and
                services, including audio and audiovisual product, over the
                internet or other networks and at tour locations, and
                merchandising; provided such activities do not interfere with
                their material obligations hereunder.

        B.      Talent Agents: Neither Don nor Marc shall be required under the
                Label Deal or the Profit Deal to breach their fiduciary or other
                legal obligations to any of their talent agency clients.

VIII.   PROFIT DEAL:

        A.      Management: Promptly after the Conversion Date, AD and RCA shall
                negotiate in good faith an operating agreement, which shall
                govern the operation of the New Entity. This agreement will
                provide, among other matters, that the business of the New
                Entity shall be generally run by a Board of Managers comprised
                of Don, Marc, and 2 people designated by RCA, one of whom shall
                always be a senior executive of RCA. However, the day-to-day
                management decisions of the New Entity shall be made by Don and
                Marc. In other words, AD shall have sole and absolute discretion
                to run the day-to-day operation of the business of the New
                Entity through Marc and Don, subject to the New Entity's
                business plan which shall be reasonably agreed upon annually by
                the Board of Managers.

        B.      Ownership and Net Profits: AD and RCA will each own 50% of the
                New Entity. AD will be entitled to 50% of the net profits under
                the Profit Deal, which will be paid within 90 days after each
                year of the Profit Deal. Except for possible minimum annual
                distributions to cover each party's tax


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       11


<PAGE>   12
                obligations with respect to income subject to the Profit Deal,
                no net profits will be distributed until RCA has been reimbursed
                for all Chargeable Expenses. Net Profits would mean all revenues
                to the Label calculated in accordance with GAAP, as consistently
                applied to the financial statements of BMG less Chargeable
                Expenses. Revenues from sales of records outside the United
                States would mean the Matrix paid or credited to RCA by its
                foreign affiliates and all monies paid or credited by its
                non-affiliated licensees. As used herein, "Chargeable Expenses"
                means the Working Capital Advance described below, all third
                party, out-of-pocket manufacturing, marketing, promotional and
                exploitation costs incurred by RCA in connection with records
                initially released after the Conversion Date and certain
                pre-Conversion Date costs as set forth in paragraph VIII.E.2
                below.

        C.      Conversion Payment: If the Label Deal converts to a Profit Deal
                as a result of AD achieving the automatic conversion target set
                forth in paragraph III.C above (the "Automatic Conversion"), RCA
                will pay, upon the Conversion Date, a [***] profit advance to
                AD. If the Label Deal converts to a Profit Deal as a result of
                RCA exercising its option to extend the Term beyond the initial
                3 years (the "Optional Conversion"), RCA will pay, upon the
                Conversion Date, a [***] profit advance to AD.

        D.      Working Capital Advance: Operating funds would be made available
                by RCA pursuant to mutually approved annual plans on a
                non-interest bearing basis. If AD and RCA are unable to agree
                upon an annual business plan for any year, the working capital
                advance provided for such non-plan year will be an amount equal
                to the following amounts based on the assumption that the New
                Entity will sign 5 new Artist during such year: (i) A&R funding
                equal to [***] for the initial product commitment; (ii) a
                minimum of [***] per album release in marketing and promotion
                funds, and (iii) overhead payments equal to [***] in the event
                of an Automatic Conversion or [***] in the event of an Optional
                Conversion. RCA agrees that all or any portion of the overhead
                payments may, at AD's election, be paid to Don and Marc as
                salary, perquisites and benefits other distributions.

        E.      Transition Issues:

                1.      With respect to all sales and other exploitations of
                        Pre-Conversion Product prior to the Conversation Date,
                        RCA will account to AD on a royalty basis.


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       12


<PAGE>   13
                2.      All sales and other exploitations after the Conversions
                        Date will be subject to the Profit Deal; subject to the
                        following:

                        (a)     RCA shall license to the New Entity all rights
                                to exploit and otherwise use the Pre-Conversion
                                Product throughout the world during the term of
                                the Profit Deal (i.e., such license shall end at
                                the end of the Term). In consideration for such
                                license, the New Entity shall pay RCA a royalty.
                                Such royalty shall be at the rate of [***] of
                                the SRLP with respect to [***] (less free goods
                                and discounts) of USNRC Album Sales. Such
                                royalty shall be calculated, reduced and paid in
                                accordance with the terms of the Formal
                                Agreement with respect to USNRC Album Sales and
                                with respect to all other exploitations of the
                                applicable master recordings.

                        (b)     The New Entity shall pay RCA all artist
                                royalties payable for all sales and
                                exploitations of the Pre-Conversion Product by
                                the New Entity until such time as all advances
                                and other recoupable charges incurred by RCA
                                prior to the Conversion Date have been recouped.
                                Thereafter and during the rest of the Term, the
                                Label shall account to the applicable Artists
                                with respect to such artist royalties. The New
                                Entity will also pay RCA for: (i) all
                                Pre-Conversion inventory; and (ii) all
                                Pre-Conversion marketing expenses incurred in
                                connection with product to be initially released
                                after the Conversion Date.

                3.      Except as set forth in paragraph VIII.E.2 above, no
                        other expenditures by RCA under the Label Deal will be
                        deemed Chargeable Expenses in computing net profits or
                        will be used to reduce the Working Capital Advance.

        F.      Domestic Distribution: Net profits shall be calculated [***].
                RCA agrees that, prior to the execution of this Agreement, it
                has supplied AD with a true and correct written statement of
                calculation of such [***].

        G.      Domestic Manufacturing: Net profits shall be calculated using
                the applicable manufacturing and packaging prices paid by RCA
                for its own product as set forth in Exhibit "C" hereof.

        H.      Foreign Revenues: The revenue from foreign sales by an affiliate
                of RCA will be calculated using the Matrix paid to RCA by its
                foreign affiliates for


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       13


<PAGE>   14
                RCA's other product and all monies paid by licensees of RCA and
                of the New Entity.

        I.      Additional Services: RCA shall provide the New Entity with
                promotion, marketing, creative services, including video, art,
                artist relations, publicity, promotional merchandise, sales,
                distribution, general financial, royalty accounting and
                administrative services with respect to the New Entity's
                product. In consideration of the foregoing services, RCA shall
                be entitled to the following fees: (i) [***] of RCA's wholesale
                receipts in the United States paid or credited to the New Entity
                in the applicable year until such fees equal [***], (ii) [***]
                of such receipts between of in the applicable year until such
                fees equal [***], and (iii) [***] of such receipts until such
                fees equal [***] in the applicable year. Notwithstanding the
                foregoing, the fees payable in any one(1) year shall not be in
                excess of [***]. Further, if RCA does not perform all of the
                foregoing services, the parties shall negotiate in good faith a
                reduction in the maximum fees payable in each year, provided
                that RCA shall continue to be paid the fees as set forth herein
                during the period of such negotiations.

        J.      Buy-Out:

                1.      If RCA does not exercise its Early Termination Right, AD
                        shall have the right, at any time after the date 6
                        months prior to the end of the 6th year of the Term, to
                        offer ("Buy-Out Offer") to sell AD's interest in the New
                        Entity to RCA as of the last day of the Term for a
                        purchase price equal to the Buy-Out Offer price. If AD
                        has not made a Buy-Out Offer as of the end of the Term,
                        RCA shall have the right thereafter to require AD to
                        make a Buy-Out Offer by notifying AD to such effect. If
                        AD does not make a Buy-Out Offer within 60 days after
                        such notice, then RCA shall have the right to suspend
                        its obligation to make any further payments to AD until
                        AD makes a Buy-Out Offer.

                2.      RCA shall either accept the Buy-Out Offer or offer to
                        sell its interest in the New Entity to AD for the
                        Buy-Out Offer price, within 30 days after RCA's receipt
                        of the Buy-Out Offer.

                3.      If, on the one hand, RCA accepts the Buy-Out Offer, then
                        RCA shall promptly purchase AD's interest in the New
                        Entity for the Buy-Out Offer price. If, on the other
                        hand, RCA offers to sell its interest in the New Entity
                        to AD, then AD shall notify RCA, within 30 days
                        thereafter, whether AD is electing to purchase RCA's
                        interest in the New Entity at the Buy-Out Offer or is
                        rejecting RCA's offer to sell.


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       14


<PAGE>   15
                4.      In the event AD rejects RCA's offer to sell RCA's
                        interest in the New Entity, AD shall be deemed to have
                        offered to sell to RCA AD's interest in the New Entity
                        for [***] of the original Buy-Out Offer price. RCA shall
                        either accept the [***] Buy-Out Offer or offer to sell
                        its interest in the New Entity to AD for the [***]
                        Buy-Out Offer or offer to sell its interest in the New
                        Entity to AD for the [***] Buy-Out Offer price, within
                        30 days after such notice. If, on the one hand, RCA
                        accepts the [***] Buy-Out Offer, then RCA shall promptly
                        purchase AD's interest in the New Entity for the [***]
                        Buy-Out Offer price. If, on the other hand, RCA offers
                        to sell its interest in the New Entity to AD, then AD
                        shall notify RCA, within 30 days thereafter, whether AD
                        is electing to purchase RCA's interest in the New Entity
                        at the [***] Buy-Out Offer or is rejecting RCA's offer
                        to sell.

                5.      The foregoing procedure will continue with reductions
                        equal to [***] of the initial Buy-Out Offer price at
                        each level until one of the parties agrees to purchase
                        the other party's interest in the New Entity.

                6.      For the avoidance of doubt, the Pre-Conversion Product
                        shall not be deemed assets of the New Entity and,
                        accordingly, shall not be subject to the foregoing
                        provisions of this paragraph VIII.J.

                7.      It is understood and agreed that if AD purchases RCA's
                        interest in the New Entity, [***] of the New Entity's
                        net losses shall be added to AD's purchase price.

        K.      Consultants: If RCA purchases AD's interest in the New Entity,
                Marc and Don, at RCA's election at the time of RCA's purchase
                (provided that RCA will not be able to engage one without the
                other), will act as consultants to the Label for one (1) year.
                During this period, Marc and Don will not be involved in the
                record industry (insofar as traditional record distribution is
                concerned) with anyone other than RCA. The salary paid to Marc
                and Don during this consultancy will be the same amount as the
                salary paid to them during the last year of the Profit Deal. The
                other terms related to this consultancy shall be negotiated by
                the parties in good faith prior to the execution of the Formal
                Agreement.

IX.     ANCILLARY RIGHTS: In the event that AD or the Label (or any other entity
        owned or controlled, directly or indirectly, by the Marc and Don)
        obtains music publishing or merchandising rights with respect to any
        artist, RCA or its affiliates will be given the first opportunity to
        exploit such rights on reasonable business terms. "Reasonableness" in
        the preceding sentence will be judged by references


--------
          [***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.


                                       15


<PAGE>   16
        to ordinary course, arms-length negotiations conducted in good faith. If
        the parties are unable to reach agreement with respect to ancillary
        rights in any case, AD and its affiliates will not do a deal with any
        third party on terms less favorable than the terms offered to RCA or its
        affiliate without first offering such terms to RCA or its affiliate.

X.      KEY MAN: During the Term, both Don and Marc will be deemed to be "key
        men." Accordingly, if either of them cease to perform or becomes unable
        to perform their respective obligations during the Term, RCA will have
        the option to terminate the Term.

XI.     LEGAL FEES: RCA will not be responsible for any legal or consultancy
        fees incurred in connection with the negotiation of this transaction.

XII.    WARRANTIES: Each of the parties hereto represents and warrants that: (i)
        it has the full right and authority to enter into and fully perform this
        agreement; (ii) entering into this agreement will not violate or
        infringe upon the rights of any third party: and (iii) it is under no
        disability, restriction, or prohibition with respect to its rights to
        enter into, and fulfill, all of its obligations under this agreement.

XIII.   MISCELLANEOUS: All reference to "this Agreement," "hereof," "herein,"
        "hereunder," and words of similar connotation include all exhibits
        attached hereto, unless specified otherwise. This Agreement cannot be
        canceled, modified, amended or waived, in part or in full, in any manner
        except by an instrument in writing signed by the party to be charged. No
        waiver by any party to this Agreement, whether expressed or implied, of
        any provision of this Agreement or default hereunder shall affect such
        party's right to thereafter enforce such provision or to exercise the
        right or remedy set forth in this Agreement in the event of any other
        default, whether or not similar. Whenever examples are used in this
        Agreement with the words "including," "for example," "e.g.," "such as,"
        "etc." or any derivation thereof, such examples are intended to be
        illustrative and not in limitation thereof.


RCA RECORDS, INC.                            ARTIST DIRECT, LLC

By:   /s/ Jeff Walker                        By: /s/ Marc Geiger
   -------------------------------              -------------------------------
        Jeff Walker                                  Marc Geiger
        Senior Vice President
        Business & Legal Affairs

                                             By: /s/ Marc Geiger
                                                -------------------------------
                                                     Marc Geiger


                                       16