The Traditional Role of the Record Label
Don’t let anyone fool you, the purpose of a record label is to make money. Traditionally, to achieve that goal, record labels found music artists, developed them, promoted them, and manufactured and distributed their music in exchange for a percentage of revenues. When things went well, both the artist and the record label made money. When things went poorly, the artist starved, and the record label lost money. At least that’s how things worked pre-internet when the record label controlled all aspects of the process and everything was done in-house. Today’s record labels have had to reinvent themselves in order to remain profitable.
The A&R (Artists and Repertoire) and distribution departments of the records labels were hardest hit by the changes brought about by the internet. Rather than spend time in clubs hoping to find the next big thing, today, record labels can scour the internet and see who has the most YouTube likes or SoundCloud downloads. This has led the labels to significantly downsize their A&R departments. The standard old-school model of distribution, where CDs were sold to record stores, who then sold them to the public doesn’t even exist today. Instead, we have streaming services where we often don’t even have to even to download the songs we want to listen to.
This has led many to proclaim that music labels are irrelevant at best, and at worst, that they’re the devil by requiring artists to sell their souls. Neither is really true. Whenever creative minds (musical artists) interact with businesses there’s a risk of conflict. The artist might want to spend more time in the recording studio so that they can achieve their creative vision. The record label (who’s footing the bill for the studio time) might deny their request if the project has reached its designated budget. This is not to say that the labels aren’t greedy, after all, they are in business to make money and in most cases, the music artist is young and naïve about business. This can lead to deals that are bad for the artist who, through ignorance, signs away multi-year 360 rights for a pittance. But such a situation falls more into the realm of “caveat emptor” than it does signing one’s soul away by dealing with the devil.
Record Labels Today
What is certainly true today, much more so than ever before, is the artist has the ability to be their own distributor and their own label. While technically feasible, bear in mind that doing so requires a lot of hard work and an in-depth understanding of how the complex legalities of the music business work. Keeping the pulse of the ever-changing landscape of how music is monetized is also relevant.
Over the last several years, revenue streams for music have been in a state of flux. For a while, streaming and downloads made up the largest slice of the pie. Then concerts were the main revenue stream. Today, music placement in TV and movies is the top revenue generator. Tomorrow, it will most likely be something else.
Which leads us back to where we started; the purpose of the record label is to make money. They make money by selling products created by music artists. With the changes in the music business landscape, the artist has gained a little more leverage in the dynamic between label and artist. The artist, especially the electronic music artist, is more likely to have songs that are ready to distribute. They may even have their own distribution network in place and a significant following on social media. So why on earth would they need a record label?
The simple answer is MONEY
The record labels have lots of it. They also still have tremendous contacts with promoters, radio stations and other media outlets. More importantly, they know exactly which music monetization channels are working best today, and where monetization is likely to go in the future. Nowadays, the fundamental question an artist should be asking themselves is whether an influx of money can dramatically and positively impact their career. This is where the record labels come into play. If the artist needs studio time, wants a music video done, or is looking to go on a concert tour they either have to self-finance, put things on hold, or have a record label front these expenses. The artist must decide how big a piece they want to sign away to the record label in exchange for what they’re getting. The record label must decide if it’s worth their investment to sign the artist and front the money. If the record label believes they can make money with the artist’s music, then there is a deal to be had. Ultimately, whether the artist is willing to sign with the label is something only they can decide.
How to Record a Song
Successful Independent Record Labels
Recording Connection grad Frank Demilt Hired as Head Engineer and A&R
In an age when music can be downloaded online, music videos can be seen for free on YouTube, and social media serves up content from anyone to anyone, saying big labels have had to adjust is the understatement of the century. Record labels have had to get creative in how to market to this ever-evolving industry. Considering over 90% of released recordings fail to make a profit, this is a high-risk business for labels and artists.
Independent record labels as well as major labels are now very careful in where they put their money and what artists or bands they sign to a record deal. That being said, independent artists and labels are able to promote their recordings for far less than the major labels, allowing them to turn a profit much easier.
This is the reason that there are so many start-up indie labels surfacing and major labels are signing fewer and fewer unknowns. Smaller budgets mean less risk, but they also translate to smaller profits and rewards. We understand there are those who do it just for the music – but it’s nice to pay the rent, too.
Hear What the Pros Say
Many of our mentors have worked with major recording labels and companies and have an insider’s view of how much it costs to produce a record and what the labels recoup. In some cases, it has nothing to do with the music at all. In an industry where the image is everything, those images sell. Of course, the catchiest, chart-topping hit will rake in the bucks for the labels and the artist.
Rick Camp, RC1 Productions & Master Mix Live, Las Vegas, NV
Credits: Jennifer Lopez, Beyoncé, Mary J. Blige, Kelly Clarkson, Usher, Dr. Dre, Earth Wind & Fire
“Record labels make their money off of selling records, but there are all kinds of royalties that the record company collects when a record is played, and that’s how they make their money. Every time a record is played on the radio or sold in a record shop, or sold online now, they get a percentage of it, the artist gets a percentage of it, and the writer gets a percentage of it.”
Cameell Hanna, Serenity West Recording, Los Angeles, CA
Credits: Justin Timberlake, Adele, Florence & the Machine, Eva Simons, Wiz Khalifa, Snoop Dogg
“They make money the way they have for years… off of the exploitation of the recordings themselves. And there are a million ways that it is exploited. So, now they make money off of every aspect of an artist’s career. There’s a deal type that’s been around for a while called the 360 deal, which means that they participate in all aspects of an artist’s career, like touring, merchandising, etc.
“So, you, as a label, are now making money off of pretty much every action an artist takes that involves getting income. A 360 deal is sort of the standard operating understanding in most labels when you’re talking about a major label. You are going over to Interscope, and you’re signing a deal, and you’re like, ‘I’m going to be the next Justin Bieber.’
“You’re going to be signing a deal like that, where they participate in everything, including every T-shirt you sell. They’re going to have their own piece of that. It’s a giant markup on merchandise. A lot of people have made more off of the things surrounding the music than the music itself. The labels have always figured out ways to get a piece and keep it moving.”
Mike Johnson, Clear Track Recording Studios, Clearwater, FL
Credits: John Legend, Jeff Berlin, Boyz II Men, The Roots, Alice Cooper, U2, Madonna
“Record labels make their money on sales, touring, merchandise, anything they could sell that has the bands’ or artist’s name on it.”
Zach Phillips, Freq Lab Recording, San Francisco, CA
Credits: The Kooks, Talib Kweli, Dnae Beats, Jayleez, J-Banks, The Game, Alice Russell, Comedy Central
“Here is an oversimplified answer to a complicated question. Record labels make money when their music is purchased or licensed for use. When an artist gets signed to a label they get money, called an ‘advance,’ to make a record. When the record is released, the label keeps all the money until they have recouped their expenses, which includes the advance, recording costs, promotion, and legal fees.
After these costs have been covered, the label then keeps a percentage of record sale profits. The increasingly popular 360 deal works quite a bit differently. In the 360 deal, the signed artist and the label become “business partners” in all endeavors, meaning that the label gets a cut of any profits the artists make, even those not related to records sales.”
Recording Connection offers a Music Business Program that covers what it takes to be successful as a recording studio owner, label, or audio engineer/music producer. Learn how to get clients, manage your books, hire staff, and other administrative aspects needed to successfully run a studio.