Part Seven: Record Labels And Deals

Last updated on: Sunday 2 September 2018

For most new artists, the record label is still a key business partner. But how to record deals work and what does the label do? Find out…

Although the record company isn’t usually the first business partner a new artist signs up with, the record deal is still really important for most new acts.

This is because the label is the business partner who will not only work for free on the promise of sharing in future income (like other early business partners), but it will also put money on the table. This money will enable the artist to give up the day job and focus on their music full time, while also funding a significant marketing and PR push.

For most artists, a decent cash investment is needed at some point so that they can capitalise on organic growth and accelerate everything. The aim is to boost the fanbase to a sufficient size that the artist can live off their music for the foreseeable future.

Some artists secure that investment from elsewhere – or try to gain sufficient scale through more low-cost organic growth – though most new artists still look to the music industry to provide a cash injection, and it’s labels that are set up to do that.

That said, when a label signs a new artist, it provides more than just money. These are some of the things that artists can expect from a label:

A cash advance. This is the money the artist lives off so they can focus on their music full time.

Funding of a debut album. Many artists will have already put out some EPs or maybe even a full album by the time they sign to a label, or may come to the record company with a debut album already made. But labels will often send artists into the studio with the best songwriters, producers and sound engineers to put together the best album possible.

• The label also has an important artist and content development role. Management, other business partners and other collaborators will have been helping the artist develop their sound already, but the label also plays a key role here too. The label may also need to be the bad guy in the room who tells the artist they can do better!

• Creation of any visuals around the record, including artwork, photography and videos.

Marketing of the debut album. The artist will have been doing grass roots marketing from the start, but the label will organise a big promotional push around the launch of the album that will hopefully reach a much bigger audience than the artist’s own activity. This will include PR, plugging to radio and streaming services, more proactive social media activity, and possibly advertising in media, on billboards, on social and on the streaming platforms.

Distribution of the album. If there is going to be a physical release, this includes organising and paying for CDs or vinyl to be pressed, and getting them into shops and to the mail order sites. It also means getting those recordings into all the digital channels, and trying to drive maximum sales and streams.

• Once the album is out, the label looks after all the rights management, making sure all royalties that are due are coming in via the digital platforms and collecting societies. A good label will also be looking for opportunities to drive more revenue, such as getting a track on a compilation or key streaming service playlist, or synchronised into a TV show, movie, video game or advert (ie sync deals).

• Throughout, the label is also a big fat black book, with lots of contacts in the industry, in the live sector, in the media, with brands and elsewhere that the artist can tap into. Bigger labels can also often use their size to get better treatment with or better rates from some potential partners or users of the artist’s music.

The record company usually provides all of this for free. Which is nice of it! And if it works, the idea of this investment is that it escalates the artist’s business, so all the other revenue streams beyond recordings become much more lucrative.

But what do labels want in return? Under a classic record deal, the two main things the label wants are exclusivity and ownership of any sound recording copyrights created under the deal. Which means the artist can only make recordings for the label until they have delivered the required number of albums and/or tracks, and the label will own the copyright in those recordings and enjoy all the controls that come with the copyright.

As the label is the copyright owner, it – rather than the artist – will license third parties who want to copy, distribute, adapt, perform or communicate the tracks and collect the money. Whether or not an artist will have a right to consultation about or a veto over any new licensing deal will depend on their record contract.

That contract will also set out how any income is then shared between the label and the artist. Under a major label deal, the record company will get to keep most of the money. Some indie label deals might offer a 50/50 split. Though either way, the label will usually have the right to recoup (so take back) some or all of the money it spent on the artist before sharing any of the income – so the artist sees nothing until they have ‘recouped’ on contract. Every deal is different, and all this needs to be set out in a written agreement.

The one exception to all this is the money that is made when the so called ‘performing rights’ or ‘neighbouring rights’ of the sound recording copyright are exploited – which covers radio and when sound recordings are played in public places like clubs or bars. In these scenarios the artists will get 50% of the money direct from their collecting society (PPL in the UK) whatever their record contract may say.

Traditionally the record company would only want control of the sound recording copyrights the artist creates, and it wasn’t involved in the other aspects of the artist’s business. So the deal basically worked like this: the label spends a lot of money upfront and then takes the majority of the money that subsequently comes in from the tracks and albums it releases; but the artist can do separate deals around all their other revenue streams, where they will usually get to keep the majority of the cash because the other business partners aren’t making such big upfront investments.

That said, during the 2000s the value of recorded music slumped, meaning that even if an artist’s records do become hits, they probably won’t make as much money as they would have done in the 1990s.

With that in mind, many labels, when investing in new talent, will also ask for a cut of one or two of the artist’s other revenue streams to reduce their risk. It’s for the artist – and their lawyer and manager – to negotiate with the label which other revenues will be shared and on what terms.

Record companies sometimes get a bad rep. There are various reasons for this, including…

• The label’s investment does not guarantee success.

• The label may interfere artistically to safeguard its investment.

• The label may screw up the marketing and/or overspend (remember, the artist may not see any royalties until certain upfront costs have been recouped).

• The label and artist may just fall out over time – lots of creative and business partnerships ultimately sour.

• Artists often resent not getting any money from their recordings until they have recouped – so they might have a hit on their hand but not yet be seeing any money.

• Artists also often resent having given up the copyrights in their early and possible best records. They might be able to negotiate some or all of that copyright back in later deals (ie if they complete their first deal with a record company and then re-sign with the same label), though that’s not guaranteed.

But, despite all these potential issues, for many artists the label model basically works. The artist gets investment, plus creative, commercial and marketing support, just when they need it to help them take their own business up to the next level.

That inevitably means giving up some of the control and – when it comes to the recordings released by the label – a lot of the money. But the big marketing push can unlock all of the artist’s other revenue streams. And if and when the label profits from the deal, it commits to reinvest some of that money back into the next big thing.

Once an artist is ready to sign to a label they might have offers from multiple record companies. In that situation, the artist and their manager has to decide which label will make the best business partner.

It’s common to distinguish between the major and the indie labels. Major labels are those owned by one of the three major global music rights groups: Universal Music, Sony Music and Warner Music. The indies are everyone else. Independent labels vary in size greatly, from sizable operations with offices around the world to one-person operations run out of the owner’s home.

There are pros and cons with signing to major v indie labels, or to a big v a small independent. Smaller record companies usually offer more favourable deals in terms of how income is shared with the artist, and a smaller team mean it’s easier for the artist and manager to get to know all the key decision makers in the label business. But bigger record companies will usually have access to bigger budgets, so can finance very ambitious album projects and marketing campaigns.

Classic record contracts with both major and indie labels will usually involve ‘assigning’ the copyright in the sound recordings released under the deal to the record company – ie so the label is the copyright owner. Some artists don’t want to assign their sound recording rights, but still need someone to provide marketing and distribution services.

Many record companies will offer these services on a revenue share basis without assignment if the artist isn’t looking for a big cash investment, and some labels have standalone ‘label services’ departments to work with artists on this basis, usually offering much better royalties too. There are also specialist label services companies and distributors that work directly with artists in exactly this way.

Every record company is different but most have a similar structure, with the following departments or teams somewhere in the building:

A&R are best known for scouting new talent to sign, but they are also the artist’s primary contact at the label, overseeing the recording process, suggesting songwriters and producers to work with, and providing artistic feedback.

Creative teams will work with A&R to turn an artist’s recordings into digital and physical products, while also commissioning all the photography, design and video.

Sales & Distribution have the relationships with record shops, mail-order sites, download stores and streaming platforms, and make sure albums get to all the right places. Smaller labels may outsource distribution to a standalone music distributor or the distribution department at a bigger label.

Marketing are charged with the task of getting everyone talking about a new release. They plan the marketing campaign, brief PR and promotions, buy advertising, hire marketing, PR and social agencies, and implement some elements of the campaign directly.

Press & Promotions are responsible for getting new releases written about in print and online (in the case of ‘press’ or ‘PR’) and played on TV, radio and in the clubs (in the case of ‘promotions’ or ‘plugging’).

Licensing will look for other opportunities to generate income from the label’s catalogue, including sync and compilations.

Royalties process the money that comes in from record shops, download stores, streaming platforms, sync deals and elsewhere and calculate what cut the artists are due.

Legal look after all the contracts that are required, between the label and all their artists, and with all the digital services that use the label’s content.

At big record companies there will be whole teams of people for each of these departments. At a smaller label it might be one person per department. At really small labels one person might be doing everything!

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Words: Chris Cooke – Last updated Sep 2018