What is the purpose of labels in the music industry and why do they hold so much power as well making more money than the artists signed?
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Hi, so signing an artist is a gamble.
The label pays an advance to the artist so they can have money in their pocket and pay their bills.
The label pays for the audio recordings.
The label pays for music videos.
The label pays for tour support.
The label pays for radio promotion.
The label pays for the publicist.
The label pays to manufacture physical product.
The label pays for legal costs.
The label pays for marketing and digital advertising.
The label does all of the work associated with many of the above costs. The label should have existing relationships with people in all of those areas where you would like to have your music featured so your music should cut through some of the clutter..
If a record does poorly, the label is loses $20K, $50K, $100K or more. I worked on a record once that it would have been cheaper to tape $10 bills to the ones we sold than to spend what we did on marketing.
If a record does well, the sky is the limit.
In fact, in many cases a big monster record like a Taylor Swift might end up paying for a record & campaign for 5 or 10 lesser known artists that you might like but weren’t commercial successes on the same label.
Because the label assumes the bulk of the financial risk they assume the bulk of the financial reward from RECORDED music. In the past it was not typical that the label would participate in tour sales, merch, or publishing revenues much of which were kept by the artists. Now, because recorded music is much less profitable than it used to be and because the label bears much of the costs associated in making an artist popular there are deals where the label takes a percentage of that revenue as well.
Source: Me. Over 20 year veteran of the business side of the music business.
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