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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There are pros and cons to labels as there are with deciding to stay independent. About half of my clients are represented by major labels and the other half have decided to release independently. At the end of the day, it’s a business decision.
As has already been stated in this thread, the label is essentially an investment bank that has a stake in the project being successful. With that, the artist will get an advance (cash money to support them while they make the record) as well as a marketing/creative team, marketing budget, radio team, partnerships team, PR team, distribution/playlisting team, etc. The artist pays for those services by giving away a certain percentage of the project. Also, the threshold for the album to become profitable is much grater due to the initial investment, which incentivizes the label to produce a massive hit.
If an artist decides to stay independent, they will retain more royalties, but they will have to front all of the costs that the label would have covered, while relying more heavily on their management team to hire 3rd party teams (radio, playlisting, PR, etc) or fill the role themselves. The profitability threshold is lower, but the “fame” potential is also further out of reach. Ultimately, most artists don’t have the capital required to actually get a project off of the ground, which is why they turn to Kickstarter or investors.
With all that said, I personally think a hybrid approach is the best for the artist (where the artist pays for the production of the album, but partners with a label for distribution and marketing).
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