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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Labels are necessary for publishing and distribution. Let’s say you have a great band that everyone in town likes. Great – now what?
Well, you will probably want to record a few songs and get them out into the market place. Studio time costs money, so someone has to pay up. If you want it to really sound good, you’re going to need to hire a producer, an engineer, and possibly even some studio musicians.
Okay, the band can pay for all this themselves, so let’s say they do. Now what? Where are you going to sell them? It’s a pretty limited market just selling them at bar gigs. You can put it on spotify or itunes along with the millions of other artists and get a couple of pennies per download, but it’s a long shot to cut through the mix and get noticed.
You’re going to tour? Great. How are you going to get the word out in a town that no one has ever heard of you? You need promotion. How are you going to pay your bills while you leave your day job and go on the road? Bars generally don’t pay bands much if anything at all to play.
There’s more, but hopefully you get the point. The label pays for the recording, the promotion, the touring, and other expenses so the band just has to focus on practicing and performing. The label has the professional connections in all the distribution areas such as streaming, local concert promoters, radio, television, etc.
It’s a big risk financially, which is why most first contracts aren’t all that great for the artist. It usually involves an advance against future earnings. The artist owes that money back to the label, but only against future sales. They don’t have to pay it back if the product doesn’t sell, though.
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