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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Same as publishers for books. They put the content in front of people. They make deals radio stations, movies, games, etc. To sell music. They also pay for production of songs, music videos, CD, etc. Sometimes they pay for touring. In exchange, artists sign (often predatory) contracts. As such, they’re always going to make more money. Modern day, most bands only really see money from touring, making cents on the dollar per song sold on something like itunes. You may remember a few years ago people tried to raise money to buy Ke$ha out of her contract. She was sexually assaulted by her record producer, but Sony wouldn’t let her out of her contract.
Tl;Dr they control the purse strings and legally bind people and bands
Labels do all the legwork to get music out to consumers:
* They scout new talent.
* They link promising musicians up with songwriters and producers.
* They provide cash advances so new artists can afford to book studio time.
* They negotiate distribution deals to get music on the radio and into (real/digital) stores.
Labels are essentially the bridge between you playing local clubs and having a cool mixtape and you becoming a nationally known artist.
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.
All these comments are good, but I’d like to point out the main reason labels are needed is because of us, the consumer, and how we really decide what we like.
Music, more than any other product in the world, is one we decide to like because other people like it. Most people don’t really listen to a song and form their own opinion about it. We choose what we listen to based on what we see other people around us listening to and dancing to. Not everyone, but almost everyone.
If everyone actually judged music on it’s merits, you could, in this day and age, have a healthy world of viral hits. But in reality, the people who spend money on music are young people, who want to listen to the music they are told is cool.
Used to work at an indie a long time ago, but it is basically the same in miniature.
The label will have the following major roles:
1. A&R – Artists and Reparatory
Essentially talent scouts. They find and (sometimes) develop promising bands. At the indie level that’s usually the owner of the label itself. Majors have teams doing this. Bettina Richards, owner of Thrill Jockey records in Chicago, got her start as an A&R rep for Atlantic Records, for example. This person might also set up recording studios, producers and all of that. Basically the liaison between the band and the label.
2. Marketing
These people are in contact with music magazines, radio stations, newspapers etc. They send out marketing materials to support new releases. They set up interviews for the bands, buy ads, etc. At major labels this group is usually massively larger than at an indie.
3. Sales
These folks work with record stores and other retailers, taking orders for how many copies of X they want to stock. This role has changed a huge amount in the digital era.
4. Production
This is the group that deals with the physical production of CDs, LPs etc, working with pressing plants, scheduling orders and so on. Also less prominent in the digital age
5. Distribution
Once the CDs or whatever are delivered to the label (at least that’s how it worked at the indie) this group coordinates all the shipping. They pick and ship orders to record stores, other distribution centers, etc.
6. Tour Support
A subset of marketing, specifically helping touring bands with merchandise, local media and so on. Typically there is a booking agent that sets up shows and all of that. Where I worked this was a separate company that most of the bands worked with. Majors probably do it in house
7. Art
The art department designs the ads the marketing folks are placing, creates the album artwork (sometimes), posters, t-shirts — anything visual
8. Other
The label might have a mail order person for direct sales to the public, a returns person to refurbish broken CD cases and so on, and all the internal financial stuff (accountant, payroll, etc)
The ‘labels’ are the venture capitalists of the music industry.
If you’re a musician and you already have a load of money, you can start your own.
If all you have is talent, you need investors.
I play in two different bands on two different labels. They essentially are there to make sure we make it as big as possible. They do most of the marketing for albums, organise interviews and professional reviews, sometimes provide funding for the studio or even tours.
In both cases, they also take most or all of the revenue from sales and streaming for a few years. But we get bigger and get paid more to play, and sell more merchandise. They also sometimes offer us very good gigs, as festivals and bigger venues will reach out to labels asking for bands.
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).
I would recommend David Byrne’s book *How Music Works*, it talks about a lot of things music related, and has a chapter on different ways of releasing music, from a 360 deal to no label involvement. It also includes money breakdowns from two different types of releases he’s done, through a label and self release, so you can see the different cost breakdowns as an artist. The book changed the way I think about music!
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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