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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Artists aren’t traditionally good at business. Business isn’t in any way good at art. So it goes one of two ways:
1) An artist is in such high demand that they are approached by labels begging to be associated with them. In this scenario the artist has the leverage and a greater chance to be their own CEO and dictate most of how their career play out. Since their demand is so high they don’t need the label for exposure. Often the artist will have so much leverage that they can get very favorable “terms” and retain rights to all of their publishing royalties. The label needs them as a trophy to show artists in the next scenario. (See: Nirvana, Sturgill Simpson)
2) An artist hopes that with the right amount of backing and support they can reach a greater audience and thusly create a high demand through the influence and efforts of the label. In this scenario the label has all the leverage because they have access to what the artist can’t get, fund, or manage themselves: exposure, marketing, studios, money, production, licensing, touring, merchandise, etc. (See: Kesha, Dr. Dre before Jimmy Iovine) There are also artists who don’t need anything from a label but end up signing shady contracts that leave them slaves to a corporation as if they had no leverage at all (See: Prince, The Beach Boys, Brad Paisley).
However, in modern times a third scenario has come into play wherein there is no label. Or, rather, the artist IS the label. In this scenario the artist just goes out and does everything themselves. (See Butch Walker)
If you’d like to take a lighthearted deep dive into this exact subject I’d suggest reading Butch Walker’s book titled *Drinking With Strangers*.
They are risk aggregators: they “combine” many artists so that the successful ones can cover the cost of the unsuccessful ones.
A label is like a bank. They provide money to record your music, and after you’re done, they want their money back. Every dollar that an artist earns through sales or streaming gets divided up, the majority going back to the label to pay off the loan (called an advance).
The label is also interested in continuing to make money even after the advance is recouped, so they market the music.
A label with dozens of artists and tons of industry connections has more promotional power than a single artist on their own, hence their power.
Source: Am in music industry.
They are the ones with the contacts the bands need.
360 contracts have hurt the bands who may not be as prolifically successful as the biggest artists. Labels will carry one being big players, but, I can see them diminishing over the next decade or so.
It’s mostly just for marketing and branding purposes, which are still crucial…anyone can make a song, getting an audience is a bit trickier. Independent artists are against the thick of it, hard up to get attention, though with the rise of the internet…they can get play much easier than they could before. All you need is a YouTube video.
But before YouTube, it didn’t matter who you were, how good your song was…if it didn’t have a known label backing it, pushing it, ain’t nobody was going to hear it.
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.
As someone who works in a Major, I’ll try to elaborate a bit more than just “Hurrr durrr evil capitalists”. The purpose of a label will vary and change from one to another as the work they can cover is very large and changes from one artist to another depending on the contract. But they are 4 major things they can cover : distribution of the music, marketing, mastering / mixing, and touring.
The most basic contract for a label is the distribution deal. It basically is printing the CD’s / vinyls and putting them in stores and publishing them on streaming platforms. Almost every artist, even the “independent” ones, have a distribution deal with a label because it is extremely time consuming and complicated to do. Especially for a starting artist. Tho it is slowly starting to change as some platforms offer to distribute your music online on every streaming platforms for a small yearly fee.
Second contract is the marketing contract which is exactly what it says : marketing. Adds, billboards, articles in magazines, interviews in radio, push in famous Spotify playlists, … But it’s not only limited to those “basics”. It also consists in everything related to your image. For instance if Nike is looking for an artist to represent their brand in a video or an event, your label will push for you. Or more basically if you need a music video they will invest in it or find a brand willing to. A marketing deal is almost always coupled with a distribution deal.
Third contract is a Mastering / mixing deal where the label will help you creating your music. They will find and pay for music studios, for musicians, for art directors to work with you and help you shaping your musical project and album, and sometime give you a salary even before anything is out. In such they become as much of a creator as the “artist”. In this instance they obviously have rights over your music. The artists very rarely work all alone to create music, it’s really hypocrite from the artists when they complain about their label “stealing their money” when the label is as much part – if not more – of the creation process. (you have no idea how many artists you listen to on a daily basis actually had 10 to 15 people working behind the scenes to actually make the music while the so called “artist” takes all the credits when he didn’t do shit) Quite often this contract comes with a distribution and marketing deal.
Fourth contract, the touring, is actually a rare occurrence. Most of the time a music label doesn’t have the people and the capacity to prepare a tour and they call an external company specialising in touring, or several ones if you tour across the US or Europe. But they are exceptions and some labels do completely take in charge the touring.
As you might have understood by now, all of this steps requires a lot of investment, not only monetary but also time investment from many people. This investment varies a lot depending on the type of contract, therefore the money the label “takes” from the artists is heavily dependent of it.
To all the hate comments on labels, yes some label do shackle their artists and steal money from them but it’s the same as in every business where you will find people doing shit. Label most of the time are here to genuinely help the artists who would never be able to achieve their dream without a huge investment from their label. And more often than not, the real artist are the people in the label actually making music because they love it and not just doing it for the adrenaline rush of being on stage or the sake of being famous.
That was much longer than expected but oh well.
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!
It works like all other industries in a capitalist system (but is sometimes noticed more due to the emotional role music plays in our lives).
It’s difficult and time-consuming to become good at this profession. If you don’t have wealthy parents with money and connections to support you (Taylor Swift) you are working 40 hour weeks (more if low wage) to pay for decent instrument / computer, rent, food, utilities while simultaneously investing 20-40 hours making music, running logistics of mixtapes, promotion, shows etc.
On the other hand, we have a handful of individuals and families which have the majority of wealth in the world and nearly all the wealth that is free to be deployed in very large amounts (think multi-millions to billions). How did these people get this money? By and large by being born. That’s it. They didn’t scrounge to buy a computer. They didn’t work. They didn’t learn a useful or beautiful skill. Most wealth in the world is inherited.
The purpose of record labels is to accumulate the money controlled by these families and use it to corner the market in music rights (eg song become their property), returning a reliable income stream to these capitalists. The work record labels do consist of two things and two things only:
1. Approach artists after they’ve invested the time to master music creation and have developed a small following but before their are widely popular/successful. Inexpensively purchase ownership of their songs retroactively and for some number of future years. Artists often have no choice but to sell (they are poor, family members are in desperate situations, tens of thousands of dollars solves their immediate problems) and/or are young and have no idea how capitalism works. By doing this, record labels are collectively able to own most songs that will become popular enough to make money. The songs that actually do cash out pay for all the great songs that never catch on.
2. Once they own the rights to songs, they use another portion of the money (once again, invested by trust fund kids) to crowd out non-label music from being heard. There are only so many songs that will appear on Spotify’s RapCaviar. Or in the past, can be played on the radio. So labels pay to make sure that their songs appear in these locations, either via direct dollars to streaming companies or to marketing companies that buy audience attention by manipulating streaming numbers, pay influencers for promotion, pay for a sweet music video (which is then promoted the same way). Once again, this work requires little talent and no labor from the labels – they pay outside companies to do this work or low-paid millennials.
That’s it. That’s what record labels do to make money. They deploy (largely) inherited wealth to corner a market. This only works because the record labels start with all the money, the artists start with relatively little, and it’s pretty easy to use that leverage to keep this disparity in place on an ongoing basis.
Here are a few sources to back this up:
https://techcrunch.com/2018/09/30/the-war-over-music-copyrights/
https://www.washingtonpost.com/us-policy/2019/02/06/people-like-estate-tax-whole-lot-more-when-they-learn-how-wealth-is-distributed/
EDIT: I can’t believe I forgot to link to Steve Albini’s (legendary Chicago musician, recording engineer, & producer) [seminal article about how this looks to a young artist](https://mpg.org.uk/knowledge-bank/the-problem-with-music-by-steve-albini/).
This article was written in the 90’s about an industry dominated by physical albums and radio AirPlay. Steve was widely quoted 5-6 years back stating the internet has solved many of these problems. But I think the intervening years have demonstrated that this period was only a short interlude that quickly shut as the labels adjusted to the new techniques and leverage points in the streaming economy.
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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