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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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.
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)
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.
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.
Basically, musicians can not afford to finance records themselves. Musical instruments and recording equipment are incredibly expensive. Since labels have the capital to finance the records, they hold all the cards. Without their money, the record will not be made. Typically musicians are not the most functional people. It’s a choice between bagging groceries or taking whatever offer the label gives them.
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