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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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.
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)
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.
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.
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).
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.
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!
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.
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