Part 4 of our Artist Development Series.
In the past, record companies were focused on developing successful recording artists and allocated a significant amount of money for that purpose. They had a highly specialized, even one-dimensional business models that revolved around developing recording artists for the purpose of selling pre-recorded music. The label’s primary focus was sales fueled by radio airplay and live performance and tours.
Just a decade ago, the label’s primary source of income was tangible, pre-recorded music.
Most recently, it was the compact disc sold in stores, online, or via mail order. And further back in time, the labels sold vinyl and cassette tapes through retailers. The labels were the sole source of the sale of pre-recorded music. The idea of digital or electronic music delivery, playlists and streaming was almost a sci-fi notion, an idea, a mere twinkle in the eye of innovative techies.
Record labels have a history of lagging behind technology and true to form, it took them a long time to believe in and ultimately embrace the Internet as a viable source of income. However, they did catch on to iTunes quickly, but the “sale” component was still in play with music being downloaded on to iPods, cell phones and computers.
Today, it’s an entirely different ball game.
Record companies have had to embrace the new concept of access to their music, not ownership.
The entire business model has changed with labels providing “content” in the form of music to sites that stream and compile playlists for people to access. Only the most dedicated audiophiles maintain a music collection these days. The popular way to enjoy pre-recorded music is to stream whatever you want to hear, whenever you want to hear it, wherever you are at that moment in time. In the new model, the labels provide their musical masters as content in return for advertising and subscription income from giant aggregate sites like Spotify. Even further, they are offering 360 deals to most, if not all of their new artist signings.
Simply put, a 360 deal entitles the label to income from music sales as well as a number of additional revenue streams that were originally earmarked solely for the artist’s bank account.
360 income to labels can include merchandise, publishing, live performance, film, television, licensing, TV commercials, endorsements, sponsorships and anything else an artist can turn coin doing. The rationale of the 360 deal, from the record label’s point of view, is that an artist will receive more attention, be offered longer-term contracts and receive much-needed artist development expertise in return for a percentage of multiple income streams. The advent of this “multiple rights” deal was predicated on the record company’s belief that it had to compensate for the loss of tangible product sales and digital downloads and supplement their revenue from streaming.
So, What do Record Labels Do?
Well established and well-run record companies have specialized resources that are vital to the success of an artist.
Financial backing is at the top of the list of reasons why artists may join a label.
Money paves the way to reaching more people, establishing a brand and systematically promoting music throughout the world. It’s a record label advance that enables artists to live and work at their art and craft. Imagine walking into a bank and asking for a loan to sustain you while your music hits and you develop a substantial audience. They would laugh you right out the door, ask you how you will collateralize the loan and then after inquiring about your employment status, reject your application. Labels make those loans and help to keep artists afloat as they develop.
Marketing power is one of the label’s most important resources.
They have the staffing and know-how to brand an artist. They can create, launch and manage multi-faceted campaigns that are costly and require precise timing and execution. Awareness is at the core of an artist’s success. Music lovers must be exposed to an artist and his or her music. Remember there is a “push” and “pull” aspect to marketing. A website, a Facebook page or Instagram account does not “pull” people in on its own. There needs to be something, a campaign, a promotional event that draws or “pushes” people towards an artist’s internet presence and increase exposure. Alongside artist marketing, record labels push fans towards artists.
Well-established labels often have offices and staffing throughout the world. Each office is uniquely positioned to understand the proclivities of its respective territory. The staff establishes contacts and relationships with promoters, radio stations, businesses, performance venues, the press, and the public. Record labels are formidable gatekeepers. They open doors to major films, television, commercials, licensing deals and strategic partnerships. They give you access to top booking agents and tours that are essential if you want hundreds of thousands of people to see you perform. They assist in standardizing and distributing an artist’s merchandise and swag. They help an artist reach their tipping point at a faster pace and on a broader scale.
What to Look for in a Record Deal
Currently, 360 deals seem to be the only type of contract offered by major record labels and sizeable indies, but there are other alternatives. If you are not willing to bite the bullet, take a 360 deal, and turn over a portion of every dollar you earn to your label, you can look to indie labels that offer a wide variety of hybrid deals that may be a better fit. It all depends on the type of music you are making and what you and your team think you need to be successful.
There are hybrid deals out there that mix and match a variety of services, royalty structures, and support for new signings. You can sign up for digital distribution only or contract with a company that is willing to help with promotion or publicity, distribution and royalty collection. You can join forces with companies that swap cold hard cash for the ownership of your masters while you may need to develop your career in other areas such as publishing, live performance, and media such as film, TV, commercials or licensing. This is not a bad situation as long as you have a strong artist development team behind you.
Small, independent labels are innovative and creative.
Many offer fair and balanced deals that are meant to forge a solid and valuable partnership between artist and label. The Internet, digital music and streaming have made it possible for smaller labels to make a difference and provide artists with more ways to reach more music lovers.
An artist and label must be compatible. It’s like a marriage and the lines of communication must be open, easily accessed and well established. First and foremost, the label must understand you as an artist and your music as a viable product. They must recognize your selling points and work to bring them to the forefront. They must get behind you and support your quest for name recognition, airplay, sold-out performances and cross over into other mediums.
The Record Deal
Hybrid and indies are making a concerted effort to simplify contracts and use language that can be understood without a law degree from Harvard. But you still need professional help to decipher the meaning of each contract clause and to understand the implications of this business relationship.
Your manager or attorney, if you have one, is vital to the process. If you don’t have either, reach out to a business coach that specializes in the Arts. Deal points can be conventional, meaning worded the way business has been conducted since labels were created or new and innovative to reflect the new normal of the music industry. The type of deal depends on the artist, the label and the type of music involved.
The 360 deal is by nature almost all-encompassing, but there are ways to lessen its impact and minimize the financial burden that some feel with this type of deal.
First, you need help. Find someone with solid 360 deal negotiation chops. It could be your manager or an attorney or you can hire someone, a consultant or coach that has been through the process and knows how to play the game. They will advise you to ask the label for advances that are proportional to the percentage of your income that the label wants to take from various streams of income. Another tip is to block labels from cross collateralizing your advances. This means that the label can only recoup advances against the income stream for which the advance was given. To explain further, if the label gives you a $25,000 advance against publishing revenue, their recoupment of that advance should be limited to publishing income only.
If you’re killin’ it in a specific area, like a live performance, selling out shows all over the place, see if you can get that income stream excluded. Exclusions are also called “carve-outs” and your negotiation advisor should go after “carve-outs” as if he or she is catering Thanksgiving dinner for a thousand hungry people. Just keep carving away.
For touring income, make sure this stream is limited to net NOT gross income.
This means that all touring expenses are deducted before the label calculates its share of income. The label should aim to take a percentage of only the money that is actually flowing into your pocket. Also, be sure that specific income streams are excluded if and when the label recoups its initial advance to you. Meaning, if the label gives you a $25,000 advance for copyright licensing and you earn that amount, a 360 contract should contain language that excludes that income stream from the deal from the point of recoupment.
The 360 deal is a reality in the music industry, but it is a reality none the less and here to stay. Understanding the business from an artist’s creative point of view is difficult. As a coach with a lifetime of management experience, more and more artists come to me to learn about the business of music. It’s your life. Make it work for you. Learn so that you can earn what your art and soul are worth.
The new deal model, hybrid deals, is structured differently from a compensation and royalty perspective. Hybrid deals are based on the a la carte services that are offered. In the past, streaming and other digital uses were calculated based on an ancillary royalty rate derived as a percentage of the base royalty rate from sales. Digital and streaming sales are no longer considered ancillary and are now the focal point or base royalty rate for record deals. Remember, access not ownership is the new music business model and as new technology evolves and new income streams are created, the formulas used to pay artists will also evolve.
Advances and royalty rates have been the revenue backbone of most record company deals for years.
An advance, by definition, is a sum of money paid to an artist when they sign to a label. It’s paid against future music sales and royalties. The royalty rate tells the artist what portion of each “sale”, download or stream they will receive as income. Regardless of the label, its size, or its business model, advances, large and small, are usually a part of a record deal. But the model is constantly evolving, and innovative deals are in the offing. In addition to advances and royalties, the record company deal may also offer other deal perks in the form of monies allocated for different support activities such as promotion, tour support, development, production or other facets of a recording artist’s life.
Recoupment, the formula or method used by the label to recover the money they advance to a signed artist, is often a tricky and complex process. The contract will address how “accounting” is handled.
Generally, you will get a quarterly statement that itemizes the financial activities that have taken place on your behalf. Expenses incurred by the record company, income earned by the artist, and various other financial transactions are memorialized and reconciled. Depending on where you are in your deal, the label may owe you money or the amount the label has to recoup may increase. It is important for you to review the statements.
If there is an error, bring it to the label’s attention. If there is a discrepancy, get clarification.
Most contracts include a clause entitled “Books and Records” that enables you to audit the financials as they relate to your income and career activity. This is a very important clause as it enables you to check on the accuracy of your label. Mistakes happen.
Do the work and make sure your business is in order.
The premise of signing a record deal is that it will advance an artist’s career through development and support. There are good and bad deals from a business structure point of view and there are good and bad deals from a people point of view too. Do your homework. If it’s a major label, research their roster, find out who the executives are that will be working on your music. Ask other artists that have been or are signed to the label about their experience. Do not go in blind.
If it is a new company or an indie, find out about the people that own and run the label. Speak to artists on the roster. Due diligence is your responsibility. Don’t sign on the dotted line just to say, “I got a record deal”. Forget about instant gratification and proceed slowly and carefully. Seek help from someone who knows the business.
How to Work with a Record Company
To be signed to a recording contract for most singers, bands or musicians seems to be the ultimate goal. We have established the fact that the deal must be appropriate for the artist and that the label must be well run, organized and established. If everything checks out and you take the leap of faith, a healthy, honest and progressive working relationship with your label is essential.
Your recording contract is the road map to what the label must do for you and what you must do for the label. Understand it thoroughly because it is going to work alongside your career for a period of time. Sit with your manager, hire a coach or attorney and dissect the entire document, line by line before you sign on the dotted line. Each clause defines actions, rights, procedures, budgets and functions that have a direct and important impact on you and your career.
The label may assign a project manager or A&R person to champion your music and maneuver your career through the label labyrinth. This individual should work closely with you and act as your point person. Pick his or her brain. Find out what the label’s strategy will be for you. Make sure the label meets all their contractual obligations and is doing what they pledged to do for you as an artist. A manager helps with your relationship with a label and, in my opinion, is vital to a solid working relationship between artist and label. He or she will work closely with the label and will serve as a buffer if things get bumpy or promises have not been kept.
All in all,
You must really ask yourself the hard question: “Do you really need a record deal?”
The immediate answer may be no, not yet. Labels serve a purpose, but the timing must be right in order for you to balance the restrictions of a long-term commitment.
If you are just starting out, you should take reality into consideration. A record contract with a major label is not going to change your life unless your life has already gone into high gear and you are getting serious career traction. Most labels have a very steep criterion for signing new artists. The band or artist must have a significant number of social media views and followers, plenty of YouTube views, a healthy live performance schedule and playlist activities on the streaming sites. The label will not pitch you for a “cherry” opening act slot on a major tour or introduce you to the top booking agent at CAA if no one knows who the hell you are.
The artist development process starts with you and must be in full swing to get major label interest.
So, get busy. You have work to do. The idea is to make your music and your persona as an artist as attractive and valuable as possible. If you build your own career, they will come, all of them.