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TPS #026: 4 Thoughts About Label Deals

Author: Andre Mullen - 3 min Read

Read Time: 3 minutes

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In today’s newsletter, I want to provide you with 4 thoughts to consider before signing a label deal for either yourself or your client.

Over 99% of artists who sign with major labels fail. To put it simply, of the 100+ artists that major record labels signed this year, 99+ of them will not recoup the costs of their advance. As a result, these artists will be dropped.

Before signing, there is one simple question you should ask your client:

“How much control do you want to have?”

Unfortunately, many artists and artist managers believe that partnering with a label is the only way to become successful in the music industry.

It’s time to make an informed decision based on accurate information.

"“Most artists don’t need a traditional label contract anymore.”

In today’s music climate, an offer of a 6-7 figure advance from via a recording contract is highly attractive for any artist looking to achieve their goal of releasing music.

The cash would allow you to market and promote your music, giving you a fighting chance in a crowded music landscape.

However, here are 4 thoughts to consider before signing a label deal:

1. You don’t want a loan from a label
2. You want to retain ownership of your music
3. You want to control your music output
4. Your streaming revenue won’t pay the bill

While I’m not “anti-label”, the truth of the matter is that labels are all about the bottom line. They are looking at artists as numbers and their spreadsheets hoping for hits.

This is why you and your client must do your due diligence before signing on the dotted line.

Here are reasons to consider, one by one:

Reason #1: “You Don’t Want a Label Loan.”

Any advancement of money from a recording company is recoupable.

Recoupment occurs when a record label pays for an artist’s expenses – i.e. recording and marketing – and later deducts an equal amount from the artists royalties, which are between 15 and 20 percent of sales revenue.

Below is an example of a non-recoupment vs. a recoupment advance to an artist.

Ari Herstand, author of the best-selling book, How to Make It in the New Music Business, describes the major label loan:
It may feel great to get an influx of money to fuel your music career. However, keep in mind a label loan could deter or defer those goals.
Reason #2: “You Want Ownership (Your IP)”

When you or your client accept an advance from a label, in the majority of cases you are giving up ownership of your masters.

Your masters represent your intellectual property – commonly known as your IP.

Your intellectual property is what you create. It is comprised of 3 things – copyright, trademark, and patent.

Record labels are in the business of owning the copyright of artists. Record labels generate revenue from sales and licensing of you and your client’s catalog – which they own.

A catalog is a representation of the library of copyrights for an artist. Advancements are given in exchange for ownership of your catalog.

And once advancements are given and they are not recouped, it can take years – and in most cases, never – to get ownership of your catalog back.

Consider what giving up ownership of you music means to you and your long term goals before taking an advance on your music.

Reason #3: “You Want Control of Your Music Output”

You and your client have the ability to control if, how, and when music is released.

When your client is in the major label system, releases become more involved per your agreement and your advance.

The advance and your client’s agreement with the label come with conditions. One of the many conditions is their control over if, how, and when music is released.

Despite the amount of songs you may have ready to go, the label will dictate if, how, and when those records will be released through their system and your agreement.

If your client releases music regularly and consistently, consider how an advance could affect their release schedule.

Reason #4: “Streaming Revenue Doesn’t Pay the Bills”

We all know that streaming revenue alone doesn’t pay the bills.

According to a New York Times article on streaming, industry estimates suggest that Spotify pays out about $4,000 per million streams or less than half a cent per stream. When artists receive advances, marketing, and promotional support from a label, their earnings from streaming are much lower.

As shown in the graph below, the majority of streaming revenue still goes to labels, with artists receiving just a little over 10%:

However, there are digital aggregators (also known as “distributors”) that allow artists to release their music without a record label, keeping any money generated from streams 100% free of major label involvement.

This means that any streaming revenue received goes directly to the artist and can be used for re-marketing and/or building their business.

While streaming is a great tool for exposing artists to new global audiences, relying solely on streaming revenue to recoup on an advance and marketing budget is a big risk.

It is important to consider how an advance will affect an artist’s payout from streaming platforms.

TL;DR:
4 Thoughts to Consider Before Signing a Label Deal
1. You don’t want a label loan
2. You want to retain ownership of your IP
3. You want control of your music output
4. Streaming revenue will not pay your bills or back your advance

Hope this helps.

See you next week.

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