Indie Labels

On Creating The New Record Label

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Guest post by Tyler Hayes, founder of Liisten.com, an independent music discovery site.

 

Maybe you disagree that the way record labels operate is broken, or maybe you're signed to one and can't share your true feelings. Either way, here are some ideas, dreams, and wishes for what something new might look like.

I've thought for some time that the "new record label" should be similar in function to venture capital, or, more simply, a loan. The band or artist borrows a minimal amount ($5-$10k) to record an album and then revenue is split between band and label until loan is paid back*.

A band was always a business, but now the members are the only employees carrying out all the work, from producing the content to marketing it and then managing the returns. A lot of times they just need a little bit of money to get off the ground and get something recorded. Once the loan from the new label has been paid back the percentage going to the label would shrink to 25%. The key in all of this is fairness. Through all of the this, the artists would retain all their rights. The reason there are so many independent bands and bands that would rather not make it than make it on a major label is because they want to own their own songs. This seems fair. Of course, the label would be granted promotional and limited rights to use the music, but would not own them.

It's great that there are crowd funded bands, if enough people think a band should make an album then, by all means, they should. This new type of label would still be geared toward exclusivity and actively seeking out a few bands at first, continually growing.

Essentially the new label is all about scouting out quality bands that are making good music and good people serious about their craft. The same way you bet on the stock market or invest in a new business by doing your homework and ultimately betting on what you know, this should be the same for music.

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* If a band borrowed $10k and sold their album for $5, they would only need to sell 2000 copies to be even. This also does not count the possiblity of taking some of that money and making merch that could then be sold to then give the album away or make up in other ways.

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16 Comments

  1. I agree completely with your idea about this new kind of record label. I’m releasing my own music under a soon-to-be-developed record label with a very similar ideal as you describe. I’m not quite there yet as my first release won’t come out officially until April 2012. Still, I appreciate that there are others who feel like I do!
    If you’re curious, I wrote a blog post about audience building that you might be interested in.
    http://www.songsbytoddo.com/blog/How-To-Build-A-Fan-Base.asp
    Take care,
    ToddO

  2. $10,000 isn’t gonna last a band very long! An average budget “to break a baby band” is close to $250,000. To get on the map realistically its a minimum of $50,000 a year.

  3. You must be talking about mainstream success. Bands can definitely be built with less than 50k a year. It happens all the time. I don’t know the numbers but I doubt a band like Yeasayer was spending 50k a year in the beginning. Scrillex definitely wasn’t – he’s not a band but still an artist and incredibly successful.

  4. Out of curiosity, how does the label make a profit here? Wouldn’t they need to at least charge interest to have money to cover operating expenses alone? I totally agree that a version of this model is what the future needs to look like, but unfortunately it’s going to be a lot more complex if there’s going to be incentive for labels to invest at all.

  5. So,
    Basically, we’re looking for corporate (or private) loan sharks who are willing to gamble on the commercial viability of an artist?
    Boil it down, sounds like the old label system…
    At this point hard work, time and crowdfunding still seem to be the best (and most organic) bet. The idea that a project gets frontloaded by people who actually care enough to support the artist in their endeavors seems to be working fine…and perhaps also shows a darwinistic side to how the business could be run in the future.

  6. * If a band borrowed $10k and sold their album for $5, they would only need to sell 2000 copies to be even.
    What? No percentage for the bank? This is not realistic.

  7. It is definitely not realistic.
    Making an album is not an issue.
    Selling 2000 records is an issue to any newcommer.
    The average number is between 200-400 for a new band and not more.
    In a music project, the CD is nothing without promotion. Otherwise you only sell your CD to your family and friends.
    Thomas Edison used to say that with 5 dollars in the pocket to develop a new idea he’d spend 1 for the idea itself and 4 for the promotion.
    So this article is a total bullshit.
    Fred (France)

  8. First, break down the need for an album. Nobody needs album anymore, except when it’s a concept album. Albums were a trick of the past of labels to pump up the price giving you some good tracks and half shit.
    Singles and ep work brilliantly to break a band, you can put more money on the production and promotion of a single great song, break out and then more money will come for the next.
    Regard to interest, I think the best trick would be to put a mid level sponsor wpaying for the label instead from the beginning. Win-win-win: sponsor gain exposure while associating with a cool project, label share profit and exposure withe band, band has half profit and fame. Label as a mgmt and media agency

  9. It’s becoming more and more clear that 1) the old label model is dead and 2) this new crowd-sourcing model will somehow be relevant. I think Tyler is on the right track but this is a topic that just needs to be fleshed out further by all. I would love to keep this topic going! Only after a variety of different attempts and subsequent critical reviews will we collectively figure out the new path. So shame on those that are quick to bash the author as that’s not helpful or useful to anyone.
    With that said, I think there do have to be more aggressive models for label compensation or they will not have enough incentive to endure the risk of putting up money. Fronting all the money in return for an equal return only if successful will not get any real money on board. I like the direction Mattia was going with pulling sponsor money to spread risk and pay everyone faster. But why would a sponsor be interesting in putting up money to an unknown band vs. simply investing more in other marketing channels?
    Question for the group… What about a higher percentage for the label entity that slowly reduces as the loan is repaid? For example, a 75/25 split (label/band) that reduced to 25/75 as time went on.
    Let’s keep the ideas flowing!

  10. I don’t think the article introduces anything new. The system is similar to the old system, just scaled back on money given to band and money given to label. I’ve run a record label that used this very model for three years – breaking even on a $5,000-$20,000 is extremely difficult, and most bands need more help than an initial financial push. Operational expenses (both time and money spent by label to help guide and develop the band) add up very quickly, so the percentage splits end up bringing the label no profit. Having given this very idea 3 years of my time and effort and a good amount of investment, we are now having to close the label having put out over 25 albums by over 20 artists (mostly jazz and other no-mainstream genres).
    The biggest challenge is promotion. Most artists are not naturally good at it, and if the label takes care of it, it multiplies the need for investment. Artists who are brilliant at direct-to-fan promotion can likely do without a small label altogether. They’re the ones crowdsourcing tours, albums, videos etc.

  11. Peter, what do you see as a solution? In hind-sight, what was the missing piece that would have made your efforts over the last three years work? More capital investment for a larger promotional budget?

  12. I dropped 10K on my first record using the music biz 1.0 model. True it was not the most radio friendly record but the college market loved it and I landed a few synch deals. I hired great radio and PR people, pressed CD’s, product placements, the works (minus touring). Even with good media attention, it took me about 3 years to recoup that investment.
    For my second album I used the music biz 2.0 model.
    Very little investment (of money), no CD’s, no hired guns, relied solely on email list and social media, ran contests and engaged fans directly. I actually made a small profit on this release soon after release. 2 years later this album has been pirated over 200,000 times and my digital sales still trickle in.

  13. I want to share my label experience here (I’ve been managing my boutique label for a few years).
    I approached my investment exactly in the way you described it with, of course, a potential profit share which was meant to become the interest rate on the loan. The problem is that so far none of the investments has been recouped.
    My solid experience, based on hundreds of thousands of USD of investments, is that there is just no room for third-party investors in small music ventures because there is not enough money to be made to consider sharing profits.
    Upcoming artists & bands should fund their project themselves, using proceeds from gigs + money from family & friends (which is basically the target of crowdfunding websites where bands are basically funded via a few tens (hundreds at most) of close friends/fans/family members). The return on those IT-managed friendly investments should be a copy of the album or a private gig, not money, since 95% of the small bands will never make any profit, believe me 😉
    Selling 2,000 copies of an album would put you in the charts in most EU countries now 🙂 Selling 2,000 copies of a single would put give you a top 10 chart position in some territories. 95% of upcoming bands won’t sell more than 500 copies of their album (basically the amount they would sell to the people accepting to pre-fund it…).
    The problem with music is that it makes so little money (because of prices pressure and the fact that only a tiny % of music listeners actually buy music at a decent price) that most bands who would promise to repay a loan would never be able to meet the terms of the deal. And then starts the exchange of emails where the lender asks for his money and where the band promises to repay it in X years… I’m sparing you the details.
    Moreover, bands motivation/engagement is crucial to the repayment scheme and I know tens of cases of bands breaking up before even 10% of the investment has been recouped. Investing in a band is just too risky if you compare it to investing in corporations where the risk is spread between many territories, many products & services, etc. (+ remember that the price of the “ultimate music product”, i.e. the album doesn’t exceed 9.99 USD at its best, to be shared between the seller, the aggregator & the owner). I wouldn’t advise anyone to invest in a band with the hope of recouping one’s money. You can be a benefactor in the XVIIIth century style but don’t be as foolish as thinking that you can earn money by investing 10K on a band. The only beneficiaries of the 10K will be the struggling studios who will rush to deliver an album that won’t return any profit in the absence of promotional support (and I don’t even speak about the potential of the albums).
    If you want to invest to invest money in entertainment, start your own project, invest your money in yourself, develop your creativity but don’t put yourself into trouble by risking money on someone else’s small scale music ventures. It’s statistically doomed to fail.

  14. From my experience and my perspective as a music lover, I’m all for full-length albums and rather against the singles/EPs-only model because hunting down an EP (and emailing with the independent artist to buy the lossless version I want, if a CD is not available per mailorder) takes the same time and effort from me as hunting down a full length album, just with the album, I get more good music. Pre-listening is my friend so once I have found an artist’s music to be good, it will be on my wishlist. I don’t buy an EP after only having heard the single. Hence, from a fan perspective, albums are better than EPs or singles.
    Of course, if you are an independent music promoter, you will always advise independent musicians to put out more singles and EPs because it means more promotional effort is needed to get out the same amount of music when an album has 10 to 15 songs and an EP has just 4 or 5.
    Hence, I guess it’s the new middle men are calling for more EPs, not the consumers of the music.

  15. D.I.Y. / A.M.A.P. / W.Y.C. / A.S.A.P / W.Y.C.F.S.B.
    Which, being interpreted means:-
    Do it yourself as much as possible while you can and as soon as possible WHILE YOUR CREATIVE FLAME STILL BURNS!
    That, is my Mantra.
    Poppa Madison

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