Are Record Labels Still Relevant?

While record labels still exist, many in the industry question whether they’re still relevant to the modern music business, and if they still hold the power to elevate an artist to the next level.

Guest post by John Funge of The Music Fund

Why do artists sign up to record labels? Well for many, the promise of an upfront payment  is the deciding factor. No matter how experienced or principled an artist is, dangling a 6 or 7 figure cheque in front of them is akin to dangling a bacon sandwich in front of a starving wolf. Very tempting – even if it comes with a small string attached like signing away the rights to their music in perpetuity. 

The sad reality is that, out of 100 artists major record labels signed this year, 99 of those won’t recoup the costs of their advance, and will at some point be somewhat unceremoniously dropped by their label. While this is bad enough, the fact that they don’t stand to get the rights to their work just adds insult to injury. Even more frustratingly, artists can deliver the single, EP or album for which they are contracted, and then the label can decide to just sit on it indefinitely, leaving them in limbo unable to do anything. 

This is why so many people can relate to the metaphor about being chewed up and spat out by the music industry. To most labels, artists are just numbers in a spreadsheet being shuffled around to balance the books. Aspiring artists need to keep in mind that artist development comes second to record labels – profitability and revenue generation will always come first. 

Rise of the Digital Natives 

All of that isn’t to say that record labels don’t have the power to raise artists up to the next level. When they sign artists who are just beginning to find success they are often the difference that boosts them beyond what they could achieve on their own. But the chances of it happening for any one specific artist remain punishingly small for an industry (obstinately) built on talent. If that all sounds a bit disheartening and disappointing well – I agree. It is. Which is why the rise of the self made artist is becoming less and less of an anomaly and more and more of an inevitability. 

While this has been the case for a while (Think of Marshmello, Lauv, Chance the Rapper) the global coronavirus pandemic has become a major catalyst for this change. There is no getting around the fact that lockdown and social distancing policies have devastated the music industry, hitting smaller artists particularly hard. But the lessons they are learning in trying to keep afloat in these uncertain times are exactly the lessons they need to succeed in a post lockdown world.  

Every artist needs money to run Instagram promos, upgrade their instruments 

Digital natives will inherit the industry. The move away from CD and vinyl towards digital distribution has democratised music distribution in a way that undercuts the power of major labels significantly. No physical product, no record, no label. The generation born and raised on online content are increasingly at home doing their own promotion, marketing, branding and, of course, recording their own music. Even the ones that aren’t are just a short online course away from doing so. 

While all of this is great for putting power back in the hands of artists, record labels are still seen as the ones holding the purse strings of the industry. The biggest bargaining chips they still retain are important ones – money and their network of additional services. This is compounded by the fact that building up a respectable income through streaming services is incredibly difficult. There is no getting around the fact that a career in music can be expensive. Instruments, equipment, merchandise and a myriad of other costs just serve to underline how effective offering artists money in the form of an advance can be.

Advances are loans with uniquely bad terms

It’s an often misunderstood part of the industry, but the advance is not in reality an upfront payment, it is a loan that has to be paid back from sales of an artist’s material before any royalties can be claimed. And, when it is paid back, the record label still owns the rights to all of the artist’s work and keeps the lion’s share of the profits. 

So with traditional advances the incentives are misaligned and the risks are significant. But how do we reach a point where artists don’t have to bear the burden of an inaccurately predicted advance, which could leave said artist on the hook to pay back money well beyond their means? Musicians need backers who stand by their income predictions, so that an artist doesn’t owe anything if the organisation deciding the advance gets it wrong – and doesn’t need to sign their rights away indefinitely. It would be a more socially responsible financial approach that could help artists have a more self-directed career.

The Music Fund uses data to offer a solution to solve this problem

This is where the Music Fund is trying to make a difference – by providing the other side of the digital game which is reliable data analytics. By uploading a couple of years of streaming data we are able to predict a suitable calculation of future value and offer an upfront payment in exchange for a percentage of said artists streaming revenue from their back catalog of approved songs for a couple of years. This gives artists the option of upfront payment without needing to sign away ownership of their work.

This, when combined with the rise in popularity of label service companies by artists looking to make it on their own, has the potential to shift power permanently away from the major record labels, in what could lead to a better industry for the artists. An industry where individual or bundled services that the record labels used to sell themselves can be obtained without artists needing to saddle themselves with debt or trading away their rights to the music they create.  

That in turn will remove barriers and increase diversity in the creative class. This is an important step towards decentralising power in the music industry. It is not the only piece of the puzzle, or even the most important piece of the puzzle – that will always be talent – but removing the difficult choice of whether to give up your rights for a shot at the big time will move the industry in a direction where no talented artist needs to give up and accept a life they don’t want just because they lack the money to fund their creativity.