The music industry, while often associated with glamour and artistic expression, has a hidden underbelly that rarely receives the spotlight it deserves.
Behind the scenes, there exists a complex world of record labels, a realm that isn't always as benevolent as it may seem.
In this blog, we will shed light on the darker aspects of record labels, unveiling the challenges that artists face when navigating these murky waters.
Before we get into that though...
What is a Record Deal? A recording contract is a legal agreement between a record label and a recording artist, which outlines the nature of the relationship.
In layman’s terms, it’s typically a monetary loan, for exclusive rights and control of an artist. In other words, the label loans money to an artist to allow them to create and release music.
With that in mind, it's still not as it seems...
How do record labels work?
Record labels loan artists money to spend on their music career, in which the label controls how much is spent and where its spent.
The funds can be spent on producers, hotel rooms when travelling, marketing, clothing and anything else.
In fact... it's also been known that labels will encourage their artists to spend money on assets not related to music, such as a diamond necklace or fancy car, to post about online, to give off the perception they're doing extremely well for themselves, meanwhile... they're in debt. With that, you've probably already figured out the revenue stream for labels, but let's break it down some more.
How do record labels make money?
Record labels make money by loaning money to artists and recouping that + about 80-90% of profits from music sales, touring, and all other revenue streams, (assuming its a 360 deal).
A 360 deal is an exclusive contract between a label and an artist that grants the label shares of everything the artist dives into (ie. publishing, touring, sponsorships, TV appearances, etc).
It is also important to note, record labels make additional money on their loan, by utilizing their network and resources.
For example, if a label spends $500K on marketing, they will use a company that they either own, or receive compensation from, so as that $500K never leaves their hands, yet they still receive it back from their loan to the artist + the majority of profits.
Let's break it down further... (an example)
If an artist signs a 2 million dollar recording contract, the artist is in debt 2 million dollars to the label, and the label is momentarily out 2 million dollars (or so you think, but we'll get to this later).
The label knows they will receive 2 million back (the initial deal / loan) + 80-90% of profits on average (this can vary based on the contact). So let's say with that deal, the artist release an album and tours off the back of it. With all of that, let's assume the label brings in 5 million dollars in revenue.
With that, the label will recoup their 2 million dollars right away, and then take 80-90% of the other 3 million dollars, which would be 2.7 million dollars (assuming 90% of profits).
So... all in all, the record label will have made 5 million dollars, less their initial 2 million (or so you think, again, we'll get into this shortly), less three hundred thousand dollars paid to the artist, for a profit of 2.7 million dollars.
Sounds good right? Well... it get's better for labels, because the 2 million dollars the label spent on marketing, merchandise, hotel rooms, producers, diamond chains, a car and anything else for the artist was spent on companies they own or receive compensation from.
So for example... where record labels can, they would leverage in-house services to reduce costs.
Let's put it this way... if a label owns a playlisting company, to get their artist on in-house playlists costs them nothing, or very little to nothing, but they would still take that money out of the deal from the artist, as if it was a cost.
So now... that 2 million dollar loan, (at least some of it) never even leaves the labels bank account. As a result, rather than 2.7 million dollars in profit (in this example), they could be pushing 3.5 million in profit (for example).
Sounds pretty damn good for record labels right? What if we told you it got even better for record labels, for if the money was not paid back?
Remember how earlier we said, let's assume the revenue was $5 million dollars, if it was less than breakeven + interest / royalties, the deal would be over, but the artist would be in debt to the label...
At that point, the artist really only has one option, which is to sign another contract, put themselves more in debt, but hope that this time, they are able to make the label enough money to climb out of their debt.
It's a slippery slope for artists, and one for record labels that is extremely fruitful.
With all of that being said, let's dive into some more of the dark sides of record labels to be wary of.
One of the most infamous aspects of record labels is the often exploitative contracts they offer to artists, especially those who are just starting their careers.
These contracts can include terms that severely restrict an artist's creative freedom, ownership of their work, and even their ability to release music outside the label's jurisdiction.
While record labels do invest in artists' careers, they can also trap artists in unfavorable deals that limit their growth and hinder their independence.
Unfair Revenue Distribution
While streaming has become the primary mode of music consumption, as explained earlier, the revenue distribution model remains a contentious issue within the industry.
Artists signed to major labels only receive a small fraction of the revenue generated by their music, with the lion's share going to the label itself.
This uneven distribution of income can make it challenging for artists to earn a sustainable living from their craft, despite their music's popularity.
Pressure to Conform
The quest for commercial success often leads record labels to exert significant pressure on artists to conform to a certain image or sound that they believe will sell well in the market.
This pressure to fit a specific mold can stifle artistic expression and creativity, forcing artists to compromise their authenticity for the sake of achieving mainstream success.
In turn, this can lead to a homogenization of music and prevent the emergence of diverse and unique voices.
Limited Control and Ownership
Record labels commonly retain control over an artist's intellectual property, including their master recordings.
This means that artists may have limited say in how their music is used, distributed, or licensed for other purposes, such as synchronization in films, TV shows, and advertisements.
This lack of control over their own work can be frustrating and disheartening for artists who want to maintain their artistic integrity.
The allure of fame and success can sometimes blind artists to the predatory practices that some record labels employ.
From hidden fees and excessive charges for various services to false promises and manipulation of an artist's career trajectory, these practices can leave artists feeling exploited and trapped in a cycle of deceit.
Profiting From Deceased Artists
Lastly, it's important to talk about how record labels not only make money long after their artists release their last music, but also even profit of their artists passing away.
There are four main revenue streams that record labels take advantage of when their artists pass away being...
1 - Increased number of streams and music sales.
After an artist passes away, several blogs and news sources pick up the story, which sparks interest among the public to revisit the artists songs.
2 - Licensing opportunities.
The record label can license the artist's name, likeness or image for merchandise, documentaries and commercial ventures.
3 - Opportunities for box sets.
The record label can release and sell bonus content, unreleased tracks, remastered versions of the artist's work and so much more.
4 - Opportunity to release tribute projects.
The record label can release tribute albums or commemorative projects to honour the legacy of the artist, all while profiting off of it.
At the end of the day... record labels have a dark side, and a pretty big one too!
While not all record labels engage in unethical practices, it's crucial to acknowledge and address the darker side of the industry.
As the music landscape evolves, more independent artists are finding ways to sidestep traditional label models and retain control over their careers.
Empowering artists with knowledge about their rights, the fine print in contracts, and alternative paths to success can help them make informed decisions and navigate the music industry with greater agency.
By shedding light on these issues, we can work towards creating a more equitable and transparent music ecosystem that benefits both artists and listeners.