Music Business Made Simple: Starting A Record Label. What Does a Record Label Do?

by J. Scott “Skip” Rudsenske, Attorney, MusicContracts.com

A record label’s sole function is to create and sell “records”.The term “phonorecords” is defined in the copyright law and was originally created to refer to all recording configurations created and eventually was used by the music industry to refer to physical configurations such as vinyl records, cassettes and compact discs. Though it is perfectly acceptable to refer to all configurations, including digital downloads as "records", since its likely that physical configurations eventually will become obsolete, the industry has been transitioning to the term “audio products” or just "product" to refer to generally refer to all formats.

Except for the money a label invests in producing audio products, every dollar it spends has one purpose: to sell these audio products. In this sense, a record label is really no different than a company that sells soap or cereal. It will conduct marketing studies to determine the type(s) of consumers that will like its product. Then, the label will promote its products to encourage those consumers to buy it. And like soap or cereal, both the artist and the recording that he or she has worked so hard to create are considered products—sources of income—to the parent company.

Record companies promote their artists’ audio products through advertising in the media, such as magazines, radio, television and the Internet. They may hire independent radio promoters to seek radio airplay. Labels also may promote sales in record stores by paying for those posters you always see on the walls, and by having a copy of the record at a listening station or in special high visibility areas in the store. A label’s publicity department will send newly released audio products to magazines and newspapers, hoping to obtain good reviews or stories about the artists. The size of the label and its monetary resources will dictate the kinds and amount of promotion it is able to do.

Not surprisingly, smaller labels tend to have smaller promotion budgets. Therefore, they have to find creative ways to promote their artists’ audio products. If you’re starting a small independent label, you may be able to do no more than produce the artist's recording, pay for minimal advertising and promotion, and provide the artist with audio products to sell at his or her live performances. This arrangement benefits both parties and should be acceptable to an artist who is in the early stages of his or her career. Your label is able to make a small investment in its product and your artist gets someone else to pay for recording, packaging, and promoting his or her audio products.

 There are some things a label should not do. The record company’s job is to promote and sell the artist's audio products, not to develop an artist. Yes, an independent label will sign artists who are less experienced and less developed than artists on major labels. Therefore, artists will be developing their talents and gaining experience while recording for your label. But many small labels make the mistake of signing artists who have raw talent but no performing or recording experience. Certainly, you want artists with talent, but ideally, you want to sign people who also have been playing live and spent at least some time in a recording studio. This will allow your label to spend its time and money promoting audio products, while your artists perform at live music venues and make appearances to promote their audio products further.

It may be difficult for your new label to attract developed artists, especially at first. But you should make it a priority to seek artists with some level of experience. very helpful to find artists who already understand this concept and will do the things necessary to develop their talents. They will utilize your record company as one resource in their endeavor, but will not rely on the label to develop them.

 One note of caution: you may hear about labels, usually locally, that say they can do it all for an artist. They’ll provide coaching to help develop the artist's live performance and recording skills. They’ll manage the artist and book the artist’s shows. And of course, they’ll produce, promote, and sell the artist’s audio products. This is too much. They’re spreading themselves too thin, and are almost certain to fail to live up to their claims.

 Don’t be one of these labels. As I tell my clients, if you are going to be a record label, be a record label and leave the coaching, managing, producing, etc. to the professionals who know those jobs best. Through networking, you’ll meet managers, agents, etc. who develop talent. The best thing you can do is to establish a good relationship with these professionals and introduce your artist(s) to them. Allow them do what they do the best, while you focus on your business: producing, marketing, and selling high-quality recordings.

Things You Can Do Today To Build Your Label

1.    Understand that a record company’s sole purpose is to promote and sell audio products, and think of creative ways to promote and artist’s record with limited resources.

2.    Seek out talented artists who have at least some prior recording and performing experience.

3.    Focus on running a record label and leave the coaching, managing, and booking to other industry professionals.

This blog entry is an excerpt from the book titled Music Business Made Simple:  Start An Independent Record Label that can be purchased at this link: Music Business Made Simple.

 MusicContracts.com provides all the necessary contracts for an independent record label at this link: Record Label Contracts.

Music Business Made Simple (Record Label Advice): Music Business Contracts As An Essential Tool

by J. Scott “Skip” Rudsenske, Attorney, MusicContracts.com

Entire law school classes are taught, and entire books are written, on legal battles related to the music business (see, for instance, They Fought The Law: Rock Music Goes To Court, by Stan Soocher). Most of these problems focus on contract disputes. That’s why, next to your attorney, the most important business tool available to you as a record label owner is the written contract. In fact, you can’t make money, sell records, or even exist as a label without contracts. The copyright and trademark laws are clear: whoever creates the vocal and musical sounds on the master recording (e.g., artist, producer, side artist, etc.), owns those sounds. Likewise, graphic artists who create the artwork for your records own that art as soon as it is created. Unless you obtain your rights in writing, any agreements you make with recording artists, producers, side artists, graphic artists, etc. are not valid or enforceable in a court of law. 

As a result, you could lose your rights to the recordings made—and paid for—by your label, including the right to sell them.The only way your record label can obtain the rights to use and sell the recorded performances on the master recordings, or the artwork you have chosen for the album or single, is for the label and the artist(s) to enter into a written contract, or agreement, that grants those rights to your label. (Note: the terms “contract” and “agreement” are interchangeable in the music industry.) Without this written contract, the master recordings will continue to be owned by the artist, producer, and any side artists who created them. And the graphic artwork will continue to be owned by the graphic artist. 

This is only one of many issues to be addressed in the contracts you sign with musical and graphic artists, but it is probably the most important. For any successful record company, written contracts are a fact of life. Over time, your label will have contracts with recording artists, of course, and probably with producers, graphic artists, distributors, and others. So make sure you obtain the necessary contracts (described in the following chapter), study them, and use them. This is a great way to establish good business practice from the start.

This blog entry is an excerpt from the book titled Music Business Made Simple:Start An Independent Record Label that can be purchased at this link: Start An Independent Record Label. .

MusicContracts.com provides all the necessary contracts for an independent record label at this link: Record Label Contracts.

Music Business Made Simple (Record Label Advice): First Steps to Setting Up a Label

by J. Scott “Skip” Rudsenske, Attorney, MusicContracts.com

You may be starting a label because you love music, but remember, it’s still a business. And as with any business, one goal of a label is to make a profit. Therefore, you should establish good habits and a professional approach from the start. This will make your life much easier and help your label to grow more quickly. It isn’t difficult to set up a label, and you can do some things on your own. However, I recommend hiring an experienced attorney to help. This is a good investment, because even the simple stuff can be confusing if you don’t know how to do it, and any mistakes you make in the beginning will cost more money to correct later.

You’ll need five primary tools to set up a label: Money, an attorney, a business entity, contracts, and an accounting program. As always, cash comes first. How much? Believe it or not, you can start a label for less than $2,000. This won’t pay for employees, expensive office space, or recording time in a fancy studio, but it will get you off the ground. You can pay some of the start-up bills monthly with income from your day job, but others will require a lump sum of cash up front. After reading this book you’ll be able to put together a budget for starting your label and operating it on a day-to-day basis.

Second, when setting up your label, you’ll have to decide what type of business entity it will be: Sole proprietorship, partnership, limited liability company or corporation. If the label has more than one owner, you will have to operate it as a partnership or corporation. In any case, you’ll need an attorney who is familiar with setting up businesses to ensure that your business (the label) is properly established. An entertainment attorney may or may not have this expertise.

I do not believe in overpaying for anything, especially legal service, but some expenses are inevitable. During the label’s set-up phase, I strongly suggest meeting with an attorney to make sure you are completing and filing all the necessary government documents. An attorney can also advise you about local, state, and/or federal forms that may be needed, such as a federal tax identification number form (if you will have employees and/or your label is a partnership or corporation), assumed name certificate (doing business as), sales tax certificate, etc. Once again, the fee you pay for an attorney’s time now will save you from having to spend a lot more to fix mistakes later.

Fourth, you’ll need contracts. It’s impossible to operate a record label without them. The music business is built entirely on the acquisition and exploitation of copyrights. Federal law says any agreement related to those copyrights must be in writing if it is to be legally binding. It is not sufficient to get oral agreements or a handshake deal with artists, producers, back-up musicians, or studios. Only written contracts are binding. Without them, you might find that you don’t own the recordings you’ve spent money to produce, or that someone who worked on the recording is expecting more money in royalties than you verbally agreed to pay. Without a written contract, your rights in such cases will not be certain. Instead of referring to a clear written agreement to resolve the issue, you’ll have to hire an attorney to litigate your rights and risk losing any or all of the rights you thought you had. Start out with written contracts and avoid these problems.

Most entertainment attorneys will provide contracts to you in a digital format for continued use. If you purchase contracts off the Internet or obtain them from a book or a friend, spend the money to meet with an attorney to review the contracts so you understand them and are able to adapt them to your label’s specific needs. It pays to do this right the first time. After this initial onetime cost, you can use the contracts over and over. As your business grows, you will want to meet regularly with your attorney to update your contracts. 

Finally, if you plan to sign artists, sell records, pay royalties, make a profit, and pay taxes, you’ll need accounting software. A relatively inexpensive program like Quicken or QuickBooks will reduce your workload considerably when it comes time to prepare accounting statements, pay royalties, and do your taxes. Many computers now even come loaded with a version of these programs. You can upgrade to more sophisticated royalty accounting software in the future, but this isn’t necessary when you’re getting started. If you have current accounting software on a computer, just use that or buy a good basic accounting program.

What does all this cost? The fees for filing an assumed or fictitious name certificate for a sole proprietorship can run $10 to $50. You will definitely want to use an attorney if you are going to set up a partnership, limited liability or a corporation (add $250.00 to $1,000.00). Accounting software will cost from $200 to $400. You will pay an entertainment attorney from $200 to $500 to help with your contracts, depending on the rates and specific services provided. Adding it all together, as little as $660 to $1,950 can get your label up and running—the right way.

Things You Can Do Today To Build Your Label

1. Begin saving money to pay for the start-up costs.

2. Meet with a business attorney to select a business entity for your label and file the necessary forms. Also, meet with an entertainment attorney to help with music contracts.

3. Acquire a simple accounting program and learn how to use it before you start operating

This blog entry is an excerpt from the book titled Music Business Made Simple:Start An Independent Record Label that can be purchased at this link: Music Business Made Simple.

MusicContracts.com provides all the necessary contracts for an independent record label at this link: Record Label Contracts.