Major record labels absorb most other costs out of their own pocket — such as duplication, shipping and staff costs — and those costs do not factor into the calculations of what is to be paid to the artist. In most net profit deals, a label does not have to pay the artist anything neither hefty advances nor, under many contracts, any mechanical royalties from internet downloads or physical sales until the label has recouped all costs fronted by it. This is, of course, appealing to labels, particularly in the current music business climate when the foremost concern of indie labels are front-end costs and just trying to survive financially.

This advantage needs to be weighed against the back end — that is, if the record is successful and the costs relatively small in comparison, then the net profit deal will be less profitable for the label than would be the case with a traditional record deal. Like in a traditional record deal, the default situation in a net profit deal is that the recording agreement sets out that the record label is the copyright owner of the performances recorded during the term of the recording agreement, by way of assignment of copyright.

In cases where the artist is able to cause a reversion of ownership of his recorded performances contractually via negotiation an occurrence that usually happens only with the biggest superstars or in the case of a licensing of preexisting masters agreement , that right is often subject to the record company having recouped all costs paid on behalf of the artist. On a traditional label deal, most labels that work on a royalty basis will try to maintain the payment of just a royalty to the artist in the same way that a royalty is paid on a physical sale, but generally without factoring in packaging deductions and free goods, since these elements are irrelevant.

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Payment of a 15 percent royalty on a 99 cents download i. However, on a net profit deal, the artist will do much better than a royalty deal of 15 percent. On a split of net, the artist will see about 25 cents plus mechanicals, whereas with the royalty traditional deal, the artist will see just 15 cents plus mechanicals.

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As digital income is the fastest and exponentially growing area in music revenues [7] , it is likely that more and more acts will be drawn to the net profit deal option, which ensures a split on streaming and download revenues, rather than the traditional record deal option. Both major and indie labels should join forces, in order to lobby the European Commission and other European and US institutions, about that issue of defining what digital revenues are in law, license or sales or a hybrid of both?

A deal is a boon for any record label.

In Their Words: Everything You Need to Know About Record Labels

Mostly favoured by major labels, a deal has two components:. Acts such as the Pussycat Dolls and Paramore have been reported in the media as having been signed to deals and, in , it was confirmed that Madonna had signed a USDmn deal with concert promotion company Live Nation.

It was reported that in exchange for cash and shares, Madonna gave Live Nation distribution rights for 3 future albums as well as rights to promote live concerts, sell merchandise and license her name and image. Factually, it is true that income from sales of pre-recorded music reached its peak in at approximately USD By , that amount had shrunk to only approximately USD7bn — a decline of more than 50 percent, not accounting for inflation. Under the traditional paradigm, the label would pay the recording artist a small royalty, which was even smaller after all the deductions.

Hence, the artist could expect to receive no recording royalty at all, unless his album was a major commercial success. However, the act got to keep everything else: publishing, merchandising, touring, endorsements, etc. Since recording artists, especially in the USA where the physical market is moribund and where no neighbouring rights are paid on terrestrial broadcast, often generate more money from other activities than record sales and performance, major and indie labels have insisted on taking a piece of the action, by concocting deals. These developments have spurred labels to seek to participate in all the possible revenue streams generated by the artist.

Even small labels, known as production companies, get in on the action and insist that new artists sign deals with them, even if they put little or no money into recording and make no promises in regard to marketing or promotion, while getting an assignment of copyright on the master recordings! There is no standard deal as the terms vary substantially from deal to deal, and from label to label. A lot depends on the track record and negotiating power of the artist, plus how much of an advance is being paid. Today, all major labels and their affiliates usually demand terms, especially when dealing with emerging artists.

So the artist may not have much choice, especially if his strategy is to leverage the formidable distribution channels and economies of scales offered by a major, to achieve wide-reaching and fast success. In a nutshell, EDM is one of the most lucrative genres in the music industry today. It went to N. While major labels and large indie labels may take a bit of convincing to enter the underground — and drug-fuelled — EDM sector, there is an untapped opportunity here that they can no longer ignore. At the other end of the spectrum of a deal, lies the label services deal which is a very palatable alternative to business savvy artists.

Indeed, the rise of social media, digital distribution, online platforms and direct-to-consumer technology has empowered artists like never before and brought them closer to fans. Interestingly, the services model is not just reserved for artists with enough capital behind them to fund a whole campaign and an already established fanbase likely to ensure a decent return. This services deal is being used by record companies too, as a quick and convenient way to establish an office abroad, push releases into international territories after domestic success, or to simply augment their in-house functionality with new capabilities as and when needed.

Even independent rights management groups, such as Kobalt and Fintage House [16] , are widening their services offering, adding label services to their roster. While the talent gives up ownership and control over their recordings, in a traditional deal, Kobalt highlights, on its site, that artists retain full ownership and control of their recordings. While a traditional deal provides for semi-annual accounting with minimal detail, says Kobalt, it commits to provide quarterly accounting with line-by-line detail on every type of income.

And the last straw: while a traditional record deal will not cater for any pay-through of neighbouring rights income, Kobalt says that it will collect and pay to artists the label share of neighbouring rights income! If majors want to attract legendary artists, nowadays, they must up their game in terms of transparency, redistribution of digital income, auditing and reporting of revenues [19 ]. Their old ways may work on new talent, who wants to make a fast buck, but seasoned acts will not go anywhere near a or traditional deal those days — especially since they have the cash to auto-finance their distribution and marketing campaigns through label services companies such as Kobalt.

What these acts are interested in, is to keep the rights to their recordings and catalogues and monetize those rights to the fullest, through music publishing, neighbouring rights, performance revenues and mechanicals.

Going Independent: 3 Basic Steps to Starting Your Own Record Label

As mentioned above, the major beef that artists and their managers have against labels and digital service providers is the lack of transparency, especially as far as digital revenues and neighbouring rights are concerned. The stakes are getting higher by the minute, with digital revenues — which comprise income from both digital downloads and streaming —growing by 6. Indeed, globally, like physical format sales, digital revenues now account for 46 percent of total music industry revenues. In particular, streaming is going from strength to strength, with music digital subscription services — including free-to-consumer and paid-for tiers — growing by 39 percent in , while downloading sales predictably declined by 8 percent but remained nonetheless a key revenue stream as they still account for more than half of digital revenues 52 percent.

Music industry analyst Mark Mulligan predicts that streaming and subscriptions will grow by percent from the levels, to reach USD8bn in , with download revenue declining by 39 percent. He concludes that streaming and subscriptions will represent 70 percent of all digital revenue by Universal Music Group is capitalising on the growth of streaming with impeccable flair, naming music and media industry executive Jay Frank, who founded the music and marketing analytics companies DigSin and DigMark, to the newly created role of Senior Vice President of Global Streaming Marketing [21].

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His role will be to get UMG acts on playlists, in particular through Digster, a company that creates themed playlists featuring mostly MHG recordings. In particular, right owners in the recorded performance of a composition — typically, the record label, the recording artist-performer and non-featured musicians and vocalists — repeatedly ask themselves how they are financially benefiting from this surge in streaming consumption and income. How do they get paid? Also, more and more DSPs want to know how they can access high-quality musical content and obtain the right to stream the widest music catalogues on their platforms, at a reasonable price.

Since scaling up is the key to success for any technology company, DSPs also want to have the right to stream such musical content all over the world. Finally, as the surge in musical digital consumption and income is becoming factual evidence, certain categories of income streams are developing and taking more of a preponderant role. While recorded music sales of physical products have declined 66 percent since their high in , revenues from overall neighbouring rights have increased dramatically, reaching Euros2. Musical rights represent around 90 percent of the royalties collected in relation to neighbouring rights.

Audio-visual rights are worth around Euros mn, benefiting mainly to performers, while the rest of these royalties around Euros1. Where are these musical neighbouring rights going? How are they collected then distributed? As a preliminary remark, it is worth noting that labels, in particular majors, were very prompt in renewing their grip on music distribution: they invested massively in DSPs, whenever the opportunity was arising. For example, Warner Music Group acquired up to 5 percent of Soundcloud in October [22] , and Warner, Universal and Sony have quietly muscled out stakes in the hottest digital streaming services, such as Spotify but also in choose-your-own-adventure music video purveyor Interlude and song-recognition giant Shazam — valued at USD1bn in its latest round.

Modern methods of monetisation for independent and major record labels: 360 and beyond

All-encompassing access to the artists and their songs. As explained in point 2. Neighbouring rights and digital performance of sound recordings below, the artists derive some minimal amount of royalties from these new distribution channels, but they were not getting any of the ownership.

This is a very smart PR move indeed from Warner because it means that this major understands that it needs to have all its recording artists on board, as far as streaming services are concerned. Streaming is where consumer behaviour and affinities are going, but currently Google-owned YouTube is growing quicker than everyone else, while labels need premium and freemium services to make up ground fast.

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Which is why they cannot afford the Black Keys-Taylor Swift-Adele- Coldplay-Radiohead trickle to turn into a free torrent available at will to fans. They need artists to be as vested as they are into streaming and DSPs. It remains to be seen whether Sony and Universal will follow suit, as far as sharing streaming equity with their respective acts is concerned.

It also detailed the subscriber goals that Spotify had to hit and how streaming rates were calculated. What the contract between Sony and Spotify did not stipulate was what Sony could and would be doing with the advance money. These revelations sent a shockwave in the music industry, with artists and their managers up in arms because they had already complained that earning on average less than one cent per stream play — between USD0.

Top talent such as Taylor Swift and Radiohead, in particular, left Spotify with fracas, in and respectively, complaining that end-consumers did not pay enough to access their catalogues on Spotify. In , Deezer even had to pay 94 percent of its total revenues to record companies as minimum guarantees no wonder that IPO went south! Meanwhile, royalties from subscriptions and ads fell short of this advance payment in , and — totally approximately Euros In total, the deficit between the two numbers amounted to Euros This Euros Therefore, while the payment of an advance by a DSP to record companies is justified if the streaming platform then generates the same or even more revenues through subscriptions and ads, the system is inherently flawed if the advance ends up exceeding the annual streaming royalty income.

When that happens, the label is inevitably left with a lump sum — in this case over Euros20mn — sitting in record company bank accounts, but which cannot be attributed to any specific artists.