Why are major recording deals still so attractive? What is the number one thing that separates the big record labels from the independent artist? Can and should independent artists try to compete with major label artists? How does a major label work differently and why are there so few major labels while there are so many smaller ones? There are a lot of questions that come to my mind when I think of the music business. Having run multiple small businesses (one with around 200 employees), I’ve gotten a handle on business in general and understanding how businesses fit into the economy, and while this may be boring to a lot of artists, there’s a reason why the idea of a “starving artist” is so prevalent and it’s precisely because most artists don’t understand economics (it’s also why record labels exist and thrive). First though let’s look at what an economy is.
Wikipedia defines “economy” as an area of the production, distribution and trade, as well as consumption of goods and services by different agents. If you’ve been in the music business even for a short period of time, you’ve probably heard many of these terms especially if you live or are familiar with the US music business (Asia in the past couple decades has capitalized on the model created by pioneers in the US and now rightly has a booming music business economy and Africa and South America are doing well too actually). So, with this definition in mind, we have the area of production which includes the artist, the songwriters, the musicians, the beatmakers, the mixing/tracking/mastering engineers. but also the guitar manufacturers and software synth designers, the plug-in makers, and so on. The producer is largely responsible here as well as the producer is supposed to be the one who fills in the cracks and directs the project to make it happen – to make sure something is “produced”. Of course, A&Rs and agents and managers help here too so they shouldn’t be forgotten. The point I’m trying to make though is that there are many people responsible for making the actual product which is a song.
After the song is produced, there are videos to be made and then in comes directors, lighting crews, hair and make up, back up dancers, choreographers, set builders, camera operators, post production editors and special effects experts, colorists, etc. There are people writing the stuff at the bottom of the YouTube videos and people uploading the content across the 100s of distribution channels and thousands when you count the physical ones. Album art and the people making the CDs and pressing vinyl. There are the lawyers, the booking agents, the live sound engineers and the guitar techs. There are photographers and journalists and DJs and roadies and tour bus drivers and the people who set up the fog machine, stage lights, and such. There are the security and merch sellers and people who make the merch. Of course, we have the web designers and graphic designers too. These are some of the people responsible for the distribution and trade portion.
Then finally we start getting to the consumers like the record stores, festivals, club owners, radio station programmers, the online distributors and the restaurants and car dealerships that use music for atmosphere and eventually the end consumer the listener. The short answer to the questions above is that big record labels use the best people available for the job and they do this because they understand the economics of the music business. When the best people for every job are used, there is a better chance for a great project to come together.
Those big recording contract deals aren’t always the most money for the artist on paper, but the truth is that most artists can’t do all the things the big labels can do for a few reasons. If the artists is doing everything, then the artist can’t focus on being an artist and while I don’t think there should be anything that stops someone from doing whatever they want, it’s often impractical because of time restraints and since time is money, this is also a money problem. Big record labels though have money saved up because they’ve made so many deals that ended up being profitable. Most indie artists spend more money than they make. The big labels reinvest a portion of their earnings into new young artists every year and they keep going through this cycle. Most indie artists put out an album or two (or none) and the album is entirely self-funded and the funds aren’t usually close to what a major label can afford. Over the last 100 years though, many artists have learned to save money (operating like a smart business owner) and also invest it wisely. This has shifted the power into their hands, but not directly into indie artists pockets and that’s ok, but it should be noted how they did this. Occasionally, a small business (artist) can run a crowdfund, or has another method of being able to invest properly, but that’s rare and for them to grow into a bigger business is even rarer. There are so many small labels because it’s easier to create one nowadays. Some just make a logo and a Facebook page and call it a day while others go the route of getting business licenses and paying corporate taxes. This is where things get difficult and where an understanding of economics comes into play and why businesses (and you) should hate taxes. Taxes are supposed to paid on income, but they’ve also started to be put on transactions and payments as well. What is the immediate effect of this? Lets look at a small example:
An artist wants to make an album. The artist can either invest personal savings or try to get a record deal which is basically a loan from an investor. Every time that money changes hands, the government will try to tax the transaction either as income to one person or as sales tax which gets passed on to the one spending the money and sometimes both (like when the artist buys a guitar, they pay sales tax and then store pays income tax etc). What this does is take money out of the music economy and sends it to the government. Because of taxation there is suddenly less money in the music economy to go around. Do this several times over paying a recording studio (taxes), the recording studio paying employees (taxes), property taxes for the recording studio (taxes), the electricity (taxes), the equipment (taxes), buying CDs (taxes), etc all the way down the line. Of course, this makes the product cost more which as well all know, consumers aren’t too keen about. Thankfully, live show ticket sales are up (some festivals/concerts have tickets for thousands of dollars – consumers don’t realize concerts could be cheaper if they actually bought the albums, but that’s another subject. Anyway, the artist who wanted to produce an album ends up sending much of the money out of the community and generally doesn’t know how to write off expenses because they don’t understand how to navigate the tax code… but businesses do. In fact, those big record labels are very much directly responsible for making it easier for them to make money and pay less for the same work that the average indie artist wants done. An indie artist can compete with big labels, but they’ll need to understand the music business, how to properly make a profit, AND how to reinvest their profit if they want to compete with the major labels.
Furthermore, the indie artist has to not be so independent and instead be interdependent and dependent on other people. Then again, no one says the indie artist needs to compete with the major labels. Art doesn’t have to make billions of dollars a year, but if you want to make some money with your art, then taking some cues from the wildly successful major labels is a good idea. This is what has brought about so many smaller labels that have been successful. Major labels actually do suffer when there needs to be a change in direction or function in their monster-sized machines and smaller labels can more easily make changes. Personally, I feel that small business is the backbone to any economy. With lots of small labels, they are spread out and monopolies don’t form which suck for both the consumer and the artists. Big labels are investing in small labels for good reason – they know this is true and while they missed the online revolution, they have caught back up. Business to business models are something more indie musicians should be looking emulate if they want to succeed and to do that they’ll need to think like a business in the first place. Doing so will ensure better music variety and competition will bring out better music and better music will make for better sales, better shows, happier consumers and less starving artists.
If you want some help figuring out how you can improve your business, get in touch with me or someone else because there are a lot of people who LOVE music and want to help keep the music economy growing so there is plenty of music for the next generations and full bellies.
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