Are record labels dying?
That’s a question that you should be asking in 2023, especially if a label exec’s just handed you a deal with a giant smirk on his face. Because (if you ask us), record labels today are FAR more desperate than they ever were. With the increasing ease of going independent & monetising your music online, you could argue that in many respects, they’re becoming redundant.
Besides, at one time, Signing To A Record Label was the only way you’d have any hope of making it BIG in the Music Industry… unless of course ‘Daddy’ had a ton of £€$ & connections. But for 99.999999% of us, we weren’t that lucky. So it was either take a deal, or kiss your dream “bye-bye”. The type of power that (as you can imagine) led to a LOT of artists signing crappy deals, just to secure their 5 minutes of fame. Really look at it, & you could even dub it as emotionally-fuelled blackmail.
However, now that this ‘exclusivity’ is no more, & independent artists are beginning to break into the charts, the question remains: are record labels dying? And is the whole record label concept still going to be a thing in 10/ 20 years time? Or are labels that deep-rooted in the music industry that they’re forever going to have the upper hand? Read on & we’ll highlight how record labels have been forced to change over the years + reveal whether we think they’re dying a death.
After something specific about why record labels are dying? Or just curious how they operate in today’s day & age? Jump into the menu below to get all the answers you need @ record pace…
How do record labels make money?
Before understanding why record labels may not be doing as well as you might think, it’d make sense to understand how they make their money. Do so & you’re FAR more likely to see the correlation between their income streams & how the recent changes to the industry have forced them to seek out new means of generating cash.
REMEMBER: As much as record labels are about the music, they’re an investment company. By investing in artists, they in return get the rights to various forms of intellectual property & can make money off the back of an artist’s brand.
So with that, let’s waste no more time about it – here’s just a few of the ways that music labels make money…
1. Royalties & album sales
By signing to a record label, an artist agrees to something called a split.
This split indicates the percentage of album sales (& other profits) that the record label will be entitled to, in exchange for giving the artists an advance. Now, before you get too excited, it’s worth noting that these are pretty much always in favour of the label.
To give you an idea of what this looks like, here’s an example of a good split: 80/20
That equates to 20% of profits & album sales going to the artist, while a whopping 80% goes to the label. And while of course, the split depends largely on who the artist is (i.e. their amount of leverage), splits of anything above 50/50 are pretty much unheard of.
2. Ownership of master recordings & publishing rights
It’s very rare for an artist who signs to a label, to be able to retain the rights to their master recordings.
Because these are arguably the biggest income stream labels have. Look closer at the majors & you’ll see that the majority own the rights to some of the world’s most popular music. Sony ATV for instance own the masters to not just Micheal Jackson’s music, but also that of The Beatles, Bob Dylan & even certain songs by Eminem!
In short, this means that any time those songs are played in public, streamed, remixed by another artist or sampled as part of a new song, the label will be the one cashing in. Not the recording artist. #RealityCheckAboutRoyaltyChecks
3. Publishing rights
Not all labels own the publishing rights to the music of artists on their roster. But in the case they do, they’ll have the authority to say whether the music is used in advertisements, TV shows, films – virtually across any form of media.
And then, when a deal to use the music is struck they’ll be the ones who get paid – not the recording artist. So say if a rap song is used as part of a fast food commercial, & a label owns the publishing rights, they’re the ones who get paid for its use.
Extra income labels make when signing artists to 360 deals…
As you’ll discover below, in recent years, labels have had to adapt.
By that we mean introduce a new type of deal to give them a bigger steak in an artist’s brand & overall profits. Most likely because of the slump in CD sales & increased competition due to the internet. This deal is called the 360, & the way it works is much as it sounds.
Sign a 360 deal & an artist is allowing the label not just to make £$€ in the ways suggested above, but also through the following means…
4. Touring revenue
Sign a 360 deal & more than often, a music artist will owe a %-age of their touring revenue to their label.
Originally, record contracts would allow an artist to keep 100% of their touring revenue, as it was classed as a personal piece of income, separate from royalties & CD sales. Something that they could then use pretty much how they like, be that to buy a house, support their family or pay down their advance.
However, over the past decade or so, in attempt to eek more profit out of record deals, this is just 1 area where artists have been required to ‘give up’ revenue to labels. And while some say this is to supplement, it hasn’t stopped skeptics (i.e. folk like us) from wondering whether it’s tactical. Increase an artist’s reliance on a larger advance (which is in essence, nothing more than glorified debt) & you can make even more £$€ out of them when they struggle to repay it.
Just a thought.
5. Artist ventures
Yet another way music labels capitalise off the back of 360 deals is by gaining a piece of any venture or company an artist may form or create during the course of their contract.
So for instance, if a label signed a bubblegum pop-star, who went on to launch her own clothing brand or create a bespoke line of perfume, then they would also be entitled to a cut of any profits. Just as if a rapper went on to sell his own ‘How To Rap Masterclass’ online or a Rockstar signed a deal with a guitar brand to create their own line of guitars.
The clauses of a 360 could even dictate that the label is even entitled to their share of more personal business deals, like brand collabs & sponsorships!!
6. Sales of merchandise
It’s a well known fact that artists make a decent portion of their money through merchandising & selling clothing + other goodies to fans. However…
Should an artist sign a 360 deal, they’ll likely (almost always) end up signing a portion of these profits over to the label. For most artists, this is usually at least 25%! Meaning that even merch sales these days, can double as another passive income stream for a label; have 50+ artists out on tour selling merch, & that number’s soon going to stack up, especially if the artists are BIG names!
21st century record labels: How have they been forced to change?
It’s worth noting that record labels haven’t always needed this many streams of income.
In fact, back in the day when labels were the sole gatekeepers to the industry, not only did they require less income streams to function, but they also had less artists on their roster; back in the day, being on a record label was FAR more exclusive! Something that (yes) upped the pressure for those artists to deliver, but at the same time made artists back in the day more of a long term project/ investment for labels – a drastic change from the ‘pump & dump’ strategies you hear about today.
So to give you an idea of how labels have evolved, here’s 3 ways in which music labels have changed in the 21st century…
1. The introduction of 360 deals
As hinted at above, the launch of 360 deals a decade or so back, allowed labels to claw back extra profits. Money that they were losing out on, due to the drop-off in CD sales.
MP3s (& especially streams) have far smaller margins than CDs, so the introduction of the 360 allowed them to (in effect) supplement that lost income by demanding rights to other areas of an artist’s career. As highlighted above, 360 deals are by far the tightest record deal you can get as an artist.
Hence why many industry critics claim that those who sign them, have in effect: “signed their life away”.
2. Adapting to the digital landscape
With digital marketing now being ‘the’ way to get noticed online, labels had no other choice but to keep up… or at least try. Something that’s led to a dramatic shift in how they operate.
Many labels have (in effect) evolved from physical distributors into full-blown digital marketing agencies. Something they’ve had to do in attempt to keep up with the ever changing digital landscape, not to mention the affects of digital on music distribution & consumption. A shift that understandably has caused a lot of ex-industry colleagues to walk out, claiming that modern music labels are less about developing artists & more about achieving numbers.
Something to bear in mind if you’ve just been offered a deal!
3. Signing hella artists to up their chances
With more artists being present across every genre than ever before, labels are now said to be signing record numbers of artists per day.
Well, that’s partially because finding the next superstar today is a matter of a lucky dip, but also (from what we can gather) a rather more sinister reason.
Rumour has it that labels are now even offering deals to artists they don’t even like!! Why being simple – it gives them control over what these artists release. So should the label see Artist X as a serious threat to the career of Artist Y (an artist they’ve poured hella £$€ into), they can sign Artist X & then prevent them from releasing any music, while they push Artist Y out to the masses without any issues.
8 reasons why record labels may be starting to die out…
1. Anyone can set up a record label… from their bedroom
Indeed they can.
Hop on YouTube & you’ll be hit with a bunch of guides on how to set up your own record label, as well as how to sign your first few artists. An exciting prospect for someone just starting out! However for established labels, this really only equates to one thing – more competition. Which as any savvy label exec already knows, can drastically impact not only what you have to offer in order to attract the right artists, but also how much you can demand in return.
In short, the more choice an artist has, the more ‘attractive’ labels have to make their deals. Something that’s even impacting major labels today. Because while they do have the whole ‘MAJOR’ image on their side, if an independent label will give an artist perks like…
- Allowing them to buy back their masters
- Agreeing to a lower split
- Offering them more attention (i.e. working more closely with them to develop their brand)
Then they’re pretty much forced to make some allowances. Fail to do so & they could risk missing out on the next BIG music trend.
2. The sheer lack of physical album sales
Ever since MP3s & streaming came about, music labels have been left with quite the financial hole.
Something that’s mainly down to a drop in album sales, & how digital products come with a far lower ROI. So while back in the day a label could manufacture CDs in bulk for a matter of pence, & resell them through their distribution network for £10-£15 each, today the story’s not quite so simple.
In fact, in order to get placed in the charts, some artists are even having to give their albums away – something which you can usually spot via a T-shirt bundle or some sort of special edition giveaway. To put this into perspective, just for minute consider this…
Back in 2003, 50 Cent sold a whopping 872k physical copies of his iconic album, ‘Get Rich Or Die Tryin’ in the first week! Whereas Drake (arguably the 50 Cent equivalent of today in terms of record sales in Hip Hop) sold just 204k in the first week of releasing his latest LP, ‘Honesty, Nevermind’, with only 11k of them being pure sales; the rest were made up of on-demand streams.
A drastic drop in not only sales, but also profitability too.
And then, when you bear in mind just how much £$€ has been invested into Drake’s image + marketing, you really do get a sense of how much less profit is able to be made off the back of the actual music itself.
In other words, how much harder labels are having to work, to reap what can only be described as far smaller financial reward.
3. Artists no longer need a middle-man
There’s no escaping the fact that for music artists, the internet has tipped the scales. So much so that many artists these days aren’t even sure they need a music label full-stop.
You see, one of the main attractions of music labels back in the day, was their vast distribution network & the fact they were virtually the gatekeepers to all the most popular artists. So, if you wanted your CD in stores, you needed a label. If you wanted to collab with a big name, you needed a label. And even if you wanted to secure brand promotions & get more involved in the wider media, 9 times out of 10… you needed a label. Whereas today, the situation’s a whole lot simpler.
Artists can distribute their music online for a small fee. They can slide into the DMs of a popular artist with 1 click. And instead of having to beg for media promo like a simp, the majority actually get reached out to by the brands themselves.
So when you really look at it, artists are more independent than ever. Which understandably makes the whole thought of giving X amount of equity in your brand to a middleman, FAR less appealing!
4. Genres are seriously more competitive
Back when labels had full control of what music was released, there’d be very few times when a genre would become overly saturated.
See, back then, there were only so many boybands, crooners & rockstars for a reason… the less artists in one genre, the more influential each artist became. Have 1 Elton John & he’s incredibly valuable. Have 3 Elton John’s & suddenly ‘the’ Elton John would be FAR less of pretty much everything… profitable, iconic, sought after – you name it.
So really, until the early 2000s, the music industry was pretty much a game of ‘label VS label’, with neither wanting to oversaturate a certain genre, as they understood how too many artists in one space could (in effect) devalue all artists across that specific genre.
Whereas nowadays, where independent artists can publish music in whatever genre & at whatever frequency they like, that selective philosophy has been tossed out of the window. As an artist on a label today, you need to make a SERIOUS amount of noise to command anything close to the attention artists got 20 or so years ago. All of which comes at a cost…
(cue the inflated marketing budget).
But that’s not all…
4.1. Labels have had to change how they operate
Consider how labels have been forced to adjust, & suddenly you realise how much power they’ve lost.
Whereas at one time, labels were able to (in effect) manufacture a trend & then milk it dry, before proceeding to create another – nowadays they’ve lost that luxury. If anything, labels are the ones playing catch up – trying to predict the next hot trend before anyone else, & then sign the best artist they can to carry it forward. A process they have to constantly repeat, due to the sheer pace at which today’s music is evolving – something that stems back to the sudden spurt in independent artists.
Something that’s most likely the reason why music labels are often accused of not investing enough in artists development & instead just jumping on what’s hot. Because in today’s day & age, where trends come & go overnight, artists have become a lot like stocks…
Assets that labels have to ‘pump & dump’ in order to generate a profit.
5. Influencers exposing the small-print
With the rise of the internet, up & coming artists are a lot more aware… or at least they should be.
Ask someone 20/ 30 years ago what a good record contract looks like & unless their Dad was a music lawyer, they’d no doubt have very little clue. Perhaps they’d have a read a few tips on what to look for in a book, but that’s really about it. Whereas now, there’s a heap more FREE guidance.
Guidance that (unfortunately for labels) never really seems to be in their favour. Let’s just say that there’s no shortage of ‘music label horror stories’ floating around on YouTube. Hardly what you’d call reassuring PR.
Team that with the fact that sample contracts are now readily available online + how there’s countless videos explaining the intricacies of said contracts, & you begin to see how the internet is making life for labels ever more difficult. Some artists have even shared copies of their contracts through the media to help artists understand what the typical deals look like.
Major props to Drill rapper, Fivio Foreign, for doing just that!
All info that can very easily make artists reluctant to sign with a label. And as a result, mean that labels miss out on what for them, could be some of the most profitable opportunities.
5.1. The death clause
If you want to get specific, then we’d say this is arguably the biggest ‘legal leak’ of the lot.
Quite alarmingly, the death clause is much as it sounds.
It’s a clause that allows the music label to take out an insurance policy that pays out in the case of your death. And while this is common practice in most other industries, with the funds typically being used to cover the costs of finding your replacement, in the music industry where artists turnover such a large amount of £$€, it can equate to a HUGE payout. Something that basically means artists that sign a contract that contain such a clause, are walking around with a gigantic price on their head.
It’s this clause which is thought to be the real reason behind the ‘accidental’ deaths of Prince, Whitney Houston & even Michael Jackson! If an artist worth X amount of million dies, the label ‘accidentally’ inherits as SERIOUS amount of money.
To learn about this sinister clause in more depth, dive into the video below…
6. Artists now know labels have a motive to keep them in debt
Sounds kind of twisted, but it’s true
According to the majority of record contracts issued by labels, artists are paid in 2 tiers…
- Reduced %-age of royalties – Until an artist has paid down their advance, the amount of royalties they can accrue tends to be capped.
- Agreed %-age of royalties – Once the artist has paid off their advance, they receive a higher royalty rate, which is usually the rate that’s classified within the split.
Then consider that the majority of artists on labels are also liable for their expenses – those flash cars, fancy meals, custom pieces of jewellery you see them flexing on IG – & you can quickly see where this is going. Artists getting caught up living the high life (on what is in effect, a loan) only to find out that they’ve overindulged & are likely to never reach the point of fully paying down their advance – i.e. that higher royalty percentage is pretty much unobtainable.
There’s a reason that over 90% of record deals fail to recoup… we’d bet our left leg that this is it.
7. Being independent is affordable
At one time, the thought of being an independent music artist on a professional level, meant that unless you had £30k to invest in building your own studio, then you’d be pretty much out of options. Whereas today, that’s not the case…
Have just £500-£1000 to spare & you can pretty much buy yourself a basic home studio setup. That being everything from a vocal mic & stand, to a budget audio interface, Digital Audio Workstation & a solid set of studio monitors. Team that with one-click music distribution & easy promo over social media, & it’s pretty affordable for even a small independent to get set up.
All of which makes the advance you’d be offered through a label far less appealing, as heaps of money (while incredibly tempting) is no longer a necessity for new artists to get started.
8. Independent = total freedom
With a music label being a business, it’s no surprise that all acts on their roster are held to some form of targets.
As creative ourselves, we’re aware of just how restricting this can be. In many cases, trying to KPI something that’s creative is really just a recipe for not getting the best out of someone. And while of course you could say that’s our personal opinion, there are a LOT of artists who’ll back us up.
In many cases, label artists have signed a deal for a certain number of albums, which they have to deliver over a specific time period. All of which are subject to approval by the label. So if an artist was to spend 11 months writing an album that the label doesn’t like, then they may have to go back to the drawing board & spend even more $£€ creating another. Hardly ideal if they’ve got just 1 month to do so.
Hence why a lot of artists argue that deals like this seriously restrict creativity. Restrictions you can skirt round by being independent & working to your own timescale.
Yet another reason that could seriously deter artists from signing with a music label.
But guys – Are record labels dying? Will they become extinct in 10/ 20 years time?
The state of record labels is a funny one.
Because while compared to 20 years ago, there’s no denying that the influence/ control labels have over the music industry has significantly dropped – we wouldn’t say they’re by any means dead… yet.
In other words, that while a music label can still offer an decent amount of value to an artist, their bargaining chip is smaller than it ever has been. So while of course, music labels are by no means dead, we wouldn’t be surprised if (given another 20 years) the concept of a record label is nothing more than an outdated business model in a history book.
Or at least in the traditional sense.
Because whatever way you look at it, there’s no escaping the fact that music labels are clutching at straws more than ever. Yes, they’re by no means bankrupt & still do have a LOT of talent on their rosters, BUT given the growing amount of distrust in labels + the recent spurt of independence, we’d be tempted to say that could all change… very quickly.
In other words, labels need to start looking ahead & working out how they can modernise their approach.
By that we mean, turning their focus away from the ‘pump & dump’ strategy of today, burning the dodgy contracts of the past & working to redefine their reputation as trusted investment firm, that’s capable of helping an indie artist level-up their career. Because let’s face it – as time goes on, artists are only going to be presented with more tools & options, which means if labels choose not to change, then they’ll likely end up being made redundant, almost overnight.
Tossed aside. Kicked to the curb.
On the verge of extinction.
Enjoy this article on why record labels are dying, & eager for more? Jump into our latest Latest Music Industry Advice, as well as all the knowledge we’ve accrued around Labels & Deals. Recently, we also wrote an article on Using Type Beats + another on Questions You Should Ask A Music Lawyer, which may also be a good read.