MUSIC BUSINESS RESOURCES FROM CMU
Record Deals Explained
Find out how record deals work and the different options artists have when releasing recorded music – in five easy steps. This is based on the Record Deals Guide produced by CMU for the MMF – MMF members can access the full guide.
#01: As a frontline artist’s career progresses they will start to work with more business partners – including distributors and labels
Frontline artists – also sometimes called featured artists – are the musicians who are up front on stage, who build a brand and release music under that brand, and who seek to grow and monetise a fanbase.
Every frontline artist sets up and runs their own frontline artist business, through which they build and manage their brand and fanbase. As their career progresses, an artist will also ally with music industry business partners who provide investment, support and services to help grow that frontline artist business.
When it comes to recorded music, the traditional business partner is the record label which organises the recording sessions, gets the recorded music to market, and runs the marketing around each new record release.
Although labels usually take responsibility for the recording, distribution and marketing of each new release, they might actually outsource some or all of that work to other companies within the record industry, like recording studios, music distributors, marketing agencies and royalty management companies.
Many artists ultimately sign a deal with a label. However, many artists basically operate their own record labels and then directly hire the services of the other business partners, especially a music distributor, which gets the music onto all the digital platforms, and may provide other services too, especially around marketing.
Today, pretty much all artists begin by self-releasing music through their own labels, initially using a DIY distributor, which is a company that provides basic distribution to anyone who wants it, usually in return for an upfront fee.
As momentum builds, the artist can continue with that approach – possibly allying with a higher level distributor that provides more services and support – or they can sign a more conventional record deal with a record label.
To understand the pros and cons of those different approaches, it’s useful to understand everything a label might offer under a conventional deal and what they will usually want from the artist in return.
In addition to working with a label or distributor, an artist will also join a collecting society, which in the UK is PPL. Both labels and artists join PPL.
In a small number of scenarios – mainly when recorded music is broadcast or played in a public space – a collecting society issues the licence and collects the money, which it passes on to labels and artists, in theory based on what music was used.
#02: Artists work with labels to access a range of services and support
What support and services a record label brings to the table depends to an extent on the specific label and the specific record deal. However, most labels will support their artists in the following ways.
| A cash advance. Labels usually provide artists with some upfront cash. How much money varies greatly, depending on the specifics of the deal and how much cash flow the label itself has access to. For early career artists in particular, this cash injection is really useful for helping to grow the wider artist business. It might also be what allows the artist to give up the day job and focus on their music full-time. |
| Artist development. The label may support the artist’s creative development. This may be simply through informal feedback, or by funding songwriting and recording sessions, or by organising and funding collaborations with other artists, songwriters and studio producers. |
| The recording process. Labels usually take the lead on the recording process, ie getting the artist into the studio; hiring producers, sound engineers and session musicians; possibly connecting the artist with songwriters; and inputting on the creative process. At the very least, the label provides the budget to pay for this. The label will also put together a plan for releasing the music that has been recorded; and will create and manage all of the visuals, branding and content that accompanies the release. Artists and their managers will also be very involved in this process too, of course, and the specific role of the label will depend on the expertise, resources and preferences of the artist and their management team. Indeed, in some cases, the music will already have been recorded before the label even gets involved. When that happens, the label’s role may be more about covering some costs and managing the actual release of the record. |
| Distribution. The label will distribute the artist’s recordings to all the digital platforms, including download stores, streaming services, user-generated content and social media platforms, and so on. As noted above, artists can access basic distribution via a DIY distributor and the label will be delivering the music to all the same platforms. However, the label might have better deals and stronger relationships with those platforms which will benefit the artist. If there are going to be any physical releases, the label will arrange the manufacture of the discs, and then also get those to market, ie into record shops and onto mail-order sites like Amazon. The label may also oversee any direct-to-fan sales of physical product. |
| Marketing. This is perhaps the most important role of the label. Getting music onto the digital platforms is easy, getting people to listen is much harder. Labels will provide a range of marketing support – utilising either in-house marketing teams or hiring (and paying for) external marketing agencies, or sometimes a bit of both. This work includes pitching music into the digital platforms and playlists; creating content for social media; planning and paying for social media and other digital advertising campaigns; and pitching the music to radio, press, podcasts, TV, clubs and so on. It might also involve things like working with online influencers, buying ads in media or on billboards, and just generally seeking support from media, industry, brands and elsewhere. Some labels have strong brands themselves and their own loyal fanbases, and any artist they sign then gets the benefit of that. So, the label’s audience – as well as key people in media, industry and elsewhere – will check out the artist’s music just because it’s being released by that label. |
| Data and analytics. The is very much linked to marketing. Today the music industry receives a flood of data – from digital platforms, social media, direct-to-fan sales, marketing emails, and so on – that tells us how fans are interacting with artists and their music. We can use this data to profile the fanbase, test the effectiveness of marketing activity, target fan messaging and, sometimes, profile the individual fan. Artists should have access to lots of data about their own fanbase. However, a label has access to data from across its roster. Which means each artist benefits from lessons learned and audiences built via all of the label’s other artists and marketing campaigns. Digital marketing is basically a trial and error game – ie you create some content, do some communications, maybe spend money with the social platforms, and then check the data and see if it worked. Labels often have a head start, because they already know what kind of activity worked for similar artists in similar markets on their most recent campaigns. |
| Rights data. When a recording is released, a set of metadata should accompany the release. Some of this data is required to ensure everyone is credited, some of it is about getting people paid, and some of it is used to help organise the music and aid discovery on digital platforms. While the artist and their team may need to gather some of this data, it’s the label’s job to make sure it is delivered to digital platforms and the record industry’s collecting societies, using agreed industry standards and codes. |
| Sync and other opportunities. Beyond getting people streaming and buying records when music is initially released, there are – of course – other ways to generate money from recordings, in both the short and long term. And that includes persuading TV, film and gaming companies, and brands and ad agencies, to synchronise the music into their audio-visual productions, and in doing so buying a sync licence. A good label is always looking for other ways to get recordings used and to generate more income. |
#03: A label will want a number of things in return for its investment
The label usually provides the advance and all of these services free of charge. So what does it want in return?
Again, that depends on the specific label and the specific deal, although most labels will be looking for similar things from each artist.
| Exclusivity. A label is usually an artist’s exclusive business partner when it comes to their recordings, which means the artist can only make and release recordings with that label. The exclusivity arrangement usually runs for a certain number of releases, so for example the artist may be obliged to deliver three albums to the label and can’t release recordings with anyone else until that is done. The label isn’t committed to release all three albums, but the artist is committed to provide them if the label wants them. The exclusivity arrangement may only apply to certain countries, although global deals are now very common. If the artist wants to make and release recordings with other artists and labels while they are still bound by the terms of their record deal, they will need to get their label’s approval and likely share any income generated. |
| Copyright ownership. Record labels are traditionally copyright owning businesses, meaning a label wants to own the copyright in any recordings it releases (though not the songs contained in those recordings). It might be the copyright owner for life of copyright, so it will control the recordings for as long as they are protected by copyright. Or it might own the copyright for a set time and then the rights transfer to the artist. Not all labels insist on copyright ownership. An increasing number do licensing deals where the artist owns the copyright in the recordings, but grants the label an exclusive licence for a set time period. During that time period, the label acts as if it is the copyright owner. Whereas in the past record deals generally involved the label owning the recording rights for life of copyright, today fixed-term and licensing deals are much more common, which means rights reverting to the artist at some point. |
| Revenue share. Once a recording has been released, the label will seek to monetise that recording in as many ways as possible. Any money that comes in will then be shared between the label and the artist. The share of the money paid through to the artist is usually referred to as royalties. Quite how this works will depend on the deal. Under conventional record deals the artist would usually get a minority share of any income. Today that might be 20-25%, though in the past it would have been less. However, some indie labels do a 50/50 split and there are some deals where the artist actually gets a majority of the money. The rate may also differ depending on revenue stream, so an artist might get 25% of streaming income but 50% of any sync income. When an artist has a percentage share of the money, a key question to ask is what that percentage is applied to. There are two approaches with record deals. One approach is that the percentage is applied to any wholesale income generated by a recording – so whatever the record shop or digital platform pays to the label at source. This used to be called the published price to deal, so deals using this approach are sometimes known as PPD deals. The other approach is that the percentage is applied to the profits generated by a recording, so income minus the label’s costs, including any commission charged by the label’s distributor. With profit share deals the royalty percentage is applied to a smaller amount of money, but the artist is usually getting a bigger share, with a 50/50 split common on these deals. On PPD deals, while the royalty rate is applied to wholesale income, ignoring any costs incurred by the label like distribution, the label will usually be able to recoup some of its upfront costs out of the artist’s share of that income. It will definitely be able to recoup the cash advance, but often some other costs too. |
| Ancillary revenues. Traditionally record labels only got involved in an artist’s recorded music and therefore only shared in the artist’s recording revenue streams – even though the label’s investment and marketing might boost the artist’s wider business and therefore their other revenue streams. However, some labels will also seek involvement in some of the artist’s other revenue streams as well. These are often referred to as ancillary revenues in record deals. Quite how this works differs from deal to deal. The label might get actively getting involved in those other revenue streams – so they also become the artist’s publisher or merchandiser – or the label might simply take a cut of monies the artist generates with other business partners. This became more common in the mid-2000s when – during the initial shift from physical to digital – recorded music income across the board was in decline and labels said they needed to share in other revenues to justify their upfront investments, especially with new talent deals. As recorded music has gone back into growth since the mid-2010s, many artists and managers have tried to remove ancillary revenues from record deals, though there can still be reasons why including them in a record deal makes sense for both parties. |
As you can see, there are many different elements to a record deal. Any artist negotiating a deal that involves a multi-year commitment and/or sees a label take control of any copyrights should always seek formal independent legal advice from a specialist music lawyer before signing anything.
#04: Artists have a number of choices when picking a business partner to work with on their recordings
In the MMF Record Deals we organise the different options available to artists picking a business partner around their recorded music into ten deal types.
The first three involve working with a DIY distributor – which is where most artists begin. Most of these companies offer basic distribution to digital music platforms in return for an upfront fee. Although some work on a commission model and some will also advance money to artists once their music is getting steady streams.
The next three involve working with a higher-level distributor that works on a commission model and provides more support to the artist. Quite how much support depends on the deal. Some artists will also work with their distributor on marketing their releases. And some distributors offer other label-style services.
Once a distributor is offering all these extra services, it might call itself a label services or artist services company.
The final four deal types involve working with a label. Some labels will work with artists on a distribution deal basis, working more like a distributor. Then there are more conventional record deals, with PPD deals versus profit share deals, and the option of choosing to work with a major label or an indie label
MMF members can access the full guide which goes through how each of the ten deal types work, and the pros and cons of different approaches, in more detail.
#05: The basic rule is that the more services and support you access from a business partner the more rights and revenues they will want
When it comes to how artists work with business partners on their recordings, there are more choices today than ever before.
Which is a good thing. Although it also means that artists – usually guided by their manager and lawyer – have to decide which options are best for them.
The key two questions an artist should ask when making that decision are as follows: What do you need from your recordings business partner? And what are you willing to give up in terms of rights and revenues?
Some artists prefer to release music through their own labels – working with a distributor – because it means they can keep control of all their recording copyrights.
Though, as noted, many labels will now also work on a distribution or licensing basis, or take copyright ownership but then allow the rights to transfer over to the artist after a number of years.
The general rule in this domain is: the more an artist wants from a business partner in terms of advance, marketing and other support, the more they are going to have to give up in terms of rights and revenue.