This is one of three Creative Growth Project guides focussing on the music industry. It explores the practical considerations of setting up and running a record label, including: Product Know your product, recording, release format, product image
Label Label compatibility, the deal and deal models, distribution, label infrastructure
Buzz Publicity, know your market
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Areas to consider
Product
Label
Buzz
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Recording
MCPS Viral
Currency
Radio
Web
Own music / other artist
Press & marketing
Artwork
WOM
Infrastructure The deal
Image
Label
Product
Buzz
Compatibility Artist / label collaboration
Reputation Release format
Digital
Live
Physical
Distribution 3/40
Know your product Before investing time and money into establishing a label, research your product thoroughly. If planning to sell your own work through the label it would be wise to canvas opinion on the artistic quality and perceived commercial potential of your product from trusted professionals and peers.
Objective, valued opinion is key.
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If you intend to release the work of others, research: •
Artist’s track record
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How long the band has been together?
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Whether they have a manager
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Whether they are gigging regularly
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How stable does the band appear?
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Where would you position them in the current music scene?
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The band’s ambitions and work ethic. 5/40
Having fully considered whether you believe that there is a market for the recorded works, you can begin to imagine the full package: •
Recorded work
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Associated artwork
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Band image
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Product format and packaging
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Presentation to the press
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Recording •
Have you / the band already recorded the product? If not how will this be financed?
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Will recording costs be met by the label or will external funding be applied for?
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The budget should include; •
pre- and postproduction
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studio time with an engineer
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musician costs where applicable and
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Red Book, digitally encoded master copies of the recording
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Mechanical copyright protection society (MCPS) If the recorded work is your own, you should apply for an MCPS waiver. If it is not, you will require an MCPS licence to cover whichever formats you intend to make available for sale. Most reputable pressing plants will not release stock until the relevant paperwork is presented. MCPS levies are currently 8.5% of dealer price or 6.6% of units manufactured multiplied by number of copies shipped, which are then passed on to the artist less an administration fee.
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Release format Currently the most common formats are CD, MP3 and vinyl. Other options include mini-CD, memory sticks or cards, cassette tape and even Gameboy cartridges. Thought should be given to the most appropriate format for the music and its intended consumers. Each format has pros, cons and cost implications. MP3 is by far the cheapest mass cloning method and easiest to disseminate in that there is no physical product. CD reproduction has become cheaper through vigorous industry competition and currently costs around ÂŁ1 per unit for basic packaging in quantities of 1000+. 9/40
Vinyl is currently around twice the price of CD production on orders of 1000+. Be aware that mastering for vinyl is significantly different to mastering for CD and will require an additional process if releasing in multiple formats. A poor master can render vinyl unplayable. Other formats are generally more expensive and should only be considered for tightly targeted promotional use or if product price can support it. Physical product requires physical distribution and stock control. Digital product requires a download facility such as iTunes or the
label's own web-shop.
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All products require a bar code (UPC – Universal Product Code) if intended for third party retail. This code identifies your product as unique and can be purchased from a variety of third party retailers typically for around £20. The code is sent to you as a graphic which can either be embedded in your product design or produced as a sticker. Each track must also be assigned a PPL ISRC code for the ease of digital identification for Performing Rights Society / MCPS royalty collection. 11/40
Product image Whichever format or combination thereof is decided upon, the product also needs a visual representation. Whether in the form of cover-art or video, animation or still photography, arresting imagery will encourage more people to listen to, write about and promote your music. With the advent of digital photography and editing, visuals do not necessarily require an enormous budget. Choose images that are sympathetic to the band, the music and its fan-base. If the image does not correspond, the fan will be left confused. 12/40
Take particular care that artwork submitted for manufacturing complies with file type and template requirements. Lack of attention to this can turn into an expensive learning curve. Make sure that images used have copyright clearance and are properly credited. Innovative packaging can also boost interest and sales. Homemade covers give fans a point of perceived contact with the artist. Limited editions imply rarity and collectability. These approaches can also cut manufacturing costs (but will extend assembly time!). Examples of innovation in this area stretch to releasing an album as a tin of soup with a download code on the label.
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Label compatibility The next question is whether the product is compatible with the label's identity. If the label is to be built around the product, this identity can be tailored accordingly; but if the product is to sit side-by-side with existing releases the question of identity holds greater importance. Label identity can be as critical as artist identity. A label without a clear mission statement often finds repeat custom elusive.
Customers are more likely to return and extend loyalty if they feel that the label understands and represents their listening tastes. This can be an extension of life-style aspirations/perceptions that are
suggested by the look and feel of the label and its merchandise.
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Label identity can be as critical as artist identity. A label without a clear mission statement often finds repeat custom elusive. Customers are more likely to return and extend loyalty if they feel that
the label understands and represents their listening tastes. This can be an extension of life-style aspirations / perceptions that are suggested by the look and feel of the label and its merchandise.
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The deal Once all considerations have been addressed it’s time to think about doing the deal. Up until now most efforts have been creative and by nature, fun. It is at this point where you could lose a lot of money, sleep and credibility if business isn’t properly addressed. There are as many models for a deal as there are record companies. First consider what you will be offering the artist for a percentage of their revenue.
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Is the label covering recording costs?
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Is the label covering design costs?
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Is the label covering pressing costs?
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Is the label responsible for press and marketing?
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Does the label hold exclusive rights to the product?
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Are you licensing limited use of the product?
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Are you offering additional services such as tour support?
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What are you charging the artist for retail / promotional stock? 17/40
Recording costs can easily extend to thousands of pounds and initial pressing of 1000 CDs will cost around ÂŁ1000.00, including glass mastering*. Add to this artwork, MCPS, the administrative costs of press and marketing, stock-control, shipping, accounting, website hosting and maintenance, tax liabilities. These costs can be covered or split between the artist and label in a number of ways depending on the nature of the deal.
(*Glass mastering refers to the process of transferring data from a master onto a stamp used for high quality CD pressings.)
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Here are four common models of deal structure which use the following basic costs to form the basis of their comparison.
Recording costs = £2000 Pressing (1000 units) = £1000 Artwork (design and print prep) = £ 500 Press and marketing = £ 500 Total costs = £4000
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Model 1 A 50/50 deal after costs on physical release only. Assuming a unit retail price of ÂŁ10, the label / artist would have to sell 400 CDs before the band started receiving royalties or the label
started to make money after initial investment. 200 units are generally held back for press and marketing, leaving potential additional revenue of ÂŁ4000 between label and artist from the remaining stock.
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Selling all 800 units represents a high number of sales for most fledgling bands (and even for many established acts). There are also additional costs not accounted for in this example – legal fees, shipping, MCPS and the tax liabilities of both parties. To earn a basic living solely from this model a DIY label operator would require no less than 25 successful releases per year. 25 releases would in turn require a substantial investment by the label ahead of any returns.
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Model 2 The artist is responsible for delivering Red Book, mastered product and artwork. The label finances the manufacture and press campaign. The label starts making money after the first 150 unit sales cover the initial outlay, and the artist makes money after recording and production costs have been met. This model is clearly more attractive to the label in that it carries less financial risk and a faster return on investment. The artist takes the lion’s share of the risk and the onus is on them to sell sufficient stock to cover expenses. This model is also currently popular on the 50/50 basis.
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Model 3 The artist delivers mastered product and artwork and pays for pressing. The label provides access to press and industry contacts. The deal on revenue share may be adjusted in favour of the artist in that risk to the label has been all but eradicated.
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Download sales are not included in the above projections. These are generally set up through an aggregator who gives the artist and label access to providers such as iTunes, Napster, Amazon and Spotify for a fixed fee or percentage of revenue. Each of these providers also takes a fee, leaving the artist, if lucky, with around 50% of the track price. In the case of streaming providers such as Spotify the return is significantly less. Deals with aggregators or indeed the providers themselves improve with enhanced volumes of sales. 24/40
Model 4 The '360 deal'. Artist and label divide revenue on all associated product from the outset. The artist signs over 50% of everything, including merchandising, MCPS, PRS and PPL in return for label’s initial financial risk and access to press and industry contacts.
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All models The four described models are all fairly common within the industry at present. Many labels offer limited free stock in lieu of tour support. Others sell stock, to be resold at the artist's gigs, to the artist at reduced or cost price. Some charge a nominal sum for units distributed to press and radio. Digital sales can be added to any of the above models but generally deliver a modest return at the outset. For an overview on digital returns see on-line statistics: www.informationisbeautiful.net/2010/how-much-do-music-artistsearn-online/ .
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Distribution Having taken delivery of 1000 CDs or vinyl records, before you can commit to a release date, you need to arrange distribution. As physical sales are substantially down from those in previous decades, distributors are naturally wary of taking risks and therefore drive an increasingly hard bargain. The wholesale price per unit on CDs is currently just under ÂŁ5. This means that any previous sales models based on a gig unit price of ÂŁ10 have to be adjusted accordingly. Often the label is responsible for buying back returns (unsold stock) and paying for shipping in both directions. On high volume distribution this can be prohibitively expensive.
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Artists can distribute cheapest from their own web shop, incurring only P&P costs and PayPal fee, or from a third party vendor such as Resonance or CD Baby. Such vendors will usually ask for a modest start up stock to be shipped and reimburse the label - having taken commission and handling fee - as the stock sells. The benefits of using a third party vendor are that they handle stock control, P&P and sales accounting. As an artist, benefits from running your own web shop include the personal touch when mailing out to customers to encourage repeat custom.
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Digital distribution can be done through an aggregator such as Tunecore or CD Baby at a cost of around US $50. While this will distribute your music to every corner of the web, it still doesn’t guarantee that anyone will listen (far less buy!). Distributing locally through independent record shops can also be beneficial. Independents usually take around 30% of the sale price. A benefit is that shipping and returns can be expedited on foot.
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Label infrastructure It will be clear by now that artists require a working knowledge of the music industry, graphic design, the internet, web design, press relations and marketing. Additionally you they have to familiarise themselves with music law, tax liabilities and accounting. It is inadvisable to sign any agreement with a third party without appropriate legal advice. The Musicians' Union offers a limited service in this respect, but to get comprehensive advice artists should find a legal professional with music industry expertise. This advice doesn’t come cheap but can save considerable trouble and or money at a later date.
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A standard agreement between artist and label will require moneys owed to be paid at quarterly intervals. The artist generally has the right to inspect label accounts annually to ensure there are no discrepancies. Both parties must make themselves aware of their tax liabilities to HMRC. A label can be run with minimal hardware. A phone, a laptop connected to the Internet, a printer and stationery will be sufficient for most daily needs. Targeted databases for press and radio should be compiled well ahead of contemplating a release unless an outside agency will be employed to promote the product.
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Publicity Mechanisms are now all in place to distribute and sell the product. The artist now needs to tell the world all about it and how to buy it. Allow plenty of lead-time and be aware of targeted publications’ print
deadlines. Most publications prefer to review ahead of release – it gives them a sense of ‘scoop’. Some are happy to review postrelease but it can be a long wait in that their reviews are not time sensitive and there can be a queue of considerable length.
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Compile a press release (one-page) that describes the product in a factual and engaging manner. Post copies physically or electronically to carefully researched databases. There is, for example, little point in sending a jazz release to Kerrang for review. Make contact with the press in as many ways as possible – preferably in person or over the phone. Emails and unsolicited post often get ignored. Don’t be a snob. Metro and The Sun have huge readerships that specialist, favourite, independent publications can't hope to achieve. 33/40
Electronic press kits work well for printed press – keep in mind journalists are often equally interested in what the band looks like and any human-interest angle, as in the music itself. Encourage artists to do interviews on local radio and record messages for stations further afield that can be sent along with an electronic press kit (EPK). Many reviewers and stations require two copies of the CD and many are still unwilling to accept non-physical formats. Invite local journalist contacts to gigs. Show them hospitality and they'll be more disposed to writing kindly. 34/40
Labels should encourage their artists to post videos and blogs on as many platforms as possible and to play every gig that is offered. Word of mouth is also a powerful medium for creating a buzz and amongst fans and industry. Viral marketing is an additional tool for raising awareness of product. Notable examples of viral campaigns include efforts by Sandi Thom (YouTube 'phenomenon'), Arctic Monkeys (MySpace 'phenomenon'), Lily Allen (flash-game), Weezer (composite YouTube video ‘Pork and Beans’), Greg Pattillo and OK Go. 35/40
Know your market For the label and product to succeed both should have currency relative to the marketplace. Even if the product sits in a niche, subgroups within the listening public are constantly redefining themselves through choice and allegiance. The Internet presents an unparalleled window into shifting trends by affording access to blogs, user-groups and ‘imagined communities’. This has widened and enhanced research possibilities into target markets and the competition far beyond the local arena.
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In conclusion The music industry has become increasingly 'long-tailed‘, (i.e. sales volume stretched over a longer period of time). It is almost inevitable that label owners will have to exercise considerable patience before recouping investments, let alone seeing profit. Running a label for profit has never been harder. Operating within this challenging environment demands an ever-watchful eye on digital and creative marketplaces and the ability to adapt to changes as they happen (preferably before!).
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Despite obvious risks and possible lack of remuneration, there are still many benefits to setting up a label. Above all, they enable useful contacts right across the industry. If the label represents part of a portfolio of activities within the music industry, these contacts are invaluably transferable. If the owner is also the artist, there are added bonuses of control and personal accountability. If releasing other artists’ music, the label is helping to create a ‘scene’ that the owner can release their own product into. Ever since the internet’s democratisation of music, which has lead to more releases than ever before, there is truly safety in numbers and benefit by association. 38/40
Useful links A selection of CD manufacturers:
A selection of digital distributors:
www.testa-rossa.com
www.tunecore.com
www.birnamcd.com
www.cdbaby.com
www.discwizards.com
www.theorchard.com
Barcodes: www.cdbaby.com
A selection of physical distributors: www.properdistribution.com www.shellshock.co.uk
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Next steps Please refer to the two other music guides from the Interreg ICV
Creative Growth Project: Making Live Music Pay
Making Music: Managing Rights and the following relevant Cultural Enterprise Office resource:
How to Contact the Press & Media
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Cultural Enterprise Office would like to thank Haftor Medboe, Edinburgh Napier University and the Interreg ICV Creative Growth Project for use of this content.
Disclaimer: Cultural Enterprise Office is not responsible for any advice or information provided by any external organisation referenced in this document.