How to Start a Record Label A Practical Guide 2012 Table of Contents Chapter 1…………………… Starting a New Business Chapter 2……………… Corporate Labels & Successful Indies Chapter 3.………………....……. Digital & Physical Distribution Chapter 4…………………………………………………….. Promotion Chapter 5…………………………………………………… Legal Issues Conclusion References Chapter 1: Starting a Record Label Starting a record label could be an interesting and fun venture. If you are passionate about music, especially music within a specific niche or genre, starting your own label is a unique opportunity to present your musical interests, knowledge, and tastes to others that appreciate your musical interests. If you truly feel there is a market for a genre of music that may not have been tapped yet, and feel strongly about providing for this market, than your own record label is the way to do this. Most likely your passion for music is what brought you to considering your own label, and no doubt this is where it should start; however, establishing your own record label should be viewed as a business first. Why? If you want your label to be successful, solid planning before presenting your label to the public and just about every day after this will solidify your overall reason for starting one in the first place. This is presenting great music so others can enjoy what you enjoy and possibly make some money along the way. A Record Label is a Business First First of all, a record label is a business that manufactures, distributes, and promotes musical acts or artists. There are two kinds of record labels. These are India labels and major labels. Indie labels are labels that don’t have a corporate sponsor. Major record labels have parent companies like Sony. If you are starting from absolute scratch, some initial planning will help to get your label off the ground and running. These are some initial questions and steps that will help you in the right direction: Initial Planning and First Steps:Getting Your Label off the Ground • Do you have any initial cash flow? You’ll need startup capital for recording, manufacturing, distribution, and promotion of your artists. • Have you established your label as a legal business? If not you’re going to need to. Having a legal business will open the possibility of funding through loans, possible grants, or credit cards. At the least, without a registered business you won’t be able to open a bank account under your labels name. • Establish your label as an LLC or a Sole Proprietorship. • Do you have a business plan? An initial business plan helps to delineate the different aspects of your venture in relation to the amount of funding that will be needed to start and maintain these different components. For example, a business plan will help you to brainstorm the cost of your essential functions that are necessary for producing and distributing music. Of these four initial steps the two aspects that will need concentrated consideration is establishing a business plan and attaining funding. Of course, with any business venture, without solid financial thinking and planning, it really doesn’t matter what you are attempting to sell, whether it is music or shoes, you’re going to run into much more trouble than you need to. Every Business Needs a Blueprint Your first step should involve collaborating with your partners, and developing a sound and reasonable business plan. This plan will not only help to make your record label appear to be a viable investment to creditors, it will help you to see some finer more detailed qualities that you may have overlooked without one. These are some general guidelines for getting your business plan up and running: Some General Guidelines for Creating a Business Plan Business Plan Sections Create a professional appearing packet with a catchy cover page. On the cover page include the names of the owners, the title of the company, and date. The very first section should be your mission statement or sometimes referred to the executive summary. This is a general statement that includes your businesses goals and what functions your record label will perform. Dedicate sections for industry or marketing analysis, your type of products and services that will be presented to the market, how you plan to distribute these products, and how you plan to promote them. You should also have a cohesive management plan as well. Market Analysis/Advertising: Include an analysis of who you want to get your music out to. Include their age ranges, tastes, where you will find them, and how you are going to get them to purchase the music you produce. You’ll want to include how you will advertise. Funding may be easier if you have a clear idea of who your customers will be and how you will attract their attention. Also, explain how you will attract talent, and what you will do to promote their work. Products: Outline the types of artist’s and music you wish to contract and produce. Distribution: Describe whether you will distribute digitally or physically, and your plans on how to achieve this. Management Description: Who are the people that own the business and what will their roles be? Describe what each person offers in terms of expertise and what individual roles each owner will fulfill. Include a Financial Section: Your current financial state needs to be presented in this section as well as your goals and plans for revenue generation according to planned benchmarks. These benchmarks are goals for revenue generation and are usually set at a year and succeeding time intervals following a year. Also, attach any documents to the plan that proves established income, property or assets. Anything that is outlined in the financial section should be backed by documents in a separate section. These usually are bank statements, financial records, or possibly loan documents. A Word on Financial Planning Naturally, by establishing a business plan, you will spend time determining what your financial situation looks like. A well thought and professional appearing business plan will help to put some clear borders around what your finances should look like when you have arrived at the moment of searching for who or what type of artist’s you want to sign to your label. This will also help you to get approval for business loans and attract possible funding from the government through grants as well. Possible Sources of Income to Consider Brainstorming all possible sources of income and conversely expenses will help to determine a clearer picture of your initial funding needs. These are some possible income and expense sources: • Record/CD Sales: any sales of physical products. • Licensing: extending licenses or permission for other record companies to release your recordings. • Merchandise, touring, ticket sales. • Digital sales and mobile apps. • Broadcast income: revenue from having your artist’s played on the radio, television, or any public venues. Expenses to Consider • Advertising and promotion: radio, print, digital, television. • Recording costs: studio costs. • Artist’s fees • Producer’s fees. • Physical manufacturing and distribution costs. • Digitizing costs for digital downloads. • Travel and tour expenses. • Expenses for basic supplies, utilities, and rent • . Learning along the Way and Adjusting is Essential Certainly, there are more ways to generate revenue, and this is no doubt a comprehensive list of the expenses you will incur along the way. Hopefully, this will help you to see that remaining financially viable while achieving your goals, will be an ongoing assessment of expenditures, modifications, and balancing your costs and revenues as best as you can. Learning along the way and adjusting will be an ongoing concept. Chapter Two Corporate Labels and Successful Indies In order to fully understand the current options available to those who are interested in establishing a record label. It is worth some time learning what the business is truly like, its reality. The reality is that……… this is a difficult business to break into unless you have major corporate backing, or a large revenue source. Understanding how corporate record labels function will give you an idea as to what it will take in order to be successful in this business. This is a general breakdown of what a corporate record labels are and how they function: Major record labels function under an umbrella of mini-record companies that operate under the guidance and backing of a parent company. Parent companies often own more than one record label. For example, Warner Brothers owns Reprise Records and BMG own Arista Records. The Anatomy of a Corporate Record Label • Each Record Company has a CEO (Chief Executive Officer) who is in charge of the entire company. • Each label under the company has its own president and vice president. Each vice president is in charge of a different department. Record Label Departments • The A&R Department (Artist and Repertoire). This department is very important. A&R people are tasked with discovering and signing new talent. They work with artist’s who are newly signed to their label and act as a manager between the artist’s and the label. They often decide who is going to work on recording and producing the artist’s first work. • Art Department. This department is in charge of all artwork that is involved with producing an album. This includes advertising as well. • Business Department. This department is like any other accounting part of a business. It is in charge of payroll, bookkeeping and finances. • Label Liaison. This department is in charge of any physical distribution and works to coordinate between the label and distributors. This department also plans record releases, so they are financially advantageous and do not conflict with any other releases the label may have. • Legal Department. This department is responsible for all contracts between the label and the artist’s. • Marketing Department. This department is in charge of creating promotion, sales, and publicity plans for each artist that is signed. • Promotion Department. This department works to ensure that new releases are being played on the radio, and have a television and internet presence. • Publicity Department. This department works in relative conjunction with the promotion and marketing departments to get the word out about a new or established artist. They use all advertising mediums available to do this. • Sales. This department mostly works with music stores so that releases are on music store shelves. This department, also for larger labels, has shifted to promoting digital sales as well. As you can see, a major record label has many different entities (departments) that work separately and together to produce and distribute music so that it is a commercial success. These departments make many carefully thought out and well executed decisions to produce and distribute music so that it is a commercial success. What Makes a Successful Indie The best way to succeed as an Indie, at least at first, is to specialize in a certain genre or music. Indies have become prolific due to a market demand for artist’s that can’t find a place with the major record labels. So, this is where market research is essential. When starting an Indie, attempt to match the genre of music you wish to produce and promote genres that may be commercially successful among specific target listeners. These Indies have-“Success Story” Reputations • SubPop: Succeeded in promoting local Seattle Grunge and Punk. • GoKart Records: Similar to Subpop; however, in New York City. • Moonshine Records: Electronic dance music. • Alligator Records: Specializes in the Blues. Take some time and visit these Indie websites, and try and ascertain how they go about attracting, promoting, and marketing the talent they sign. Also, study the different sections of their websites. SubPop:Seattle • Note the visual layout of their site and how they’ve listed different categories that are presented in a user-friendly format. This site is visually engaging with a combination of graphics and video of their artist’s album covers , while easy-to-find information about their merchandise, tours, bands, their blog, and new releases are well presented. Chapter 3 Physical & Digital Distribution The evolution of music distribution has gone from the vinyl medium to audio cassettes to CD’s and now music is essentially digitally-compressed into MP3’s that can be downloaded from a variety of music websites. Distributing the music you produce is a key function of your label. With the many options that the internet offers, you can distribute your music quickly, with less hassle, and at a far cheaper expense. There is no doubt, one day, probably in the not so distant future-CD’s will be obsolete, giving way to digital music, as they had made audio cassettes and vinyl obsolete. Nowadays physical distribution is essentially declining; however, CD’s aren’t relics yet. So, it is best to describe the two major models of distribution that Indie and Major labels currently use-a mixture of physical and digital distribution. Physical Distribution This is the old-fashioned way. However, the old-fashioned way still has its advantages and continues to lend legitimacy to artists and record labels. After all, anyone with a microphone and a guitar, and sometimes less than this, can post their music digitally on the internet. How to Physically Distribute Music: • Start with researching distributors for your label. An easy way to do this is of course an internet search, and old-school way, and probably a better way would be to visit some local music stores and ask about their distributors. • Once you have decided who you are going to contact, you need to be able to convince them that you are a client that will deliver a marketable product. You have to be able to sell to them that you’re worth the risk despite they’ll be working with a small and new label. How do you do this? • Distributors will want to know that they will be able to convince stores that your records will sell. They are going to want to know what kind of promotion you have done and plan on doing. This is critical, and this is where a detailed promotion plan for a new release will help your case immensely. • Create a promotion plan that you can submit to a prospective distributor and outline what your plans are to appropriately market a release. Are you going to contact radio stations? How will you use the internet? Do you have a tour planned? How will you get press coverage? • Also, if you don’t have a manufacturer on board, this will most likely hurt your chances. Distributors want to know if you will actually deliver the product. • If you appear to be a viable and solid label to work with by presenting yourself professionally, with of course great music to distribute, and with a solid promotional plan, you may be able to spark a M&D deal with a distributor. An M&D deal (Manufacture and Distribute) deal- is where the distributor pays for the manufacturing and the label doesn’t receive revenue from the release until the distributor has recouped its investment. These deals could be a break for small labels that don’t have the funding for manufacturing. The setback to this kind of arrangement though is that you could become in debt to the distributor and have subsequent cash flow problems. After you’ve found a distributor the next set of items to think about, and these are general and not exhaustive, are: • How many promos the distributor will need? • The price the distributor will charge the stores. • What percentage will the distributor take from sales? • In what way will the label see revenues? How much? How often? In what form? • How will the distributor fill subsequent orders of stock? The Basics of Digital Distribution Digital music distribution is selling music in an MP3 format. Through this format a record label and distribute its music on websites that act like digital music stores. There are essentially two types of digital distributors. One type sells digital music from anyone who wants to upload their music, including labels, and is very little involved with any kind of promotion. The other kind is a digital distributor that acts much like physical distributors do. They mainly work with labels and act as the middle-man between labels and internet store-fronts. EMusic, Tunecore, and CDBaby are examples of digital distributors. These distributors put your music on iTunes, Amazon, Napster, and other digital stores. Make sure to research as many of these as possible, so you can get a feel for what they offer and compare them. These are some pros and cons of distributing digitally: Pros: • Keeps the cost lower • The cost of using a digital distributor is much cheaper than a physical distributor. • You can sell right from your own web site. • It’s less complicated. You don’t have to deal with art designers, manufacturers, or distributors. Cons: • Promotion can be difficult. Some publications don’t cover all digital releases. • When your music is distributed physically to music stores, these entities have a stake in the process. Distributors sell to stores and stores can’t make any money without promoting what they buy from distributors. You are going to naturally lose some effective advertising. Deciding how much energy you want to devote to each of these forms of distribution is up to you. Of course, the more you know about each one, the better off you will be in choosing what is best for your label. As mentioned, most Indies are using a combination of both and in ways that coincide with finances.
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