Tips For Starting Your RECORD LABEL in 2022
I’ll tell you right now, 99% of record labels will fail when they don’t have an entertainment attorney guiding them through the process. This is because if you fail to do all the things you need to do to stay legally protected, there is a huge catastrophe waiting for you down the road and for the future of your record label. One of those things is when it comes time to invest in artists. More than likely, you’re going to have a lot of artists, a lot of bands that don’t knock it out of the park, and they end up becoming a bad investment for your record label.
What does it mean when we say invest in the artist? We talk about this when it comes to the artist agreement with your record label. It looks like two things: 1) It’s either an advance that you give to the artist, or 2) expenses that you pay on behalf of the artist.
Advances. When it comes to an advance, the advance is going to be something like a signing bonus. That is usually going to be recoupable, which is defined in the contract. Meaning, you sign an artist, and you give them an advance for signing the deal. That is an amount of money that your record label is now out, and you need to try to recoup it. Your ability to recoup that is dependent on how well that artist does. If you did a record with that artist, you released that record, streaming revenue might not meet the advance amount. You might get a share of that artists live performances or sponsorship deals, but that artist may never take off. That is why this is such a gamble when you are signing artists to your label. This is also another reason why a lot of new labels won’t do advances. Instead, they will only agree to cover expenses.
Expenses. You are still advancing money. You are paying for things like studio time, music videos, and marketing. While the investment might be a little bit less, you are still making an investment. Quite frankly, representing all the labels that my law firm does, we run into a lot of issues where we have problems with the artists. The label will lose their investment, not necessarily because the music doesn’t take off, or because the artist isn’t doing well. It’s because a bunch of problems arise with a particular artist that the label was not anticipating. One of those things could be when a label decides to sign an artist way too soon. You are signing someone super green, who has no social media presence, and has never released any music. But, you believe in them and you’re excited about them, or they are super talented and you want to help them to make their dreams come true. That’s all fantastic. But, when you attach yourselves to artists, you are now responsible for what happens because you are the record label.
If the artist has a change of heart, and wants to go in a new direction, not really pursue music, that is a very bad situation to be in because now you don’t even have an opportunity as a record label to recoup your money.
It’s looking at the artists commitment to their own career. Are they going to be a good partner for your label? Are they hustling on their own? Are they working independent of anything else coming in? The way I like to describe it is, when it comes to deciding when we are going to spend money on artists, have them go through a little grace period. When it comes to deciding how much to spend, look at the value of what that artist can potentially bring. If you are growing them from nothing, that’s okay. You have to play a more long-term game. You have to give that artist some time to build up their catalog, their touring abilities, and their presence online. Don’t go all in on that first artist, or even the first 10 artists that you sign. Test the relationship to see how it goes. Might be for one song, might be for one EP or one album. But don’t go all in until you know whether or not it is a good investment.
What you really want to be doing is pouring gas on fire. That is how you need to think, even with your marketing. When do you want to start investing money into marketing for an artist? This might be the most valuable thing you take away from this article. When it comes to pulling the trigger and dumping a bunch of money into marketing, do that when there is already some buzz happening. Do a lot of tests. You might think you know what the hit song is going to be, you might think you know what is going to take off, but you don’t. The market is going to tell you what is working. You, as a business owner, need to look at what is working. Don’t put the cart before the horse! Meaning, don’t try to blow the artist up from obscurity by paying thousands for ads on Facebook and hoping that it results in an audience for your artist. That is the quickest way to blow all of your money as a record label. This is what I see so often with new labels and why a lot of them do fail. Be conservative up front!