The BIGGEST Scam in MUSIC: Record Labels
There’s no question that one of the biggest perceived scams in the music business are record labels. We’ve heard time and time again of really successful artists who will be making millions and millions of dollars, and yet they’re taking home little to none of that. Now, as a real-life music attorney I have a chance today to actually share with you guys how these deals and practices actually work. I’m pulling back the curtain and I’m exposing these record labels. I’m going to break this into three main sections of how these deals work, how these tactics and practices work by record labels, so that the label ends up making pretty much all the money from artists.
1. Advances. By definition, an advance is the sum of money that the record label is fronting, which goes directly into the artist’s pocket. This is like a signing bonus. There are other types of advances that you might get, but anything that is advanced to the artist, no matter how it’s dollied up, has to be paid back. The bottom line is that as the artist taking that advance, you owe it back to the record label. That’s going to be in your contract. It will say you get a certain amount, but that amount needs to be paid back before you get to collect on your music, live shows, and on any other earnings, which is discussed in your contract. The reason why that matter is because you’re taking a loan. Always understand that an advance is a glorified loan. You’re going to owe it back one way or another.
Ultimately, the record label has that business control over what’s happening with the finances. You’re probably not going to see a whole lot of bank statements, you’re probably not even going to know how the money is being spent, or who it’s being spent on, and in most instances, you don’t have a right to know how those expenses are being paid. Bottom line, you’re going to be stuck with a huge loan and you may never see one dime, even if you end up becoming an incredibly successful artist or band.
2. Royalties. Royalties are the earnings from your actual music. The way that these deals are typically structured is that the artist is getting a very small percentage. If you have 100% of the earnings, the artist in some instances might be making as little as 14%. There’s a difference between “gross” and “net“ as well. “Gross” means all the money that the artist made, versus “net,” which means the record label is going to recoup its expenses off the top, and what’s left over is what’s going to be split between the record label and the artist. In 100% of these major record label deals, the artist is getting only net earnings. So, if it’s 14%, the record label is paying itself back first, then at some point, the artist will be entitled to his or her share of royalties, but that will be a small percent.
Who’s making a living on this? Who’s able to really build when they’re in financial debt? That’s why you see some of these artists who will end up branching out and they’ll start a shoe line, they’ll start a makeup line. It’s these efforts to bring in further revenue because they’re getting such a small amount. Remember, the artists signed away their soul for whatever that signing bonus was in the beginning.
3. 360 Deals. Record labels have gotten a little sneaky on this, they don’t call it 360 deals anymore. What they do is they use different sections in the contract to basically do the same thing. The way that 360 deals typically worked is that the record label signs the artist, has a share of the music that they distribute, then the record label says I want 360 of everything that the artist makes. That’s going to be live shows and merchandising and any other stuff that the artist does. For example, the artist might go and get an acting gig, not necessarily related to the music, but still in the artist’s entertainment career, so the label will nonetheless earn a share of revenue from that acting gig. These 360 deals are good for the record labels because they allow the record labels to collect a little bit of earnings from everything that the artist does.
The artist might say that doesn’t really seem fair because the record labels typically are only distributing music. But other than that, they’re not getting your gigs, they’re not your booking agent, and they’re not helping to set up your merchandising. In a lot of instances, the record label will just take a little piece of the entire pie. This used to be called a 360 deal. Now, it’s just in recording contracts in various sections.
The bottom line is that when you sign with any record label, part of the deal is that you sign your music to that label. That label will forever own your music. You probably can’t buy it back, you probably won’t have any say in what happens to it, and it’s a gamble. We hope the record label is going to come in and make us big stars, but even if they don’t, the label still has won because they were able to keep the music at the end of the day.
Back to my initial point where I said keep in mind that we are just talking about businesses, and record labels are just music businesses. Don’t fear the label. Don’t think you can’t do a deal, you can. Make sure you have a real entertainment attorney to review your contract and to have your back if you go that route. But, think of this alternative. What if you built your own music business? What if you empowered yourself to learn these skills? I say don’t fear the record label, become the record label. Become your own record label. If you’re serious about your career you have to get serious about becoming a real music business, whether that means you’re becoming a real life record label yourself, or you’re just building yourself a structure by getting a Limited Liability Company (“LLC”), getting the trademark to your name, and doing these 101 things to protect yourself in your career.