How to Start a Record Label

If you have a keen ear for music, a knack for recognizing talent and good business sense, you could make millions by starting a record label.

More than ever, smaller record labels are wielding serious clout in the music industry. Do you want to be the person who finds the next big thing and unleashes it to the world? These days, you might be one great song and a really sweet marketing campaign away from being Mr. Record Man.

At the heart of it, starting a label is about finding talent and developing it. “Creating art isn’t about profit and loss, it’s about creating art,” says Grant Dexter, CEO of one of Canada’s largest indie labels, MapleMusic Recordings. Running a label is about profit and loss, he cautions, and you have to be willing to work very closely with artistic personalities to build something special.

The right artist and the right song at the right time can be huge. A couple of million dollars of investment can turn into hundreds of millions. Or you might just get to hang with the band. You have to be competitive in today’s music market: The more innovative your strategy and business model, the greater the potential for profit, and the more likely you’ll survive.

Seek rising talent

Starting a label is about working on speculation. You have to be self-confident and maybe egocentric in believing that your tastes intersect with whatever segment of the public you’re targeting. You need a keen understanding of musical trends, an ability to spot talent in the rough and the fortune to scoop it up at the right time. You’ll also need the fortitude to sweat the small stuff to give your bands their best shot. To do that, you need to have a passion for music and know what’s out there, what’s hot at the moment and what will be hot in 10 years.

Know all the types of labels

Before getting started, you need to know the lay of the land. First, you have the majors; the big four are Warner, EMI, Sony BMG, and Universal. The majors are owned and affiliated with larger companies that have diverse holdings outside the music industry and they control a variety of sub labels that they’ve gobbled up through time.

Then there are the independent labels. Typically they fall into two categories; those distributed through a major, and those with no affiliation with a major and only have independent distribution.

Create your company structure

Labels generally consist of a variety of departments that handle the artists, the making of the music, the promotion of the music and artists, and the distribution.

A&R (artists and repertoire) reps find and develop talent. They’re the link between the recording artist and the rest of the label throughout the process of making a record. Sometimes this involvement includes sending the artist back to the drawing board if necessary.

Learn how to choose your business model and more…Increasingly, producers are taking on the A&R role of finding, signing and developing talent, and finding songs, producers and songwriters that match the artist. Aligning yourself with someone who has the ears, contacts and studio chops to get your new artist’s music on record is a major plus.

There’s also your marketing department that deals with promotion, advertising and publicity. Promotion people pitch music to radio, television and anyone else who’ll play it, on and off line. Sales and product managers ensure that marketing, sales and promotion work together to maximize an artist’s presence in the market.

Your financial, business affairs and legal people will come in exceptionally handy when the licensing department is looking to place your act’s music in movies, television shows and commercials, on cell phones, and in video games.

Since you’ll be starting small, those departments may consist of you and you alone at the beginning. You might be able to trick a few people into working with you if your persuasive enough. In some cases, you might be better off outsourcing responsibilities. You may start by farming out tasks, but as your infrastructure grows, you can become a service provider for other companies doing radio, publicity, marketing, finances, and web services.

Learn about digital distribution

Getting product to people in the digital age isn’t as hard as it once was, but getting the public to pay for it and cutting through the background noise of all the music out there might be more difficult. Basically, the music industry is pretty thankless; you’re really only as good as your last project. It’s easy to get lost in the shuffle if your partners don’t share your vision.

It’s high-risk investment. As with any business, it can take years to break even, let alone turn a profit. The young band that you invest your time, capital and energy in could make millions and cement your reputation as the bravest, hippest new label out there or they could implode in a heartbeat during an onstage brawl on live television, taking your investment with them.

If you’re a musician yourself, starting an indie label is one way to spread the word. That’s how Dead Daisy Records, began, says its owner/operator Emm Gryner. At first it was just a logo to put on her record, now it represents a small, but growing, group of artists who are pooling their resources and making a profit.

It’s all about partnership: “With investors,” says Dexter, “you have to have people who absolutely understand what you’re doing, that it’s not a traditional investment strategy. If you’re partnering with a major label as distributor, you need the president or an executive of that label to be your ally and be exciting about building the business with you.”

Choose your business model

You might act strictly as a label that finds and develops talent, makes records, and partners with a distributor to get the music to the public. You could also opt to take a greater role in your artist’s careers and function as their management as well. As the industry struggles with expanding competition for the average entertainment dollar, person-to-person file sharing, and declining sales, the smart money is on people with innovative and inclusive business models — companies that diversify in terms of the services and products that it offers.

How to make money and more…
Record, manufacture and sell CDs

“The little-known secret about CD sales is this: Not only have they dropped 35% in five years [as of 2007], but the average business should be growing 3% to 5%. You’ve got to grow, keep up with inflation, and pay your employees. The other secret is that the value of the shipments were down 10% last year, so not only are you selling less, you’re selling it for less to your retail partners. The only way to stay in business now is to go to the artist and say, ‘You’re a young business and I want to invest in your overall business,’” says MapleMusic Recordings CEO, Dexter.

That means taking a piece of the entire package; from merchandising to touring and publishing — all the revenue streams that an artist generates. In return, the artist receives a larger portion of sales, and potentially more than they would have in a traditional deal. Look at it this way and your label won’t have to be about just selling music. It’s selling the artists, their clothing lines, the perfume, and so on.

Find funding

When you’re starting a record label, you’re not just competing with illegal file sharing, you’re also competing with the cultural bulldozers that dominate the U.S. market. Meet your other potential business partners: private and government organizations that provide funding for culture as well as tax breaks and employee support programs.

Strictly speaking, many labels — large and small — wouldn’t be able to survive without programs like this. Before you get too deep in the laying of plans and scheming out the entertainment industry, see what kind of support there is for you and tailor your business model to maximize your chances of getting all the financial support you can.

While you’re at it, bone up on the art of creating a compelling proposal to convince your potential benefactors that some of that tasty funding should go to you.

Corner your market

Just as important as communicating your vision to your partners is communicating that vision to your artist’s audience. Honestly connect with the fans of your artists by giving them quality music and creating a brand that is as compelling as the music you release. Treating music consumers like they’re as important to your bottom line and longevity as they are to your artists lends additional credibility to you, your label and your artists.

the future is in your hands

While the music industry changes and comes to grips with the revolution in user-generated products, new technology and a rapidly shifting market, there’s a greater demand for music than ever. For a new generation of entrepreneurs — like you — it’s a perfect opportunity to come in under the radar and scoop some market share for yourself.

By: Kevin Young (Askmen.com)
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