Yesterday we looked at the difference between recordings and compositions and the various royalties for each. Let's look at a particular player - the Label.
The Label's role has evolved significantly over time and especially with the digitalisation of music. Labels have started expanding or specialising, so I'll only some of the most common topics.
A Labels role is to support an artist by funding, advising, promoting, and selling their recordings. Labels are generally involved in recorded music and dealing with performing artists, not compositions and composers.
Deal Structures
Traditionally, labels will own the music and pay a share of revenue to the artist. I'm going to simplify into two main categories:
Traditional Deals
Label takes roughly 70-85% of revenues first, with 15-30% going to the Artist. Any costs incurred are deducted 100% from the artist's share. These deals are label-friendly, but come with larger advances.
Profit Share Deals
Label deducts costs from revenue first, then calculates their share (often 50%) of profits. The label is splitting the costs with the artist. These deals are more artist-friendly, but comes with smaller advances.
Advances & Recoupment
An Advance is a payment the label makes to the artist in advance of any revenue being generated. At this point the artist's balance to the label is in the negative, known as "unrecouped". As revenue rolls in, the label applies the artist's share agains their unrecouped balance. This is known as recouping or recoupment.
Label Services
The services a label provides are not free, they're charged to the artist’s account. They can include arranging and paying for:
- Studio, engineer, production costs
- Manufacturing, shipping, packaging costs
- Designing cover art, marketing materials, merchandise
- Marketing, advertising, PR
- Distribution of music to store and streaming services
Business Model
In Summary, labels make a financial investment in a potential musical recording. Provide expertise, and access to services to ensure optimal success for that recording. And hope that future revenues from that recording exceed the upfront costs they incurred.