Record Labels are an essential component of the music business. From distributing opportunities to its constituents to investing in new potential musical talent to promoting the work to buyers, labels drive the music industry and exert significant influence on how it works.
There are two main types of record labels: major and independent (indie). This article will mainly focus on starting indie record labels.
As you can imagine, there are a lot more indie record labels than major record labels. The majors are companies like Warner Music, Universal, Sony, etc. The major labels have a lot of advantages over indie labels, too, with much higher production and talent budgets, in-house distribution, and access to music buying entities. Your job as a future indie record label manager is to be as competitive as possible in this David vs. Goliath system.
The good news is that things are changing within the music space. Indie record labels are everywhere, and most are started by individuals with a SoundCloud and a Facebook page.
That has it’s advantages and disadvantages. Indie labels are nimble and able to adapt to changing markets better than the major labels can. However, they are also working very hard to turn only a little bit of profit, which leads some industry experts to describe an indie record label as “a labor of love.”
While going indie to stay nimble and use your forward-thinking ideas to change the music industry for the better, it doesn’t mean you should skip a proper setup process to ensure success and protect your (or your mom’s) capital.
Here are some things for a new indie record label to manage when setting up shop:
Name it and Domain it:
A flashy name attracts customers. However, your first (and undoubtedly awesome) idea probably won’t end up being your actual name. You need to pick a name with an available domain. Owning the domain and building a website is the best way to establish your brand and promote brand recognition for your business. One of the best ways to check if the domain is available is check online sites like A2, GoDaddy, or Wix.com, among others. If you find one that you like that is available, buy it.
Create an Online Presence:
Now that you have a domain, you have to build the site. Design the site to reflect your brand. Consider your target audience and what you want traffic to do when they enter your site.
Remember that movie that said, “If you build it, he will come”? He won’t. Not unless you promote the site. Therefore, after creating your website, you need to advertise.
If you are on a budget (as most indie record labels are), one of the best ways build a brand is to hop on social media platforms. For example, start an Instagram page and feature engaging content, create a Facebook page, make a SoundCloud. Have all of them drive traffic back to the website, so you can capture emails and set up email marketing.
Then, leverage the hell out of your network. Everyone you have ever met should know about your new venture (and have the opportunity to invest, of course). Be sure to ask your contacts to promote your content, too. Remember, this record label is like your baby, and we all know it takes a village to raise one of those.
Establish a Business Entity:
While many indie record labels may forgo this step, thinking it’s too formal, it’s a bad idea to skip it. Having a solid foundation for your company’s beginning operation is essential to your long-term success. Moreover, it makes your label official, which is as important mentally as it is for protection.
Most businesses are one of the following, per NerdWallet:
- Sole proprietorship: This means you, the individua owner, will pay the taxes.
- General Partnership: This type is mostly the same as a sole proprietorship, but there is more than one owner.
- Corporation: This entity exists as either a C company, which is separate from he owner, so it owes it’s own taxes, or and S company, which passes through to the owner’s taxes like a sole proprietorship. However, they offer more protection.
- LLC (Limited Liability Corporation): This type of business is like a corporation in that it protects the owners, but has less paperwork and more requirements. However, you can choose if you want it to pay its own taxes or pass them on through to you.
You should consider what you want to do within your business. Think about what types of music you want to produce, the corporate structure of the label, and how you will monetize it. Questions like these can help you better pinpoint what you want your business to be.
Many smaller record labels choose to operate as a sole-proprietorship due to a lack of funds (the other types take some scratch to set up with a lawyer). However, the protection offered by Limited Liability Company (LLC) is hard to beat. This means that if your record label goes into debt, all of your personal assets are safe from liquidation if the label fails. A sole proprietorship does not afford this same protection. In addition to the cost to register an LLC, the tax breaks are different, so you should speak to an accountant for the financial specifics in your circumstances to pick an entity that’s right for you.
Consider Your Startup Expenses
The initial capital needed to start your business can vary depending on the scale of the operation. While you can create a small label from your garage for a few hundred bucks, the cost can quickly balloon to a couple hundred thousand dollars. Some reasonable costs to consider could include the equipment needed to start recording, the price of the domain for your website, or the funds set aside for networking.
Once you have laid out your costs, you need to find a way to pay for all of them. You could try a bank. However, expect to have a lot of scrutiny into your credit worthiness and business plan. You can also try credit cards, but the interest rates are high, plus you are liable for a significant amount of personal risk (and credit score drops) if your business fails. Private investors or personal contacts, like family members or friends, might be a way to go, too, if available.
Now that you have figured out your brand, how your business will operate, what it will cost to get going, and the type of music you want to make, it is time to put your business plan into action. It is also time to find artists to produce—preferably ones you can sell.
In the past, “selling” might have meant moving CDs (or records, tapes, or 8-tracks, etc.). Today, that probably means you sell the artists’ tracks to the streams. Other ways to sell the music include live performances, where the label gets a percentage of the ticket sales in exchange for helping manage and promote the tour, and master licensing, where the label gets a fee for selling the song to a commercial enterprise like a TV or radio commercial or a movie producer.
Starting a business in music production can be an exciting venture for any aspiring entrepreneur. However, getting started and then making money in the business has its challenges. It can feel overwhelming for a beginner in the space, but with a great brand, sound business plan to secure funding, the right entity setup, excellent and appropriate artists signed on, and a lot of hustle, you can succeed, which should be music to your ears.
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“How to Start a Record Label,” Zen Network, https://www.zenbusiness.com/start-record-label/, Accessed February 7, 2022, Website.
Duncan, Liam. “How Do Record Labels Make Money? We Reveal All. https://www.musicindustryhowto.com/how-do-record-labels-make-money-we-reveal-all/ Accessed February 10, 2022. Website.
Prakash, Priyanka. “Types of Business Entities.” https://www.nerdwallet.com/article/small-business/business-entity#:~:text=In%20simplest%20terms%2C%20a%20business,%2C%20LLC%2C%20corporation%2C%20etc. Accessed February 10, 2022. Website.
Whitfield, Aubrey. “How to Start a Record Label: What is Needed and How to be Successful,” Music Gateway, https://www.musicgateway.com/blog/how-to/how-to-start-successful-independent-record-label, Accessed February 7, 2022, Website.
“How Music Labels Make Money.” https://www.tunedly.com/blog/how-music-labels-make-money.html Accessed February 8, 2022. Website.