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Sunday
May162010

Indie Vs. Major: Which Record Label Contract Is Right For You?

 

Common perception of a ‘Record Label’ is the major record labels in Los Angeles or New York that have signed all of the major players of today. These major record labels, which include Sony, Universal, Geffin and Capitol Records are major corporations with hundreds of millions of dollars behind them, allowing them to properly fund all of the world’s biggest artists. In the eyes of an emerging artist, a ‘record deal’ has always been the big picture, and it has always been envisioned as a contract with one of these major players.

But as most people know, the major music industry has all but failed. With the death of popular radio, the introduction of online social networks and digital music retail stores such as iTunes, Rhapsody and Amazon, and the fact that every major release in the past 5 years has leaked to the internet weeks before the release day, the ideologies of the past are no longer relevant. Major label companies are now in a transition period, and are struggling to come up with the end-all-be-all solution to all of their problems.

Enter Indie (short for Independent) Labels. With Major labels only making up a very small percentage of the world’s music label population (for a comparison, think about the US elite upper class, and how they only make up 10 percent of the nation’s population). An indie label contract has become a new goal for many- a more realistic goal at that. Becoming an Indie Label signed artist has become a movement, a trend, some may even say a fad. But indie labels have created a true niche for themselves and their business has been booming. So much so, in fact, that many of the Major Labels are now beginning to embrace the Indie Label methods in order to achieve future growth as a company. While indie labels can’t offer the kind of funding for artists that the major labels can, they do offer many other benefits that may be more important to the artist.

So, what make a record label ‘indie’? The answer is quite simple. An Indie Label is any music recording label that operates without the funding of the organizations of the major music labels. Typically, major labels are global in scale and operate their own distribution and publishing companies. Indie Labels, however, tend to either work with other smaller companies, either in long term partnerships or in smaller contractual relationships for their distribution and publishing, although many indie labels do pay for the distribution services that major labels have to offer. The interesting thing about indie labels is that they can range so greatly in size. Unlike major record labels, who are all fairly similar in size, indie labels make up any sort of record label business that is in between the world’s biggest, major labels, and the ‘record labels’ that consists of a guy with a computer and a single mic’ in his basement.

But if indie labels cannot afford to produce the kind of large scale business that the Major Labels can, why would it be a new goal for many emerging artists? There are many benefits for artists who sign with an indie label, it is just a matter of understanding the benefits of each type of label and determining what is more important to you as the artist. Once those have been examined, chose a path (with signing with a major label or an indie label) and achieve it:

Independent “indie” Music Record Labels:


Pros:

    •    Artists Get The Rights To Their Music: This is a HUGE benefit of signing a contract with an indie label. With the recent growth in exposure from indie artists, the possibilities of a hit single being reused for other things such as movie, TV and video game soundtracks are greatly increasing. By being allowed to keep the rights to the music, artists have the option to do what they would like once the song has been recorded.
    •    They Sign You Because They Love Your Music, Believe In Your Music and Your Brand: Generally speaking, Indie music labels are smaller companies who are not pressured by a board of directors to sign a specific sound or promote a specific look just for success on the charts. Typically when you are sign a contract with an indie label, they trust that your brand will sell, and work to promote you, not the packaged image that they create for you.
    •    Close Personal Relationships: Independent record labels tend to have much smaller artist rosters than the larger, major record labels. Although this also means there is a smaller total staff employed by the label, artists typically work one-on-one with a representative who they can form a much more personal relationship with. This one-on-one relationship makes the label much easier to reach as well, being able to contact the label rep. directly.
    •    Pro-Artist Contracts: Although some of the bigger indie labels use contracts that are close to those of the major record labels, they are usually less complex. The indie label contracts are known to be more artist-friendly, giving the artist more money for their work through either profit-sharing programs or simply a larger royalty percentage than given by the major labels.

Cons:

    •    Lack of Funds: The most common issue for independent labels, being that they do range so greatly in size and success is funds. A lack of funding means a smaller budget for recording, production of physical disks, packaging, distribution costs, tour support, merchandise, etc. Another significant issue caused by a lack of budget is that proper marketing for the artist is sacrificed, making the artists promote themselves if they want to be seen and heard.
    •    Disorganization: Due to the fact that many independent record labels are so informal, there is the possibility of things being done incorrectly and then being overlooked. If accounting is overlooked, it could mean incorrect payment for artists. 
    •    Size: Although a smaller size allows artists to form stronger relationships with an indie record label, it also means that the label itself has less influence and power within the music industry. What this means for an artist, is that a small label may not be able to cater to their tour and promotion needs.


Major Music Record Labels:


Pros:

    •    Excessive Amounts Of Funding: Major labels have far greater amounts of funds at their disposal than indie record labels do. This extra money means that the major labels will be able to fund high-quality production, packaging, global physical distribution as well as digital distribution through the major online outlets, world tours, and music video shoots.
    •    Networking and Connections: In addition to the deep seeded connections that major labels have made in their many decades of being in business, their even deeper pockets allow them to get their foot in the door to most media outlets.
    •    Size and Reputation: Obviously size can make a significant difference when dealing with the biggest names in music. It may be harder for some of the smaller indie labels to influence, say, Rolling Stone magazine to do a review of their newest artist’s debut album. Yet, due to the size and reputation of the major record labels, Rolling Stone would be more willing to do a review of a new artist knowing that it opens up doors to get the interview from a big name later down the line.

Cons:

    •    Must Fight For Attention: Contrary to popular belief, major labels do sign many artsts, but much of what is signed quickly gets turned over. If your music doesn’t immediately stick, you may find yourself having a hard time getting any attention from the label. If this happens, you may find yourself spending more time in a battle for attention than working to further your career.
    •    Artist Unfriendly Deals: Being that major label record companies are a business, they will likely do everything they can do profit as greatly as possibly from their investment in you, your music and your brand. Not only does this mean the possibilities of small royalties, but it means the artist does not get to keep the rights or even the creative control over the music.
    •    Corporate America: Again, major label record companies are businesses. Really big ones at that. Major label record companies have shareholders and a board of directors pressuring the staff to make the right moves to make the most money, not display the best music. One of the hardest things for an artist to comprehend is that although there are people who work within the music industry that love music, there are just as many who don’t, who only see it as the business it is and the product is music. It’s as simple as that. As an artist, your music is just the product that is in style at that point in time.

Now that you understand the pros and cons of both independent and major record labels, lets look into the actual contracts and what else to expect from doing business with a record label. The following is from PerformerMag:

Term, Options

Major label deals are usually only for a term as long as it takes to record and release one album, with the label then having many options to renew the contract and release more albums for the artist. Options are not a commitment from the label to record more albums with the artist, but are just what they sound like – an option for the label to record more. Options bind the artist, but not the label, so artists will always want to commit to the fewest options possible to give that artist more flexibility and bargaining power down the road.

Indies may offer similar terms and options. Especially with an un-established indie, an artist should not want to be tied down for too long in case the label does not do well. From the label’s point of view, it will want some flexibility to keep working with an artist if they show promise, and will want to avoid the scenario where it puts much time, effort, and money into an artist and helps that artist achieve some recognition, only to have that artist skip out and sign with a major (or bigger indie), leaving the indie un-recouped. Alternatively, indies might automatically offer fewer options, or even a set term of years (i.e. 3-5 years).

Artists trying to negotiate fewer options with a label without success could ask for a buy-out clause. A buy-out clause sets forth the rules that will apply should a bigger label want to sign the artist. Buy-out clauses can include pre-negotiated dollar figures that the major will have to pay the indie for the indie to release that artist, or they can simply state that the indie will negotiate in good faith should a better deal for the artist come along. This way everybody wins: The artist can take the better deal, but the indie will have the right to make a nice exit deal for itself to compensate for all the time and money it spent.


Royalties

Most major labels still offer a royalty that is a percent of Standard Retail List Price (SRLP), usually ranging from 10-15%, sometimes depending on whether the deal is “all-in” (artist pays producer royalty out of artist’s royalty). Major labels then deduct for packaging expenses, free goods (explained later), and other items, and also list a multitude of situations where those royalties will be reduced (i.e. foreign sales, record clubs, etc.). Some major labels have recently tried offering royalties that are a lower percent, but on the wholesale price, with no packaging or other deductions, with some limited success. Once in a blue moon, a major label will offer a profit-sharing deal (see below), but these are still pretty rare.


Indies, as with the other terms, may try to emulate the majors and offer typical royalties of 10-15% of SRLP, or a percent of wholesale. Becoming much more common, however, is a profit-sharing deal, with a range of 40-75% of net profits going to the artist. The advantage of this kind of deal is that this royalty structure is more understandable to the average person. Money comes in, expenses and costs are taken out, and the profits are split between the label and the artist according to the percentages they agreed upon. All of the pages and pages in a recording contract about the packaging deduction, the free-good deduction, and all the reduced royalty situations become unnecessary – it is a much cleaner system. The disadvantage of this type of deal is that more expenses and costs are taken out of the gross revenue before the profit-sharing begins. In typical deals, costs of manufacturing, publicity, marketing, and other such costs are not passed on to the artist but are considered part of the label’s overhead. In profit-sharing deals, all expenses are taken into account, so it might take a while (if ever) for an album to show a profit, and, therefore, longer for an artist to actually receive any share. Once an artist is more successful, these deals become more lucrative for the artist.


Artists unhappy with whatever percentage is offered to them could negotiate for “escalations,” where the royalty increases upon certain sales milestones, or for subsequent albums.


Advances

Artists should first realize that advances, or funds, are not gifts. Advances are more like loans, except that the label will not try to collect the money back except through the artist’s record royalties – a process called recouping.


Major label advances are naturally going to be much bigger than what indies offer – typically in the $150,000-$300,000 range. The advances offered to artist by indies, if any, will be more in the $5,000-$125,000, depending on the size and affiliation of the indie. Indies often will simply agree to pay a certain amount in recording costs, with no actual “advance” going to the artist. These recording costs still have to be recouped by the label before it pays the artist any royalties. The advantage of having a small or nonexistent advance is that the artist will have less to pay back from his or her royalties, and could be earning record royalties more quickly. The disadvantage is that since there are so many costs for the label to recoup before paying the artist their royalties, an advance is often the only money an artist will see for some time. The size of an advance can also depend on the artist’s leverage (bargaining power). An artist who has more than one label interested in him might be able to get things such as a bigger advance, but just remember that it all has to be paid back.


Free Goods/ Compilations

Free goods are the records that labels have to give away in order to promote the album and keep its retailers happy. This is important to artists, because artists do not receive royalties on records given away for free. Major label deals usually limit free goods to 10-15%, but indies may have to give away more records to successfully promote an artist. Artists signing with an indie should be prepared to agree to allow the label more free goods. Indies, as well as marketing and promotion companies, will also want to put songs on compilation CDs to showcase the artists on that label, or artists in a particular area. Major labels want the right to put individual songs on compilations also, but these are often sold and bear royalties. Compilation CDs put out by indies are usually given away, and artists should not expect any income from this.


Publishing/ Merchandise

Most major label deals still do not include publishing, because the major labels all have affiliated or subsidiary publishing companies that will often offer their own deals. Major label deals usually do not include merchandising rights, either. Conversely, many indie deals will include a clause giving the indie publishing or co-publishing rights. Publishing simply means licensing the songs (the compositions/lyrics) themselves (not the recordings – this is separate and the subject of another article) and administering those licenses, which means collecting the licensing fees, doing all the paperwork, and paying the artist his or her share. A publishing deal normally grants the publisher the copyrights in the songs in exchange for 50% of whatever income that publisher receives from licensing the longs. More common today are co-publishing deals, where the artist and the publisher co-own the copyrights and the artist receives 75% of all income received. Indies are also more often requesting merchandising rights, both because the artist might not have another way to do the merchandising and as another way for the label to start making money back from that artist.

New artists should decide whether they want to try to find a separate, established publisher, self-publish, or let the indie do it. The artist’s decision here will depend on many factors — the quality of the artist’s songwriting and licensing potential of the songs; the indie’s funding, plan for publishing, and connections to performers and the television and film worlds; and the artist’s ability or connection to find license opportunities himself, etc. Artists who think the indie can do the publishing or who do not have another option can always start out with the indie but have a buy-out clause covering publishing should a better publishing opportunity come along, or just an “out” should the indie not meet certain goals within a certain time frame. The same principles apply to merchandise.

The main issue to watch out for when granting other rights such as publishing or merchandising to an indie is cross-collateralization. Cross-collateralization is the label practice of recouping the debts of one album from other sources of income – typically the sales of a later, more successful album. What artists should not allow is the cross-collateralization of their records with their publishing or merchandise, or with the artist’s mechanical royalties for controlled compositions. Artists giving an indie their publishing and/or merchandising should watch out for language in the contract such as “recording costs and other advances may be recouped from any royalties owed artist under this contract or any other contract with Indie.” Artists should ensure that recording costs and other recoup-able amounts are only recouped from the artist’s recording royalties.

As you can see, there are obvious benefits to being signed with either an indie label or a major label. And just the same, there are obvious downsides to signing either one as well. While major labels can give you the benefit of becoming the biggest musician of the current times, selling millions of records, and touring through every major city in the world, you will have little control over your music, and may have to fight for attention from your label itself. At the same time, Indie labels may be too small to obtain the budget for things like world tours and music videos, may have too few connections for things like major reviews, interviews and features in the major music media outlets such as Rolling Stone, but you will still (most likely) own the rights to your music and form a meaningful relationship with your label who will fight for your success.

Either way, the most important thing for you to do in order to get noticed at all by the record companies, is to promote yourself and grow your fan base. No record label will be willing to invest into your music if there is no proof that an audience already exists that they can leverage to create an even larger fan base.


References (1)

References allow you to track sources for this article, as well as articles that were written in response to this article.

Reader Comments (6)

Very informative. Also, I am a producer from Norfolk, Va. If you get the opportunity stop by and check my page.

Thanks,

DeRon Woods

www.soundclick.com/DeRonWoods
www.myspace.com/DeRonWoods

May 21 | Unregistered CommenterDeRon Woods

Good Example of independent labels with brilliance Nashville Record Label : Per Capita www.percapitarecords.com

Thanks for the advice. It helps and I appreciate. Thanks. If I can help, let me know.

Sincerely,

Naheem Houston
Record Laabel CEO
7 Star Dreams LLC
7STARDREAMS@GMAIL.COM
7STARDREAMS.COM: LOG ON TODAY

Nice article about independent labels i like it very much.

There is another trend that exist and will eventually get noticed.I know a band that is outstanding but refuses to sign with either indie or major.They only perform on weekends and refuse to be controlled.My hat is tipped to the band called Lower Realm / Zkunk

August 6 | Unregistered CommenterJason Bell

great article! very informative and very well written. i think you have helped many future artists/businessmen in making their dreams a reality. thank you so much for the info.

March 17 | Unregistered Commentergarrett

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