How to Start a Record Label

Part 1 - How to start a Record Label business - Background

Do you have a passion for music? Do you love discovering new and original bands and solo artists? Perhaps you should start your own record label and present your new finds to an equally appreciative audience. With the Internet, it can be easier than ever to start at least a tiny independent, or indie, label and generate a response.

Our guide is in 3 parts:

• Part 1 - How to start a Record Label business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a record label?

• Recording — Zero to $15,000 or more. Producing a record at a commercial sound studio can cost hundreds of dollars an hour. If you’re going this route, be sure that your talent is well rehearsed before entering the studio and that the time is efficiently used. Some label owners enter the field as audio engineers or music producers and can record talent in their own commercial or at-home studios. And yet others might only contract with artists who’ve already recorded their work and focus on marketing and distribution of the music, avoiding recording costs altogether.

• Graphic design — Many hundreds of dollars, on up. This includes the cost of the label’s logo design and the look of your first product.

• Manufacturing — About $1.2 per unit for CDs and $5 or $6 or more for vinyl. Because of the steep cost of pressing music, many labels solely release digital music.

• Entertaining, networking — Several hundred dollars a year or more. You’ll frequently attend shows and hang out with talent. This cost includes tickets, drinks, travel, and possibly more expensive recruitment costs. At the low end of this budget item the assumption is that you’ll find most of your talent locally. If you’re scoping out the scene nationally or even internationally, this cost obviously escalates considerably.

• Promotion — Typically, a few thousand dollars. Some labels work with publicists, music promoters, booking agents and others to increase awareness and spur record sales, radio play and ticket sales to live shows.

• Legal services — $500 to $1,000. You can find artist contract templates online, but you’re better off enlisting professional guidance in writing at least your first contracts.

What are the ongoing expenses for a record label?

Your largest ongoing expenses are likely to be the costs of pressing new physical units (CDs and/or vinyl, mostly) and promoting new releases. Most of your other costs will be reflected as a percentage of sales (ie: the cut of the recording artists, composers, and distributors).

Who is the target market?

Go to bars, clubs and other performance venues where your signed bands are playing and find out who your customers are in terms of age, fashion, education level, and lifestyle. This will help you determine how to target and communicate with your audience.

How does a record label make money?

Music is sold today in a variety of ways, including through both digital and physical channels. Fans buy vinyl records, compact disks, MP3 files and streams from websites such as Spotify. In addition, labels can earn money through licensing deals involving use of the music in soundtracks in film and television, and in commercials and video games and other commercial outlets. Additional income might be generated from digital and satellite transmission, such as by Sirius Radio. And finally, some indie labels sign their talent to what’s called 360 deals, in which the label takes a revenue split for booking the talent in live shows, selling t-shirts and other merchandise and generating other associated income streams.

How much can you charge customers?

Prices are pretty much determined by the market. Vinyl records generally sell for $18 0r $20, while compact disks sell for a bit less. Streaming services such as Spotify might pay a fraction of a penny per play and iTune downloads might sell for $7 or $10 for an album or a dollar for a single. Because manufacturing and packaging costs are so high for physical units, the label might only make a dollar a unit once the manufacturer, artist and music composer/publisher are paid. On the other hand, the label and its talent can snag more than half the cost of an iTune download.

How much profit can a record label make?

Consider XL Recordings, the small British indie label that discovered and released music for the likes of Adele, Radiohead, Vampire Weekend and other wildly popular national acts, selling million of units in the process. Almost 40 percent of music today is produced by indies. That’s because much of it can be streamed or downloaded, which greatly reduces physical material costs. Distribution is also easier online — at least theoretically. The downside of all of that potential is that competition is steep. Many indie labels only sell a few hundred units, and much of the business is conducted on a part-time basis.

How can you make your business more profitable?

Consider producing compilation albums as samplers of your label’s artist roster. Also, explore opportunities to record music or other indie labels or consult in the distribution of their output. And finally, get the full involvement of your artists. They should perform frequently and sell records and merch at shows.

Day-to-Day and Growth

What happens during a typical day at a record label?

There are many facets to this business, so each day is exciting and different. Here are a few of your key responsibilities.

• Creating a social presence online to generate enthusiasm and give prospective fans a taste of your offerings

• Communicating with CD and vinyl pressing companies, logo and jacket artists, and other key vendors to create a quality product at the lowest possible cost

• Attending concerts, networking with fans and industry insiders, generating fan interest in your signed groups and and assessing unsigned bands for possible deals

• Drawing up contracts and discussing deals with talent and lawyers

• Monitoring unit sales, and electronic download and streaming figures

What are some skills and experiences that will help you build a successful record label?

You must have an ear for music and not be easily discouraged. You’ve got to be your talent’s biggest fan and be tenacious at getting the word out.

What is the growth potential for a record label?

Today’s music market is splintered, with more channels and sub-genres than ever. The cost of entering the market is also relatively small, with online-only distribution possible. However, unit sales can be modest. According to this source, about 90 percent of released music fails to break even. So you might want to keep the day job until your music breaks.

What are some insider tips for jump starting a record label?

Learn all you can about the music business, and remember that it’s both music and business. You’re probably well motivated to hang out at performance venues listening to music and discussing the topic with fans, but don’t neglect the business side. Legal contracts are boring to read and learn about, but they’re critical. So is a thorough understanding of the various revenue streams and distribution channels involved.

How and when to build a team

You can run your label alone until you have the cash flow and need to draft talent scouts or a support team. You should expand your roster slowly and efficiently enough that you don’t lose focus. Try to form working partnerships with trusted producers, engineers and sound studios to rein in production costs and deliver a consistent sound.

Part 2 - Is a Record Label business the right fit for you?

Part 3 - Action plan to launch your Record Label business in 90 days