How to start a record label

The key steps in learning how to start a record label are:

• 01 | Understand what starting a record label involves
• 02 | Decide what type of record label to start
• 03 | Write a record label business plan
• 04 | Trademark your record label name
• 05 | Get to grips with artist recording contracts and royalties
• 06 | Be aware of distribution licences, MCPS and PPL
• 07 | Evaluate the recording costs and distribution costs
• 09 | Evaluate how much money you can make
• 08 | Start marketing

What is a record label and who is it suited to?

If you’re the sort of person who says “music is the air I breathe” but can’t play a note to save your life then there is an alternative way to get involved in your passion, and hopefully make some profit – start a record label.

The term record label is actually derived from the circular label in the centre of a vinyl record, and is a brand or trademark involved in the production, manufacture, distribution and marketing of artists and their music. Record labels range from global corporations such as Universal Music Group to independent labels founded from a bedroom.

The latter has experienced a boom recently thanks to ease of access to and more affordable recording software. There are many reasons for getting into the business side of the music industry. Maybe you want to record a friend’s band, maybe you have a passion for a niche genre that you want to share with the world, or perhaps you have your own music that your struggling to release via other avenues.

Owner of Kent based Regen studio Mykel Dunn started out “to create a platform to sell under”, whereas “a traditional label is there to profit off other artists, we were doing it for ourselves.”

Running a record label is all about having a good working relationship with your artists. The business can be a minefield of legal issues with copyright, licensing and ownership of material but as long as you are honest and write up contracts at the start you can maintain a mutually beneficial working relationship.

A knowledge and understanding of the industry is vital if you want to succeed as it is famously fickle and difficult to predict, the crazes of yesterday gone in an instant. It favours youth and craves originality and innovation.

Do you have an eye for what can sell? Part of your job will be spotting bands that are going to find an audience or notice emerging trends in music and find artists that epitomise those trends.

Or perhaps you don’t want to go along with trends or top the charts, perhaps you want to rebel against the monopoly of mass produced soulless pop and bring Scandinavian folk metal fusion to the masses? Jack Clothier, co-founder of Alcopop! Records, says “there are no hard and fast rules, we all know music sales are tough so you can be massively creative and push things in your own way.”

Whatever kind of label you want to create a passion for music and a knowledge of its history is essential – finding the right balance between art and business and having an aptitude for both will put you in good stead to succeed.

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Creating a record business plan

Even in the creative industries a business plan is an essential tool to help you focus on achieving your growth ambitions in the first few years. It can also be vital in persuading investors when you’re first starting out, who will want to see that you have an understanding of the business and a long term plan to become profitable.

The first thing you need to do is decide what kind of label you want to be. The music industry is a wildly varied beast with many arms and genres. Some of the most successful labels are famed for representing artists from one particular genre, allowing them to specialise in producing a particular sound and creating a strong brand identity. Indie label Alcopop! has an online store selling Alcopop! t-shirts as well as t-shirts with its artists logos.

Most likely you will be an independent record label or indie record label – one that operates without the funding or support of a major record label. Many musical artists get their big break by being signed to an independent record label. Major record labels will often be part of a large international media group or under the control of a corporate umbrella organisation. The world’s biggest major record labels are Universal Music Group, Sony Music Entertainment and Warner Music Group.

Treat your label like any business, music is your product. Work out how you are going to generate income from your business, factoring in your digital strategy and work out a budget for marketing and promotion – remember labels no longer expect to make most of their revenue from sales alone. As Clothier explains, “it’s very difficult to accurately predict the definite success of your artists, so think of how you’re going to maximise revenue streams.”

Your plan should cover at least the first three years as well as a cashflow forecast for the first 12 months. Record label Rough Trade famously experienced cashflow problems in the late 1980’s due to overtrading, which eventually led to bankruptcy. It should also include business bank accounts, office location, insurance, rates and tax.

Record label rules and regulations

Essentially there is nothing to stop you recording your own or a friend’s music and releasing it straight away, but due to the ease with which music can be copied and pirated along with unclear ownership issues you should become a member of the following bodies.

Both AIM (Association of Independent Music) and BPI (British Phonographic Industry) represent their label members in the UK and internationally. They provide training, publish research and bring music business related issues to the attention of government.

Of course recording contracts are the legal cornerstone of any record label. A recording contract is a legal agreement between artist and label that the artist will exclusively produce one or a number of records for the label to sell and promote. At the top end of the scale they can be worth more than £100m, but whatever the price they should always stipulate the following very important obligations:

• The number of albums or singles to be released
• The royalty rate
• How much will be spent on marketing
• If the record label is paying an advance
• If there will be a commitment to release internationally
• Who owns the copyright and master recordings

Other kinds of contracts include licensing deals – where an artist retains the copyright but allows the label to sell on their behalf. It is also advisable to create your own publishing company to take full advantage of the popularity of your artists’ songs. Especially if you have a hit, film and television studios, advertisers or video games will be clamouring to exploit its success. If you have neither the time nor resources a bigger publisher can manage the administration for commission.

It’s not just the label and band that need to draw up a contract, drawing up a band agreement is essential – as several high profile spats are testament to. It should deal with how royalties and advances are to be split, who will own the band name in the event of a break up and how the label and individual members may use the name for promotional purposes.

With Dunn “it was more of a mutual agreement between me and the artist. They kept their rights and I kept the mechanical rights, it was just a case of what percentage of what was going to be distributed between us.”

You should also ensure you obtain consents to use art work, photographs, logos as well as the rights to use the recordings of session musicians and samples you may use.

Finally, there are countless numbers of record labels, bands and artists trying to make an impact in this huge global industry, all looking for a unique and eye catching name. Before you start recording and releasing anything make sure you have the trademark on your name. The Music Week Directory is a good place to start, although you will need to subscribe.

New record companies should also join the MCPS (Mechanical Copyright Protection Society) and PPL (Phongraphic Performance Ltd).

The MCPS licenses the use of songs for its writer and publisher members whenever their music is copied and distributed to the public.

The PPL collects and distributes airplay and public performance royalties on behalf of the owner of the recording. Any public space that plays music – Radio, clubs, restaurants – must pay a licence fee which is shared out to registered labels.

How much does it cost to start your own record label?

Thanks to the advancement of digital technology record labels can and have been started from a bedroom or garage. Basic sound recording hardware can be bought for relatively low prices or second hand and many computers come with free recording software. If you have a band ready to record with their own instruments you’re good to go.

Costs again are dependent on what you are seeking to achieve with your label. Dunn operated as a sole trader which he said was “relatively simple” with the costs being mostly upload fees. Remember if you are planning on being a sole trader it is your responsibility to keep a record of sales and expenses and dealing with your tax return.

Clothier – who started Alcopop! Records by gambling a three figure loan from his dad on a football match (don’t try this at home) – says the label was “purely a passion project, until we stumbled upon the fact that it actually worked!”

You could buy or lease a fully kitted out studio if you’ve got the funds or even build one from scratch to suit your needs and specifications. Dunn built his own studio “from the ground up in what was essentially a big barn” which he then soundproofed and kitted out himself. Websites such as mJQ and Rightbiz have a range of options of fully functioning recording spaces across the UK.

After you’ve got the essentials sorted there’s a plethora of other things to take into consideration – including but not limited to: engineer’s fees, setting up a website, session musicians, utilities, and don’t forget you’ll need to hire an accountant to do tax returns and a lawyer to draft contracts.

It’s worth getting this sorted as soon as possible, even if you’re not planning on doing big business to avoid problems occurring later on. Keep a record of all your spending and any documents or legally binding contracts that might be relevant.

Once you’ve recorded some music you’re going to need to distribute and market it. This could mean paying someone to do album artwork and create promotional posters.

Distributors can sometimes be unwilling to take on new labels with no track record, which is where your business plan could come in handy again. They may want to see how many artists you have signed, if they’re actually gigging and if they have any favourable press reviews. If they think your label is worth being involved with they’ll want to sign you to an exclusive two to four year deal.

These days most distribution is online with iTunes currently responsible for the majority of music units sold globally. Though Dunn had an initial run of 500 discs which sold out “the demand is all in the digital market – as much as I’m nostalgic about hard copies… digital is going to takeover at some point if not already… it’s ease of use.” Digital also has the added advantage of being much more cost effective, with no manufacturing or transportation costs – and you’ll never have unsold stock.

It is now harder than ever for creative companies to secure loans from high street banks but this has given rise to a number of alternative methods of finance. Crowdfunding sites such as Kickstarter or Crowdcube are one option.

AIM (Association of Independent Music) has partnered with the British government’s Start Up loans initiative for AIM start-ups – a programme offering training, mentorship and low interest loans to cover start-up costs for creative entrepreneurs.

Alternatively you could be eligible for a loan from Creative Industry Finance – a programme offering tailored business support and dedicated to securing finance for creative and cultural enterprises.

How much can you expect to earn running your own record label?

How much you can expect to earn from running a record label is largely going to depend on what you want to achieve and the kind and number of artists you represent. Dunn explains, “for a larger label representing lots of different artists it’s probably going to be a longer turnaround”. Alternative revenue streams can be opened up by permitting advertisers, television, film or video games producers to use your music – and, should an artist achieve significant commercial success, merchandising.

Labels no longer expect to make most of their profit on the sale of physical or even digital music. Touring and live performances are what generate the most revenue with sponsorships on big live deals at the top end of the scale. Many labels now opt for a completely digital strategy. Illegal downloading aside, people can hear music for free on YouTube, Spotify and a variety of other sources and they expect to be able to. Although this means fewer records are being sold, it ‘s now possible to reach a huge global audience and build up a solid fan base who will want to come and see the bands you represent live.

Clothier warns, “not to risk what you can’t afford. If you invest £100,000 in a band they could still sell no records and leave you with a very expensive shattered dream.” He adds, “ If you’re very money driven, record labels are probably NOT the way to go.”

f you are in a position to, it could also be a good idea to put on your own events allowing you to generate more profits from ticket sales. If you are an electronic music label, a regular night showcasing the various DJ’s you represent is a great way to create exposure for emerging artists and the label itself.

Like Dunn, it’s a good idea to get a publishing deal with TuneCore which strives to grant emerging and established artists equal access to all channels of distribution. Members get to keep 100% of their sales revenue without wavering ownership or copyright and merchandise rights.

“In terms of time” Dunn says, “how long is a bit of string?” “If you’re smart and you don’t expect to make a turnaround in the first year, and by the second year you’re doing what you want to be doing and you’re doing everything right then you should be doing pretty well.”

Record label useful tips

Remember:

• Have the right balance of passion for great music and business acumen – you will need both to be successful
• Make sure you have a realistic cashflow forecast, it’s important to demonstrate in your business plan that you’re serious about your label becoming a commercial success
• Draw up a secure and detailed contract with any artists you sign
• Pick a name and brand that will help you stand out and make sure you trademark it
• Think outside the box when it comes to revenue streams – labels no longer make the majority of their money from music sales alone
• Try to secure a publishing deal with a platform like TuneCore to maximize revenue.

Useful contacts

• AIM: Provides a collective voice for the UK’s independent music industry
• PPL: The organisation exists to ensure that those who invest their time, talent and money to make music are fairly paid for their work.
• MCPS Royalty Payments: Sitting under the broader PRS for Music brand, MCPS licenses reproduction rights and pays royalties.
• TuneCore: Platform allowing you to sell music to sell your music on iTunes, Amazon, Spotify & more.
• Music Week Directory: Contains a list of current record labels