Have you got an eye for talent? Starting a record label is a big undertaking but can be very rewarding. The possibilities seem to be endless. If you want to become an independent record label, many different avenues exist.
The music industry is ever-evolving, especially with free streaming services, the popularity of YouTube, and social media. Even with all of the internet innovations, the steps for creating a record label haven’t changed.
Before you start, we’ll mention the basics.
What is a Record Label?
A record company is a brand that owns music recordings or videos. Often, they are the force behind the band that handles many business duties.
A record label will commonly handle these things:
- Managing trademarks
- The production and manufacturing of new albums
- Marketing and promotion through music publicity
- Enforcing copyright on behalf of the band
- Scouting for new music talent
- Development of artists into better talent
- Approving new music
- Purchasing equipment for musicians
- Scheduling times for recording of new albums
- Establishing deals to schedule tours
A record label handles most of the legal aspects, taking a portion of the band’s earnings as a result. Because record labels handle everything, you need a vital skill set across multiple elements of music to get started.
It would be best if you also had a fundamental understanding of what it means to establish a business entity built from your business plan.
What To Do Before Starting a Record Label
Before you even think about starting a record label, you need to understand the music business. Assuming you have no experience, here’s where you can begin:
- Get a degree in music business and take up internships
- Take a job at a local music label to get some experience
- Become a part of your music scene and start talking with people
- Ask music professionals what they do and their job descriptions
- Create a series of smaller goals you need to take to understand all aspects of the music business
You’ll never have all the time in the world necessary to learn everything, but taking a few years to talk to people and earn connections is a start. By talking to people and getting a better understanding of what you are getting into, you’ll better position yourself.
Know that no business is just a person with an idea. It is a team of individuals contributing to the overall goals of a vision you create. If you don’t have a clear picture of what you want your music label to be, you need to do some soul searching.
Steps to Starting a Record Label
The music industry has changed significantly over the years to reflect modern times and innovative approaches to music-making. If you have a dream, you can make it happen. Here’s a short breakdown of where you can start:
- Creating a Business Plan and Structure for Your Record Label
- Finding Talent and Local Bands for Your Record Company
- Knowing The Legal Aspects of Establishing Relationships
- Important Marketing Aspects of Making Your Company Popular
- Distributing the Music of Your Talent
- Joining Organizations and Establishing Royalties for You and Your Musicians
Whether you are a music producer looking to build a brand, a music manager, or a musician looking to promote artists like yourself, you can start a record label. The music industry needs dedicated and innovative individuals to make great music.
The following steps will help you with starting a record label. If done correctly, efficiently, and legally, you will be set up for success and start earning money.
Creating a Business Plan and Structure for Your Record Label
Creative businesses like record labels often overlook business plans. Not for lack of trying, but because they did not know this was a step. Here is your call to action to create a business plan so that you can back up your vision with practicalities.
Every record label starts with a vision or a dream. Putting a plan behind this dream can make it a reality. Here’s how you can break it down:
- Your marketing plan. How you market will tell others your strategy for getting in front of people. Establishing this with a buyer persona and how you plan on exposing your record to desirable artists is necessary to ensure everyone is on the same page.
- A budget. Your financial planning and budgeting are a massive part of how you plan on paying and who you plan on spending money on. Having this setup will enable you to make better informed financial decisions.
- Growth plans. Part of your marketing plan details how fast you plan on growing? How many artists do you want to get in the first year? Make it realistic and measurable.
- What services does your label offer? “I hire musicians” isn’t good enough; you need to define what your record label does for your clients. While all offer essentially the same things, each record label is unique.
- What is your company all about? What’s your ultimate goal and company mission? While it might sound cheesy, you need a rallying cry to get people to start the hustle each day. You can’t phone it through the music industry, or you’ll get crushed.
Creating a business plan will enable you to earn money better and plan your future. Do you want to attract investors? You’ll need a business plan to get that done.
Set Up Your Business Entity
You will need to set up an entity to start making money and promote your business to get moving. The reason for doing this is to separate yourself from the business. There are four types of business entities:
- Sole Proprietorship
- Limited Liability Company
There are advantages and disadvantages to each kind of business entity. The important thing is to look into each one, and if you are serious about setting up a record label, you will take the proper steps.
For this step in the process, make sure you consult an entertainment lawyer or business lawyer. They will tell you exactly what to do in the state that you are in and how to file your business entity.
Different Business Types
|Sole Proprietorship||The company is “you,” and you can make it whatever you envision. ||The company is “you,” and you are liable. You might be at risk if you get sued. Not the best choice if you are looking to start a record company|
|Partnership||Two or more people splitting responsibility Partnership agreement Share responsibility||You and someone else will be liable for any judgments You will be responsible for any dealings you or your partner make (good or bad) Irresponsible people are bad partners|
|Corporation||A Corporation is a separate entity from you or any employee of yours You are not liable if your company does bad dealings Forming a corporation is a pretty straightforward process, and your lawyer can walk you through it This one is an excellent option for someone starting a record label||The corporation requires a little more administrative backlogging such as records of meetings notes Forming a corporation is a time-consuming and complicated process.|
|Limited Liability Company (LLC)||Provides you with limited liability insurance and protection Not required to record meetings of stakeholders Members of an LLC have more tax flexibility This is also an excellent option for someone starting a record label||Pay attention to state requirements when filing an LLC|
Build Your Team of Experts
As mentioned before, you need a team of people loyal to your brand and who know your company identity. These people will serve essential purposes in your record label, especially at the start.
You have the choice to hire them on contract (typically cheaper, but it means they don’t exclusively work for you) or as full-time, dedicated people. The role they fulfill dictate which will be better for you.
They will work with you and your artists to help make things run as smoothly as possible.
- An entertainment lawyer helps you draft contracts and apply for a business entity. Lawyers act as the entities to help your bands enforce copyright.
- Music producers help you mix sounds and tracks for your artists. Their job is to support the artists you sign onto your record label to make the best music possible.
- Video producers create relevant and good-quality video content for your audience.
- A PR company (or PR specialist) handles your company’s public relations and press relations. These people write press releases in a way that appeals to your audience. When it is time to release albums, announce tours, or talk to the media, the PR company will handle everything.
- Accountants and business managers will keep your business plan updated and handle your taxes, as well as expenses and the income you bring into your company.
These people and the services they provide are extremely valuable when establishing your record label. They will help with the business side and assist you with your brand’s creative side.
Finding Your Talent and Sound as a Record Label
Many record label business owners start as music lovers who want to put music out into the world. Your passion for music is hopefully inspiring you to do the same.
Promote the music that you love. There is a lot of competition in the music industry, but there is also so much content.
Find the ones that will fit your vision/brand and start networking. Even though a lot has changed within the music industry, word of mouth might be the most valuable currency out there. When talking with the artists, be honest and genuine. Think about the quality of the music and then go from there.
How to Determine What Sound is Good for Your Label
You are the ear for your record label. You know what kind of music to look for. Listen for the songwriting and the musical quality, which might take time. Nobody develops an eye for musical talent overnight; it takes industry experience.
Another way to determine if the sound is good is to look for music with many fans. Look on Spotify for artists who have not signed with a label yet, who are generating a small amount of attention (i.e., more than ten thousand streams per song). Those making more likely already have a record label, but you can check them out.
If the fans already like the music, they will generally keep their popularity trending upwards once they get signed.
You might also think about picking a specific music genre for your label. Many labels choose specific genres that meet their desired style of music. This creates passion for you because you are working in an area of music you enjoy. It also allows you to specialize, meaning bands will recognize your label associated with particular acts.
For example, Def Jam Recordings specializes in rap and R&B music. Their brand is well established with big names like 2 Chainz and Big Sean.
Going To Shows To Finding Talented Musicians To Join Your Label
Finding bands with a solid fan base can be challenging, mainly when relying on an online presence. Social media is one thing, but you’ll want to start connecting with your local music scene.
When shows are available, go to some at local bars and restaurants. Scope out the local talent if you can. Sometimes, the top local talent hides behind a bar microphone.
Outdoor festivals and shows have great unrepresented bands that play before more prominent and popular bands. These shows usually start in the early summer and last into the fall so if you are searching, look up your local outdoor festival calendar.
Network with other music professionals and ask around. Even though the music industry can be super competitive, every brand is different. What is a good fit for one music label might not be a good fit for another.
Finding Talent Using Social Media
Finding talent has never been easier with social media, where artists can quickly put their music out there for listeners in different forms. This gives you, the record label, easy access to thousands of eligible artists to sign.
Creating accounts for these social media platforms is a start:
Start by adding all your friends to these sites, finding local music talents through them. Facebook is usually the most effective method, as it uses location data to determine where your interests lie.
Reach out to bands about their interest in starting a record label. If they already have an excellent local following, both of you can learn together about what it means to make a record, announce a tour, and establish your basics.
The early going will have a lot of opportunity for growth. By fostering that understanding at first, the one or two bands you start working with will be more understanding.
Essential Concerns When Finding The Right Talent For Your Record Label
There are a few recommended steps before writing a contract and getting the artist to sign with your record label. Do your homework ask questions about reliability, professionalism, and work, which you would ask during a typical job interview.
- Ask questions like how much time you have on your hands to make a record, have you ever released any music before, and your social media presence like Twitter, TikTok, etc.
- Look into their online accounts and see how many fans they have. The more fans they have already, the more popular they should become when making music more professionally.
- Ask if they have ever been signed. You can also ask around to other music producers and see if anyone has ever worked with this band before
- Check out their local presence and if they have a dedicated fan base.
- Ask if they have ever toured before or if they have ever played several shows in a row. This experience is paramount when signing a band because they will be easier to work with if they have already done this.
- Ask about their expectations when touring or studio recording. Ideally, a record label will allow studios to record with the band. If you don’t have a studio yet, call around for rates.
Asking these tough questions and doing the homework before signing a band will help you build a contract. It will also give you the confidence you need to say this is a good or bad choice.
If the band or artist has talent, a fan base, and good sound but is hard to work with, it might be reasonable not to sign them. Many talented artists are also great to work with to sign with your new label.
Marketing and Spreading The Word About Your Label Company
Choose an Original Name
Picking a name is a great starting point and can lead you in the right direction when thinking about the music you want to produce. Make it catchy and original; that way, it will be memorable and stick in people’s minds.
Google names of other record label companies so that you don’t accidentally copy them. Also, make sure to think of the music you want to promote. If you are starting a rock label and want to name your brand Sunshine and Daisies, it might not work because the name doesn’t fit the style of music.
You can look up domain names on Google to get started using these services:
Domain Names for Music Labels
If the domain doesn’t have an owner, that’s a good sign that nobody owns the trademark. Purchasing the domain is relatively cheap and doesn’t mean you need to make a website.
You’ll need to work under the label for about a year before you can register it. The experience proves that you have a reason to claim your label’s business name. This is why you start with Google and move on with official channels; you can’t trademark something you don’t actively use.
Create Social Media and Online Platforms for Your Label
Social media can grow your business and sales exponentially if used correctly and with targeted intention. Optimize your potential by starting small with a website, a SoundCloud account, an Instagram, and a Facebook page. Then build upon these components.
For assistance with website building, here are some excellent resources:
- WordPress is the world’s most popular website builder. It’s prevalent and relatively inexpensive to get started with.
- Squarespace is Another website builder that greatly emphasizes simplicity and sound design.
- Wix is a website builder growing in popularity because of its simplistic site design tools. It builds a site for your simplistically using the Wix ADI, which prebuilds websites based on your design preferences.
Building a website provides people with a platform to contact your label. It also establishes a professional presence, destroying any doubt that you aren’t in this for the long haul.
Outsource your PR if possible. At first, this might look like a considerable expense, but this cost will be worth it if you can get your name out there. Be genuine and honest with your marketing and make sure you choose the right outlets.
If you want more video content, choose TikTok or Instagram. Facebook is good for events and long content fan pages. If you want more posters, banners, or catchphrases, Twitter would be a great option.
Build a Brand Identity Through Online Design and Logos
Everyone has their brand, and every record label needs a brand identity. You can establish your brand identity by creating graphics and a logo.
- Canva is a logo, poster, blog banner, Instagram post, flyer, digital media, design website that creates eye-catching designs for free. The premium version is about $9.99 a month.
- Fiverr is a great way to find cheap logo designs. It is a freelancer site built around projects, giving you a reasonable spending estimate for logo and design projects.
- Adobe Photoshop is part of the Adobe Creative Cloud Suite. Unlike Adobe Photoshop Elements, the new iteration is a monthly cost starting at $9.99, making it far more approachable.
- GIMP is a free image editing platform that acts as a Photoshop alternative. Check out some free tutorials if you want to learn how to do it yourself.
When creating designs for your record label, your two best options are to outsource or learn how to do it yourself. If your goal is speed and you excel at the business aspect, you’ll need to add a freelance graphic designer to your list of people.
These designers might also have the skill set necessary to create cover art for your bands and poster creation. Having someone you can rely on to get this done is essential.
The Important Legal Aspects Of Your Business
Having a Firm Understanding of Copyright Law
Music copyright involves a wide range of different ownership aspects. Much of this comes from an understanding of music licenses, below are a list of types of copyright worth knowing:
- Public Performance Rights – A license that allows bands to perform tracks publically. This can also be handy if you want your band to perform well-known covers publically.
- Reproduction Rights grants physical distributors to produce CDs, records, or merch.
- A Mechanical License gives the right to a record company to reproduce a specific recording at contract specified rates.
- Digital Performance Rights authorize digital transmission of musical pieces. You need this to establish the music on Spotify or Pandora (music streaming sites). These rights are granted to digital distributors.
- A Synchronization License provides video producers the right to sync music to videos.
Music copyright can be incredibly complicated, as often licensing of recording differs from licensing of live performances. Usually, a mechanical license is needed on top of public performance rights if you wish to perform cover work of someone else’s music.
In reproducing music, you must retrieve these rights from both musicians and fellow record labels. Newcomers make the mistake of only getting permission from one party (assuming it works for both), resulting in severe legal trouble because of a lack of complete approval from all groups involved.
Both licenses and rights and who handles registration are discussed through contracts.
Write Your Recording Contracts
Have you found a great artist who has passed all of your due diligence? Before you do a google search into recording contracts, talk to your lawyer about your options. Take this process seriously since it might be your first contract.
Ready to sign some artists? Start by getting a recording agreement with them. Here are some critical considerations when drawing up contracts.
- Talk to your music lawyer about what to include in the contract. Do not go onto the internet and choose a generic contract.
- Give contracts to the artists and agree about the royalties, responsibilities to you as the label, number of albums, number of tours, and deadlines to which these responsibilities will end.
- Ensure the contract is exclusive so they cannot sign with any company besides yours (while the contract is active).
- Contracts would specify how much the band and you are getting paid. Discuss this specifically to ensure the band understands your deal.
- Negotiate a deal with your artists if you have to. You will be working hard to make sure they are successful, and both parties also need to be happy with the terms for this to happen.
The contract should be specific and written in understandable terms. This situation also creates a good experience for bands, musicians, and labels. You want to be sure there is 100% understanding before signing someone.
Talk to a Lawyer
Be specific and intentional about what you want to include in your contracts. Discuss every option with your lawyer and also draft an agreement to look over together.
When considering what to include in the contract, doing some research will benefit you in the long run. Just don’t use a template for your contract. Start your contract from a blank page, and you will be thankful in the future.
Think of every possible outcome that could arise. For example, what if an artist does not finish their record in the given time frame and you have deadlines to meet. The research will assist with this, but talk to your lawyer about every possible scenario. Lawyers often have contract templates on hand (ones not taken randomly from online sources).
Remember, this is your business. No matter what kind of business entity you set up, you are still generally liable for some of what happens in business dealings. A contract is a legally binding agreement so be mindful of what you put in the contract.
Give Contracts to Artists
Meet with your legal team and anyone else you want to include in this meeting with the artist you want to sign. You’ll commonly have to go over these legal questions:
- How many albums are you recording?
- How will the earnings be split?
- Will artists have control over how they are promoted?
- How often can the musicians review the campaign?
Remember, you are essentially hiring this artist to perform a service for your company. You also are investing in their talent and professionalism. If they do not meet the requirements in the contract, you should not keep them around. This applies to both sides of your contract.
Paying Royalties to Artists and Establishing a Fair Pay Cut
Now that you have set yourself and your artists up for success, you need to make money. Most of your money will be coming from royalties of the music releases you put out there.
Labels typically will keep around 25-40% of an artist’s income to pay some expenses. This money will go to you, however, It is your job and your accountant’s job to figure out how to distribute this money.
Once popularity grows, income can come in many forms:
- Album sales
- Concert tickets
- Publishing new work
Your contract must go over the split for each activity. Today’s artists get most of their money from live tours, while record companies return their investment through album sales, merchandise, and streams.
Most contracts will heavily reduce your profits after you make your desired profit margin established by the agreement. This also is where deciding to take a percentage after profits are made can be helpful, meaning your record company can explode if a band becomes wildly successful.
It’s essential that each party feels like there is a fair deal. Too many record companies take massive cuts from their artists, taking advantage of their talents.
Understanding Music Distribution and Record Labels
Music distribution is the process by which your product reaches the ears of your potential listeners. This is important whether it’s streamed through a subscription, purchased from an online store, or acquired physically at a brick-and-mortar retailer.
Distribution is the service by which your product becomes a purchasable commodity. Finding both a digital and physical distributor is necessary to get your band’s music in the ears of many people.
How you plan on getting music in front of people is a big part of your business plan. Specifically, you should fill in distribution plans on the marketing segment of your business plan.
You can choose to outsource this distribution to third parties or handle it internally.
Internal handling allows you to establish direct relationships with manufacturers. You make deals with those manufacturers also to confirm the costs of producing merch, CDs, or anything else you want.
What is a Digital Distributor?
A digital distributor is responsible for getting your product onto one of these digital services:
- Apple Music
It is the simplest and fastest way to make your music accessible to the most consumers in the shortest amount of time. Many companies you also work with handle multiple digital distributions at once—for example, Tunecore.
Most distributors charge between $10 and $50 per release, an Annual Fee, or a flat percentage of the profits ranging from 10% to 20%. Each price route has its advantages and disadvantages, but online distributors offer similar services.
A profit cut might be a great deal or might be a drag on a hugely successful project. You might want to project potential earnings and success based on this. Create tables containing potential expenses for each scenario.
You’ll likely want to go across all significant distribution providers. The more exposure your band has, the more likely you’ll sell records.
What is a Physical Distributor?
A physical distributor handles your CDs, vinyl records, and merch. Anything you sell you can also physically hold that in your hand is by this distributor.
CDBaby is one of the most popular companies in this field. They also have an excellent order confirmation screen resulting in numerous additional orders.
Often, physical and digital distributors come as a unit (usually, you want a package deal). So when you pick one, it’s often ideal to choose one for both.
Joining Groups and Making Connections With Your Record Label
Networking is a significant aspect of starting your record label. There are three types of associations that assist with the recording music industry.
- RIAA (Recording Industry Association of America
- Royalty Groups
- Trade organizations and professional music associations
The Recording Industry Association of America represents 85% of today’s American music. Their goal is to protect the intellectual property and creative intent of artists.
The RIAA also enables labels and promoters to reach their respective potential ceilings. They welcome members, have a board, and are a common first step in your label’s network.
From the protection of intellectual property to the interpretation of federal and local laws and the distribution arrangements, there are also hundreds and thousands of special interest groups within the industry.
An extensive list is on the RIAA’s website, but interested groups may exist in your area already. Every label needs an advocate, and good expertise is hard to come by. These groups can help.
Royalty Groups are responsible for collecting “performance royalties” for artists and musicians. These are also known as Performance Rights Organizations, or “PROs.” Refer to a PRO from your country, territory, or state.
There are three major Performance Rights Organizations in the United States:
- Broadcast Music Incorporated (BMI)
- ASCAP (American Society of Composers, Authors, and Publishers)
- SESAC (The Society of Europen Stage Authors and Composers)
BMI and ASCAP are nonprofits and do the same thing. SESAC is invite-only and is for major artists. Once you join one of these groups, you can register your artists’ songs through these sites to collect royalties.
Join Trade Organizations and Professional Music Associations
Many trade organizations and professional music associations exist, each having a different priority or lobby. They also can help you grow your business and look for partners or networking opportunities.
Whether a dozen donors have united to award a scholarship to a performer or a club promotes awareness of a specific era, trade organizations, and professional music associations play a massive role in shaping music in our culture and laws.
Other Important Business Aspects People Forget About
Getting Business Insurance for Your Record Label
All businesses receive lawsuits. Business insurance is meant to cover aspects similar to this. Insurance is also necessary to cover for these situations:
- Worker’s compensation
- Accident insurance
- Business income insurance (if a significant incident causes you to lose income)
- Disability insurance
- Commercial auto insurance
- Liability coverage (if you are found at fault for some issue)
- Commercial property insurance (for your headquarters)
Coverage prevents you from needing to come out of pocket for unexpected and accidental expenses. Despite popular belief, most insurance coverage doesn’t apply to you when you fail to perform your end of the contract.
Instead, many contracts contain bonds that enable artists to recuperate loss for failure for a business to perform. This allows the artist to get ample time to find a replacement when your business doesn’t work.
Where Do You Work Out Of?
Businesses have to establish Certificate of Occupancies when operating in physical locations. This information also dictates where you owe state taxes, enabling them to remain compliant with government entities.
Just because you work in multiple states doesn’t mean you must pay taxes towards those states. You will need to decide a place to operate your business, so do your research on small business tax requirements if you have a few options.
What About A Business Phone?
A business phone is an out-of-date concept, but you have to be ready to get regular contacts if you want one. Be selective with who you give this number to so you don’t overwhelm yourself.
Ideally, you can focus on running the overall business while your experts have to deal with most of the contact. Hiring a personal assistant is something you can eventually explore if your schedule gets too busy.
Delegating Authority to Your Team of Experts
A mistake that new business owners often make comes back to the delegation of authority. For example, new owners might get nervous giving business credit cards and access to company assets.
Establishing expectations of what people can and can’t do ahead of schedule is necessary. Often essential to have company guidelines and official legal documents dictating what your people should do. These should be methods to hold everyone (including yourself) accountable.
Taking advice from people on how to get this done is essential. Creating connections in the music industry will help you understand many of the detailed nuances of running your business.
Running a record label is no joke. It’s good to know what you are doing when establishing business relationships, hiring bands, and working in the music industry. However, you can’t do it alone, which is why you need that team of experts to back you up.
Creating a series of small goals will also help pace yourself. Hiring your first band might be deep into the first year as you hammer out your business plan. Don’t jump headfirst into anything without having guidelines for how you respond to different situations.