The Record Label

There are basically three types of record companies: Small independents. Larger semi-independents owned by major labels. Major labels.

All three basically work the same way, except that the small indie labels do it on a much smaller basis and don’t exert as much control over their distribution as do the major labels. They are all broken into several departments. Executive (the people in charge), Promotions (the people who get the albums into stores, on radio stations and generate press), A & R (the people who deal with the Artists and the Repertory – singers, bands, song and songwriters), Publishing (of the songs), Accounting, Legal and Distribution.

Small indie labels don’t have the distribution mechanisms that the majors have. In fact, many smaller labels have “right of refusal” or “first look” rights with major distributors. Metal Blade, for example, had selected product distributed through MCA/Universal at one time.

“Right of Refusal” and “first look” means the distributor gets the hear the product first and then decide if they want to handle it for distribution or pass. If they pass the indie label can possibly go to another distributor or directly to the “rack jobbers” (small distributors who service little record stores).

Distributors, while owned by the same parent company as the record labels (AOL-Time, for example, owns Warner Records, all their associated labels such as Maverick, Elektra, Atlantic, Asylum and Reprise) are different companies from the actual record labels. You get signed to the record label not the distributor. The record label, in turn, has their own contract with the distributor and gets a small amount of the money from the sales of albums. It may take anywhere from six months to nearly two years before the record label sees the first dollar collected by the distributor for record sales. The distributors, themselves, often don’t see payment for an invoice on a particular record for up to 180 days from shipment. If a given record doesn’t sell the store will ask to return it for an exchange against a more popular album. Distributors generally hold back part of the payment to the record label against future returns.

Retail on a CD is about $19.95 while wholesale is $11 and rack jobbers get a distributors rate of $8 or $9. The record company gets anywhere from $3 to $6 off each sale, depending on the pricing level from the distributor.

Record clubs are also owned by some entertainment conglomerates. RCA/BMG is one, in which both BMG and RCA are record companies and RCA also distributes records and handles the BMG record club (you notice both are based out of Indiana).

Record companies often license their product to record clubs at a modest rate. These are often considered promotional items and the artists may get little or nothing from record club deals, which is why some artists, such as the Beatles, don’t license their product to record clubs as a general rule.

Record companies finance their operations by taking out bank loans or getting letters of credit from the bank. They do this each year as a general rule. They may borrow $100 million to pay all the bills putting up their buildings, copyrights and other liquid assets as collateral. Each month they must make an interest payment and at the end of the year they must re-finance the package. Monthly interest on $100 million would be around $1 million. From this money they pay all the salaries, building costs and use the rest for budgets to make product. Each entity may float their own loan (WB Records, Maverick Records, Reprise, Elektra, Asylum, Atlantic and Warner Distribution, for example, may each obtain their own loans or it might be done through a central package deal) and is separately responsible for paying this money back. Each entity has a separate controlling board, set of executives, operating staff and different buildings in different locations (MCA-Universal Records, for example, is located in Universal City at the MCA Building, while Uni Distributing offices are located 20 miles away in Burbank, Capitol Records is in Hollywood while CEMA Distribution is across the street from Uni Distribution in Burbank).

A & R people are in charge of the talent. They have either obtained permission from the Executives to sign these artists or they inherited them from the former A & R person who originally 'signed' the act. A & R people are sent out to check out the local clubs. We used to see the former Manager of A & R at Capitol records at Madame Wong's in West Los Angeles and other places all time – very unassuming man in blue jeans out with his girl friend looking bored because there wasn’t much good at the club that night. A & R still doesn't have the absolute right to sign an act, it must still go through the Executive board of a record label, large or small.

Producers are also sent out by the record labels. Bill Szymcyk, producers of the Eagles, was once sent out to look at an act in another state and he ended up signing Joe Walsh who he found while club hopping (he didn’t like the band he was sent to hear).

If someone inside the record company hears of a good act, people are eventually sent out. Sometimes more than one A & R or producer will be sent out to check out the act. They will eventually want to talk with the bands management – management is vital for major record labels and they generally won’t deal directly with a band or sign a band without management and financing, this is one area where smaller labels are easier to deal with. They will sign acts without management or financing.

A & R is to a record company what a manager is to the band. A central hub through which all communications is filtered. A & R interacts with record company management, promotion, distribution, legal and accounting. Management interacts with the band, road crew, booking agents, press people, travel companies and banks for the band.


Despite popular fables bands do not get fortunes on first deals. A first deal will cover a period of time, generally 3 to 7 years in 1 or 2 year options, with the record company having the option to continue the deal, not the act! You are signed to an exclusive deal in which you agree not to work or record for anyone else. Payment is as little as minimum wage covering the term of the contract, about $14,000 per year. So most deals are for between $42,000 and $100,000 per person in the act. This money is “fronted to you” against royalties. There will not be further payment unless your record sales warrant it or until it comes time to negotiate your next contract (although there will still be money from tours and endorsements).

The record company gets to record a certain number of albums or masters. A budget is fixed for this recording process which includes studio time, producer fees, engineer fees, pictures and promotion. This, too, is also “fronted to you” and must be paid back through royalties. At the end of your first year you will be “in debt” to the major label for about $500,000. This translates into record sales of about 150,000 units and generally if a band can’t sell that many CDs they will often be dropped before their next option. Again, the advantage with a small label is that 10,000 units sold is considered good and 50,000 is considered exceptional. However the production money and front money could be less at an indie label.

Some indie labels just pick up master cost and don’t sign you to an exclusive contract. Total production costs with an indie label is about 10% of a major record label -- $25,000 for studio time, producer fee and pictures. So at commercial studio rates were talking a few weekends on an indie label versus a full month of production time on the major label (or you can use a cheaper studio – major labels expect to pay $200 per hour while indie labels generally pay $20 an hour for recording time).

Since many major label album deals cover at least 3 albums (about 45 masters) the “deal” is valued between one and two million over the life the contract in monies that the label will invest into the act over the three or more options, plus the front money paid to the act (of which the act’s lawyer and management will be paid directly by the act), which translates into an expected seven million minimum in retail sales, half of which goes to the distributor (RCA, Warner, CEMA, CBS) and quarter of which ends up at the record label. That act gets about 12% of this amount ($200,000+), which is about what they paid in front money. Should the records sell even better than this the band will probably see royalty payments around the time they are set to negotiate a new deal and the amount of total money that they have earned will have a bearing on how much they will be offered next time by the label.

Getting radio airplay is not really that much of a requirement for staying on a label – the Grateful Dead, for example, only had about 5 songs out of 20 years of recording on the radio and only one made it into the top 10. Still they sold lots of albums and were the #1 drawing live act in the world at one time. Radio airplay does figure into the equation, but it isn’t the only criteria. The primary way you stay on a label is that you cost them little and sell a regular amount of units making them a profit. That’s the bottom line!

Major labels have branch offices in each of the major markets and they send out an actual person to visit the radio stations with your album in an attempt to get the programming director to pick one cut to push (and thus remove someone else form the radio to make room for you). The rest of the markets are covered by simply mailing out records.

Smaller labels only mail albums and don’t have to clout for personal visits. They also have a harder time getting the album into stores or working up deals between stores and stations.

Major labels on the other hand can work up deals based on your tour itinerary, amount of airplay and record sales. CBS records worked out a deal with Virgin Megastores in Burbank and KIIS FM radio with their #1 program host, Valentine, for Jessica Simpson to do an in-store appearance with Valentine plugging her new CD and the single, Irresistable, which was getting good play on KIIS. This included ads in the various music magazines, 4 color printed cards with her picture and radio stations promotion. All of this was worked out between A & R and her management, which is why the record labels wants to see management in place before they will sign an artist. Management is responsible for making her available, including her outfit, make-up, hair and transportation. A & R was responsible for coordinating with CBS promotions, CBS distribution and the radio station. A deal like this takes weeks to put together, coordinate and then manufacture (all the press materials). As to how this type of a promotion gets started, it could have been through her managers efforts (see our piece on managers and the benefits of having a good company behind you) -- but only those working inside her organization will ever know for sure!

Major labels have money to spend advertising records in newspapers and on radio. This is often called “co-op” money that is subsidized through the record stories. The stores advertise the label’s artists as being available and submit tear sheets for those ads and the distributor will pay them a certain amount of the cost on those ads. Indie labels rarely do this.

Part of the advertising process is done by the artist’s management who also picks up the outlying radio markets not covered in person by the label. Independent record promotion is a costly item – upwards to $2,000 per station. This is why the label wants to see management with financing because the record label can only get the artist so far. Two or three weeks worth of advertising in trade papers, newspapers, two weeks of airplay on as many stations as they can muster (about 50 stations in person and the rest by mail). After that it is up to record to sell itself or up to the artist and their management to continue pushing. If a response is seen the label may throw more money into the promotion (and all of this is charged back to the artist against their royalties).

In supporting the artist and their creativity, A & R can help them find songs to record from the tapes that come into A & R from known publishers, catalogs owned by the label’s music publishing arm and they also make demo time available to artists who write their own material. Sometimes this can be as little as a 4 track recorder, drum machine and microphone. Sometimes they will give the artist a small demo budget. The artist will then use low cost studios, recording a master tape that could even be used for the finished product (David Bowie and his management would work deals with recording studios in which the engineer gets co-producer credit on 80% of the album in exchange for good block recording time rates to demo the new material, then an A list producer is brought in to finish the two singles on which they get full producing credit).

Getting on a record label does not warranty you will be a success. Each month, each label puts out several records of which not one song will ever see airplay on the radio and the artist will never tour at a larger club than any local band in your town is capable of playing.

Each year the top artists on each label get a shot at the proving ground and it is up to their booking agents and mangers to get them on these tours, which include county and state fairs. Two years ago Christina Aguilera was on this circuit, last year Blink 182 and Vertical Horizon were playing these $40 generally admission special events shows, while lesser or older artists were a power of the lower paying, free admission standard events.

To reach this level requires push from the record label, acceptance by mainstream radio (and not just the “power stations” or the “alternative stations” but a cross-over hit, like Staind and Creed are both currently enjoying as they get played on not 100, 200 or 300 radio stations in the U.S. but over 500 stations are playing their songs once an hour and this summer they will be doing some of these special event tours), a booking agent capable of getting your on a major tour circuit and management who can finance this tour.

Most small labels will consider any band with a press-able master and an organization. Major record labels, as a rule, do not take unsolicited packages nor phone calls from people not know to them. Some producers or A & R representatives may respond to what is called a “query letter” – a statement of who you are and your desire to make a presentation – if it catches their interest. Generally, major labels only look at acts referred to them through known, professional sources. This means management, lawyers, accountants, DJs and people already signed to the label.

The best thing any artist can do is always keep a copy of their demo tape, picture and bio handy (Mariah Carey handed hers to an executive at CBS records when she was a waitress and the rest is history), however without a management company and financing behind you remember most major labels will generally need a very, very good reason to deal directly with an artist and sign them with no support team already in place...

Our Music Special continues with these other articles:
Learning Music | Promo Pictures | Booking Agents| Managers | Producers | Pressing CDs
Record Companies | Copyrights | Recording Software | Sound Cards | Guitar and Bass
Multi-Track Recorders | Live Sound Gear | Microphones | Recording Engineer | Bands in Texas
Teen Band: Y@nK | Gigs and Clubs | Music Theory | Radio Airplay

Your Home Recording Headquarters!

The Musician's PlaceTo Shop!
Instant Gift Certificates!

© 2001-2005 Issues Magazine.
All Rights Reserved.

Get 15 FREE prints!