How to Start a Record Label

How to Start a Record Label

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How to Start a Record Label

If you’re looking to start a Record Label, you’ve come to the right place. Since we’re going to show you exactly how to do it.

We’ll start with key Record Label industry fundamentals like how big the market is, what the key segments are, and how revenues and profits are generated.

Then we’ll discuss keys to not only starting a Record Label, but succeeding in it!

How Big is the Record Label Industry?

According to IBISWorld, the Record Label industry has been in decline for the past five years, at a rate of -2.9% per year. In spite of this, the industry’s 756 companies had total revenues of $7.3 billion last year.

Structure and Breakdown of Record Labels

 

Independent Labels vs. Major Labels



What are the Key Segments of the Record Label Industry?

Record Labels sell products in physical and digital formats. Physical formats, which include CDs, DVDs, Cassettes, and Vinyl account for almost half of all industry revenue. Digital formats are the second-largest industry segment, followed by Digital singles and albums Streaming services and subscriptions have seen a significant increase in popularity in the past few years, but still account for a much smaller percentage of revenue.


What External Factors Affect the Record Label Industry?

A number of factors affect the performance of the Record Label industry. These drivers include:

Album Sales – Album sales constitute the largest portion of industry revenue; therefore, the industry depends on demand for albums.

Per Capita Disposable Income – Consumers buy more albums when they have more disposable income.

Median Age of the Population – Though all age groups are consumers of music, the industry trend toward digital and streaming distribution appeals to younger audiences. Therefore, a younger median age is better for the industry.

Who are the key Competitors in the Record Label Industry?

The biggest independent record labels are Concord Music Group (CMG) and Sub Pop. Major record labels include Warner Music Group (WMG), Universal Music Group (UMG), and Sony Music Entertainment.

Business Models in the Music Industry



 

What are the Key Customer Segments in the Record Label Industry?

The largest customer segment for the Record Label market are those aged 35 and up, but is closely followed by those age 18-34.

What are the Key Costs in the Record Label Industry?

Purchases are the largest expense for Record Labels. Purchases can include merchandise for distribution, video production, studio rental, tours, and databases for digital distribution.

Wages are a Record Label’s second-largest expense, in part because of the savvy required to recognize and acquire new talent, and in part due to the high level of skill required record, mix, and master an album.

Marketing is also a significant expense. Independent labels spend a larger proportion of revenue on marketing, simply because they do not have the recognition that major labels have, and they have to work harder to connect with fans.

Other expenses include equipment depreciation, distribution costs, production costs, and legal fees.

What are the Keys to Launching a New Record Label?

  1. Have a business plan – this document will force you to nail down certain details, such as what genre of music you will produce, the name of your label, the legal form of the business (sole proprietor, partnership, etc.), and how much money you will need to get started.
  2. Assemble your team – you will need a mix of experts to make this work: marketers, producers, engineers, mixers, and contract help for things like legal, accounting, logo art, etc.
  3. Land some artists – attend some live performances, and approach the bands you and/or the audience likes. Be sure to settle the details of the contract, such as whether you will pay an advance, how the earning will be divided, and how long they will be under contract.
  4. Promote! – get your brand out there as much as possible: talk to reporters, go on radio shows, visit music stores, be active on your social media accounts.
  5. Make sure your signed artists are playing gigs – Live gigs lead to more fans, which leads to album sales
  6. Collect Royalties



What are the Typical Startup Costs for a New Record Label?

The one-time costs of starting a Record Label include:

  • Licensing and startup legal fees
  • Recording equipment purchase or lease
  • Instrument purchase or lease
  • Studio purchase or lease
  • Office equipment and supplies

Ongoing costs:

  • Marketing
  • Rent and utilities
  • Equipment maintenance
  • Manufacturing physical albums
  • Accounting and legal fees
  • Databases for storing digital music


How much do Record Label Operators Make?

According to the Bureau of Labor Statistics, CEOs in the Sound Recording business make $214,350 per year on average.

Recording Studio Setups



Helpful Videos

Loren Israel: Record Labels & Building Relationships in the Music Business (Interview 2015)

Do I Need a Record Label? Don Passman explains at ASCAP EXPO

Additional resources in the recording industry market

For additional information on the recording industry, consider these industry resources:

 

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How to Start a Record Label
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