The three biggest factors are; not owning their own masters, signing 360 deals, and that the record labels practice recoupment on all costs. This will put 98% of all artist in a situation where they never earn a single cent on their music, despite the number of sales, and instead end up owing their record labels money. So why do artists still accept these horrible terms?
Horror stories of the “survivors” of the music industry abound. Everywhere we look it seems like new artists are having stars put in their eyes only to have them ripped away soon after. So, what’s happening? What’s the cause of this seemingly scandalous situation? That’s the million-dollar question – literally. Put simply, it’s the well-organized and very-well-oiled pyramid scheme that seems to make up every big record label. They attract ambitious artists with irresistible promises of fame & fortune and forget to mention that they’ll be lining their own pockets in the process.
Sounds like “business as usual” right? Well, not really. But before we get to that, we’ll backtrack a bit and try to gain some insights into how it happened.
In the beginning …
Once upon a time, there was a symbiotic relationship between record labels and their artists. A sort of “You scratch my back, I scratch yours” deal. This deal decided that 85% of profits from a single release or album would go directly to the record label while the artist was free to do what they want with their 15% share. This seems somewhat unfair in its own right but it worked. Especially given the fact that artists had full right over profits accrued from touring, merchandise, and any other financial gain made independent of the record label.
So, this is where the rosy view of record labels came from. We look back to the wistful days of Johnny Cash, Aretha Franklin, and Metallica. Incredibly famous, incredibly rich, and all-around successful. Those were the days when record labels were only mentioned in terms of reverence. A record deal was something to be sought after tirelessly and once you got one – you were set for life.
But good things can’t last forever.
The rise of streaming & file share
In 1999, a group of software developers were busy working on a new streaming audio engine. This music service was launched on December 3, 2001, under the name of Rhapsody. In doing so, Rhapsody became the first streaming on-demand music subscription platform where an unlimited amount of online digital music could be accessed. Ring any bells? Of course it does! Since then we’ve been treated to Spotify, Soundcloud, and even YouTube.
So, what does this change? Everything to be frank.
Suddenly albums and CDs didn’t matter so much anymore. As sales dropped, the labels began to make drastic losses. Something had to change and that came in the shape of album advances and recoupable payments.
The scourge of album advances
This is perhaps the biggest loophole in the whole system. In fact, it’s also the most noticeable. It’s why all your new favorite artists look like they’ve got money to burn. You know the type, the musicians with gold chains, flash cars, and swanky shoes in all of their videos. They look like they’ve got it made, right? Wrong. That’s the record label’s money that they’re spending.
You see, the record label knows that to make an artist or album successful, a lot of money is needed. State-of-the-art recording equipment, writers, producers, advertising – none of it’s cheap. They know most artists won’t be able to fund this themselves but with a bit of financial aid, they might be able to put out something worthwhile. Oh, and not to mention that the outward appearance of wealth and a lavish lifestyle is fascinating to those on the outside. This way the record label can be sure the artist will attract fans, and more fans spells more money.
Great! How kind of them, a lovely gift and a leg-up in the industry. Once again, that’s not exactly the case. The money must be repaid in total to the record label as it is considered a “recoupable payout.” The repayments are usually made out of the 15% cut of the profits that are given to the artist.
Let’s look at how that might work in the real world. For a new artist releasing their first album, they’ll likely bring in about $1 million – and that’s just an average. Some will make a lot less. $850,000 of this profit will go directly to the record label leaving the artist with $150,000. This sounds like an alright deal until you factor in the album advance of $300,000 which could essentially leave the artist $150,000 in debt to the record label before they’re even really famous.
Surely they’ll make that money back easily once they hit it big though, right? This is unfortunately rarely the case. It just doesn’t happen that often and can leave the artist in what Prince himself has compared to “indentured servitude” and “slavery.”
Trapped in a cycle of making albums
What exactly does Prince mean by this? Well, now that the artist owes the record label money, they have a compelling motive to create a new album. Naturally, this is usually done in compliance with the contract they’ve already signed but now there’s more pressure than ever – they need to make that money back.
So, some artists make it big and manage to pay the debt back eventually making a personal profit along the way. Others don’t.
Overreliance on their main earners
What has been described so far is all the symptoms of what we’ll get into next: venture capitalism applied to the music industry. Venture capitalism involves sticking your finger in every pie and hoping at least one tastes good. All the big labels, Universal Music Group, Warner Music Group, Sony BMG – they’re all doing it. They sign contracts with hundreds, if not thousands of artists hoping that one will achieve unprecedented success.
You’ve seen it in front of your very eyes. Think lady Gaga, Taylor Swift, and all your other favorites. Did you know they’re the survivors of their record labels? When one comes out on top, you can be sure there are many left behind who are now in a huge amount of debt to the record label. And that’s exactly why the record label keeps pushing their top earners, to make up for the loans, to keep them in good money.
So, to say that record labels will drop an artist at the slightest hint they will not be 100% successful is not an exaggeration. To say that they ignore some of their artists while peddling others is a reasonable claim. It is estimated that 1 in 42 artists submitting to record labels will be signed. Shockingly, only 2% of these lucky few to be signed by a major label will not also be dropped by them. There’s a reason why Jay Z calls his idea to create his own record label “a genius thing” and the corruption within the industry seems to be one of them.
Many contributors make for genericized work!
The idea that a popular artist is just an extravagant front for the record labels gain is becoming more widespread by the day. With artists going public about why they’re breaking contracts and even undertaking lawsuits against their record labels, it’s not hard to see why. But there’s one thing that’s coming in the midst of all this, and that’s just how many people are involved in the song making process.
What does this mean for an artist and why does the record label do it?
To put it simply, it’s a science in the record label’s eyes. They know what works, they know what the public likes and they’re going to market aggressively to that to ensure optimal income. It appears that record labels think artists cannot be trusted to do this. And that is exactly where an artist loses control over the creative process.
Not only does this mean that the artist has little influence in how the song is composed it also means that a record label gets to claim their masters – ensuring that the artist has no legal right over what is supposedly their own creation. What is a ‘master’ you might be asking? It’s essentially the final product in its entirety including any income it makes in the future. It is essential that an artist have the rights to their masters but many record labels do not allow this.
Taylor Swift is one of the most prominent figures to have brought attention to this disservice done to musicians. Swift refused to sign over any of her masters to her record label while producing her seventh album.
Many artists are expected to follow Swift’s actions in the future in an attempt to claim back control over their own products.
In conclusion, it appears that signing with a major record label is a “damned if you do, damned if you don’t” situation that requires a lot of luck and savvy to survive. Major record label companies have been screwing over the majority of their signed artists for years now by claiming the majority of their profits, issuing them loans they cannot always repay, and trapping them in contracts that essentially remove them from the production room. Is it a sustainable system to only allow artists to perform on the stage and in the recording room but nowhere else? Only time will tell.