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Deals That Await
Successful Independent Music Labels
by Christopher Knab and
Bart Day - Fourfront Media & Music - January 2001
Back to Music
Business 101
Over the last few years this column has concentrated on issues
related to promoting and marketing your career as an independent musician. The most important thing an artist can
do to get the attention of the recording industry is to start your own label, and build a reputation for your music
by showing the industry how popular your music is, i.e. how many people bought your record.
As the new year begins I wanted to give you some information about what can happen IF you do get the industry's
attention. Starting an indie label is really quite similar to starting your career as a musician. Your label needs
to impress the music industry with its stories of success, just like you as a musician need to do the same with
your creative talents. The reward for building a successful label is the possibility of doing business with a major
label someday…on your terms. Major labels need to work with successful indie labels to maintain their viability
in a ever-changing popular music environment, so they keep their eyes open for indie labels and artist who have
had success with a certain musical genre or musical styles
There are several deals that may come your way as you get more successful. The following short summaries of the
most common kinds of indie/major deals are given to you as an introduction to them. They are discussed with far
more detail in the book The Musicians Business and Legal Guide published by Prentice Hall. There will be a new
3rd edition of this book available in the spring of 2001 by the way.
I would like to thank Bart Day, my co-author of the chapter dealing with this topic, for his cooperation and help
in preparing this information.
Pressing and Distribution ("P&D")
Deals: The name of this deal describes its basic premise. The
indie label finances the recording process and delivers the final master recording to a major label distribution
company, which then presses (i.e., manufactures) the records and distributes those records to sub-distributors,
retailers, etc. In the case of P&D deals, as in the case of the next three distribution-oriented deals discussed
below, the independent label will retain all ownership rights in the master recordings.
"Distribution Only" Deals: Basically the same as the "P&D" deal described above, except that
here it is the indie label, not the major label that presses the records. The major label's role is "distribution
only."
Fulfillment Deals:
Again, basically the same as the "P&D" deal described above, except that here the records are not
distributed through the major label's traditional distribution system, but instead through an ostensibly "independent
distributor" that is owned by the major label. This "independent distributor," acting on behalf
of the indie label, then ships such records as are ordered by indie sub-distributors and indie record stores, and
it also handles all billing responsibilities. In short, the "independent distributor's" role here is
to fulfill orders from third parties for the independent label's records.
"Piggyback" Deals: Used when an indie label doesn't have the clout to get its own distribution deal. Instead,
in order to find distribution, the indie label must instead "piggyback" onto another indie label's already-existing
distribution deal with a record distributor.
Production Deals:
The "independent label" here is really just a production company financed by the major label, and is
created solely for the purpose of producing records. The production company uses the major label's financing to
sign artists and produce records, and then delivers the masters to the major label. The major label will manufacture
and distribute the records and handle the marketing and promotion activities. The major label will own the masters.
Joint Venture Deals:
The word 'joint' implies a joining of forces by a major label and an indie label, whereby they agree to share responsibility
for the making of records and for the marketing and promotion of those records. These responsibilities are divided
in whatever way the two labels agree upon in their formal joint venture agreement. The major label finances the
joint venture. Then, from records sales income, the major label will reimburse itself for the expenses that it
has occurred, and the net profits are then divided between the two labels.
Equity Deals:
Think of 'equity' as having an investment in something. With this type of deal, the major label invests money in
the independent label, and in exchange the major label acquires a part ownership or total ownership of the independent
label and the independent label's assets and its contracts with artists.
Licensing by Major Labels: Here the major label owns the masters, but "licenses" (i.e., leases) the masters
to the independent label for a limited amount of time (usually a few years), during which time the independent
label will have the rights to sell records made from those masters. In return, the independent label will pay a
royalty to the major label for each record sold. All manufacturing, marketing and promotion costs are paid by the
independent label. The major label continues to own the masters at all times.
Licensing To Major Labels: The exact reverse of the above deal. Here it is the independent label which owns the masters,
and which is licensing (leasing) the masters to the major label for a limited period of time. In exchange, the
major label will pay royalties to the independent label.
"Rights Buyouts": In a "rights buyout" situation, the independent label will have previously signed
a recording contract with an artist. Then at some later time, a major label buys all of the rights of the independent
label in the artist-in other words, all rights that the independent label has in the artist under the terms of
its recording contract with the artist. In short, the major label steps into the shoes of the independent label.
In return, the major label normally agrees to pay a cash advance to the independent label and a royalty on future
sales by the major label of records featuring that artist.
Happy New Year one and all!
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Christopher Knab is an independent music business consultant based in Seattle, Washington. He
is available for private consultations on promoting and marketing independent music, and can be reached at 206-282-6116
or by email at: Chris@Knab.com
Visit the FourFront Media and
Music website for more information on the business of music from
Christopher Knab. |
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