|
 How
and Why Major Labels
and
Independent Labels
Work
Together
by Christopher Knab
and Bart Day - Fourfront
Media & Music -
Posted
Mar. 2004
Back to The Academy
Note: The following article is an
edited and updated version of the introduction to a chapter on Major Label and
Independent Label relations published in the book ‘The Musicians Business and
Legal Guide, 3rd Edition” by Prentice-Hall.)
Major Labels and Independent Labels have
a legacy of exposing and discovering all the great music of the last century,
but the role these two types of record labels have played over the decades has
changed as much as the music itself has changed. Defining the roles these
different kind of record labels have in today’s marketplace; as well as
understanding the reliance they have on each other is important for anyone who
wishes to start their own label, or develop an existing label. The Independent
Labels and the Majors realize that to maximize their marketing efforts in an
increasingly competitive environment, working together to achieve their mutual
goals can be quite beneficial to both parties.
A ‘Major Label’ is the name given to
those labels that currently control over 80% of the records sold every year in
this country. These labels have achieved such a high profile over the last
couple of decades by operating their own Distribution companies (Sony, BMG
(Bertlesmann Music Group) UMG (Universal Music Group), WMG (Warner Music Group),
and EMM (EMI Music Marketing)) that sell directly to the many music chain
stores, sub-distributors, and mass merchandisers across the country.
‘Independent Labels’, in the purest sense
of the word, are those record labels that distribute their records through what
are called Independent Distributors, and are not usually connected to the
Major’s distribution systems. But of course it can’t be as simple as all that
now can it?
In today’ popular music environment there
are more records being released every year than ever before. The cost of
recording and manufacturing records over the last two decades has decreased
dramatically, so there is more music being recorded and competing for the
attention of a consumer than ever before.However, when it comes to exposing any of
this music, the ownership of, and the relationships with the media that plays
and hypes popular music is now controlled for the most part by the Majors and/or
their parent companies.
Without access to the essential media
outlets of radio, TV, Internet, magazines and newspapers, an Independent Label
might have a difficult time today without the assistance of a Major Label.
(There are however more and more Independent labels that have learned how to
find a niche, and through unique marketing efforts been able to
thrive.)
Recently, the high cost of Major label
mergers and buyouts has put pressure for the Major Labels to return a profit on
all the investments they’ve made in controlling the lucrative music marketplace.
The time when a Major Label could slowly build an act over several releases has
come and gone. Any act signing to a Major Label these days must impress the
label with significant CD sales on their initial release, or they run the risk
of being dropped by the label. What we have now is a scenario in which the Major
Labels and the Independent Labels do rely more on each other than ever
before.
Independent Labels, who find and champion
most new trends in popular music, do the Artist Development work for the Majors
in many cases. This is not unlike the situation in baseball, whereby some AAA
team develops the talents of an outfielder who someday gets promoted to the
major leagues. The Independent Label of today can be a label started by an
artist/band, or an entrepreneur businessperson who has the talent, finances, and
determination to build projects to a point where they fill a particular music
niche or realize that they can only grow so far without the power or clout of a
Major Label.
POSSIBLE Reasons for Major Label Affiliation
Major label affiliation can provide the independent label with a
substantial cash infusion, which eliminates the need to continually focus on
day-to-day survival issues and allows more effective operation. The major label
may also take on such responsibilities as manufacturing and promotion.
These factors may in turn permit the
independent label to expand and/or upgrade its artist roster, or enter a
mainstream genre where developmental and promotional costs are much higher than
for niche market music.
Independent labels affiliate with majors
to increase their artists’ exposure in commercial media and to expand their
distribution networks by increasing their access to major retail record chain
stores and rack jobbers.
Affiliating with a major label can
maximize the likelihood of the independent getting paid for records sold.
Independent labels, using the traditional independent distribution system, have
always faced the risk that an independent distributor will go bankrupt and not
pay them. This risk is drastically reduced (if not eliminated) when an
independent label distributes through a major label distribution system. These
distributors have the financial backing of their multinational parent companies
and are able to weather the financial storms of the music industry. They also
have more clout than independent distributors to collect from retail and
wholesale accounts and are better able to implement strict controls over how
many records those retail and wholesale accounts are allowed to buy on
credit.
Issues to Consider
When an independent label is considering an affiliation with a major
label, there are many issues to consider. Here are some specific questions that
will help to focus research and analysis:
- What are the independent label’s
present sales volumes and what are they likely to be in the next few years
(i.e., with major label affiliation versus without major label affiliation)?
- Will the major label distribute
to the mom-and-pop stores, which formerly carried the independent label?
- Will the major label be
responsive to regional demands and the demands of niche markets?
- What kind of reputation and
support does the independent label have among its fans?
- Will a major label affiliation
jeopardize this?
- Will the independent label’s core
fans be best served by the major label’s distribution system?
There are other issues to consider as
well. For example:
- Will an affiliation with a major
label create an unhealthy pressure on the independent label to sell more records
than it can comfortably or realistically sell?
- What is the present financial
status of the independent label and what is its access to additional resources
without major label affiliation?
- Assuming affiliation, what will
the cash infusion (if any) be used for?
- How can the independent label’s
existing staff—promotion, marketing and administrative—be best utilized after
affiliation?
- How will the long-term business
objectives of the independent label be served by affiliating with a major label?
- Do the owners of the independent
label really want the responsibilities and financial burdens of operating a
fully-staffed record company and overseeing the promotion and marketing of
records?
- Are they only interested in the
creative process of signing artists and producing records?
- What is the personal style of the
independent label’s owner(s)?
- Do they place a high value on
being able to operate independently?
- Are they willing to take input
and direction from a large corporate entity?
- What is the major label’s real
motivation for entering into the relationship? Is it to use the independent
label as an “indie front,” or to take over the label’s strongest artists?
- Does it view the relationship as
a mutually beneficial long-term strategic alliance?
- What is the corporate style of
the major label’s management? Is there sound long-term vision?
- Is there good personal chemistry
between the management of the major label and the independent label?
Types of Deals
There are numerous types of deals between independent and major labels,
the most common of which are as follows: (1) Pressing and distribution (P&D)
deals; (2) distribution only deals; (3) fulfillment deals; (4) production deals;
(5) joint ventures; (6) equity deals; (7) the licensing of records to major
labels; (8) the licensing of records from major labels; and (9) rights
buyouts.
As a practical matter, the type of
contract offered by a major label, its specific terms, and the degree of
flexibility in the major label’s bargaining position, will all be dictated by
the extent to which the independent label has strong artists, a healthy and
ever-improving sales record, and the confidence of the major label in the
independent’s key personnel.
For a detailed discussion of the types of
deals I have listed above get a copy of the book “The Musicians Business and
Legal Guide”, published by Prentice-Hall.-----
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 by email at: chris@chrisknab.net
Chris Knab's new book, 'Music Is Your Business'
is available NOW from the Music Biz Academy bookstore.
Visit the FourFront Media and
Music website for more information on the business of music from
Christopher Knab.
Bart Day is a Portland-based entertainment attorney in private practice and is also music counsel for Vivendi Universal
Games, the computer game division of Universal Studios.
Bart is also the co-author of a chapter (entitled “Contracts and Relationships between Major Labels and Independent
Labels”) in The Musician’s Business and Legal Guide, a book compiled by the Beverly Hills Bar Association and published by Prentice-Hall
Publishing (New York).
The reader is cautioned to seek the advice of the reader's own attorney concerning the applicability of the general
principles discussed in this column to the reader's own activities.
Contact information for Bart Day:
1435 NW 19th Avenue
Portland, Oregon 97209
E-mail: bart@dayandkoch.com
Telephone: 503-224-4900
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