The death of record labels

Many artists dream of being signed to a major label. That is one of two major dreams they have–the other is buying a bus. (don’t ask me why…)

In a nutshell, here is how the recording label arrangement works. Recording labels cover the cost of producing a project, advertise it, and pay royalties on all sales to the artist. The royalties are often quite small–in the range of 10%.

Production costs for a major project start at about $10K and go up from there to about any number you can imagine. However, the average project that you hear on Christian radio probably costs less than $30K to produce. In fact, a lot of projects you see for sale in the Christian bookstore are probably produced for much closer to the $10K number.

For many artists, $10K might as well be $1 million and they need a label to pay for production. They then cross their fingers and hope that the label will actually sell a few CDs. Likely, they won’t. The failure rate even at the major labels is pretty dismal.

As you can imagine, getting signed by a major label is not easy to do. But fortunately or unfortunately, the ripoff recording labels are everywhere and they always are ready to sign artists. These are recording studios, would-be producers, and outright con artists that are just posing as record labels.

Here is their game: They claim to cover production expenses but they force the artist to commit to purchasing a few thousand CDs from them at $4-$6 each. They then produce a lousy project using no live musicians at a cost of perhaps $5,000. Because the artist is committed to purchase $10,000 worth of CDs, the label gets paid regardless of whether they actually ever sell a single CD. In other words, these “recording labels” have just come up with a clever way to get artists to hire them to produce their projects.

Unfortunately, artists that would never plunk down $10,000 of their own money up front are in a big hurry to commit to purchase $10,000 worth of overpriced CDs. I guess it is psychological. Also, artists like to tell everyone when they have been “signed” by a label. They think the prestige will help them so they are willing to pay for it. By the time they figure out they were scammed rather than signed, it is too late.

So, that brings us to the independent artist scenario. Yes, it is expensive to produce music. A piano only project can be produced for well less than $10K but my last two projects have been over $30K.

However, once production is done, CDs can be replicated for $1 each and digital distribution is free except for royalties paid to the retailer (ranging from 10-30% of download revenue).

And independent artists are no longer in a position where they cannot move music on their own. Here is a statistic that will stagger you. In 2007, 1.5% of all CDs sold were by independents. In 2008, the number climbed to 32%. The same trend is true in the digital music arena where most independent artists have their music on itunes and many other similar sites.

So, here is a little formula I keep in the back of my mind. For every $10K I spend on production, I figure I need to sell 1,000 CDs or equivalent digital downloads to break even. After that, my music actually becomes profitable, and I can tell you that there are not even many signed musicians who use the words “music” and “profitable” in the same sentence.

I am watching and it is clear that there are now very talented artists who have done the math and choose to stay independent. One of the most talented groups in Christian music is the Annie Moses Band. They fill big churches wherever they go and they could be signed in a heartbeat. But they have chosen not to go that direction. I think it is clear that they have made the right decision because I doubt any label would market them better than they market themselves.

If you are considering recording a project and launching a music career, these are good things to know. Never before has an unknown had a better chance of success in the music industry.