The problem with musicians is that they tend not to think like entrepreneurs. If indie artists viewed their activities as a business and not just as a creative endeavor, they would see a lot of traps that the music industry has set for them.
For example, aspiring indie producers and artists often dream of being signed by a label without giving consideration to what that might actually mean. It’s almost like an automatic thought. I’ve got to get with a label. If artists thought more like entrepreneurs, they would quickly figure out there’s a catch. In fact, signing a contract with a label can, in many ways, be like taking out a loan with a huge rate attached, like something from a loan shark.
We know what you’re thinking? Comparing a contract with a label to a loan from a loan shark may be surprising. Think about this: when signing an artist, the label usually gives them an "advance payment.” Sounds okay, right? The newly signed artist only has to work off the advance, and then, if they are successful, the artist and the label will share the profits.
Truth is, the standard practice of labels is to issue an advance on credit at a high annual interest rate. Moreover, the "advance" often includes all the label’s costs for the artist's promotion, recording, studio rental, merchandise production, and so on. Only a part of the "advance" goes to the artist in the form of money in their account, which they can spend on surviving while fighting for their place in the sun.
What can we learn about the rates on the "artistic loan" if we take a look at the available information? According to the Royalty Exchange service (which we will say a few words about later), the effective loan rate regularly exceeds 27% annually.
But what about the data from Sherry Saeedi, an experienced music manager and head of the startup Verswire, who claims that it is normal practice for labels to issue loans to artists at 85%? Here is a direct quote:
“With the traditional record label model, before you’ve even made a single song, you’ve signed off any rights to the music that you’re about to write, and every penny that you ask for has an 85% interest rate. For every dollar that comes in from revenue, 85 cents goes to the label as profit and 15 cents goes to your recoupment.
If you're wondering what the size of the "generous advances" that labels give out to artists is, according to IPFI data, an average record label typically invests between $500,000 and $2,000,000 in a new artist.
No entrepreneur from the non-musical world in their right mind would ever borrow amounts at the interest rates mentioned above.But musicians do it regularly. And if you need money for food while launching an independent music career, Sherry Saeedi ironically advises taking out a consumer loan.
Principally speaking, copyrights to a musical work (with or without lyrics) cannot be taken. In practice, there are many tricks that help labels and publishers take away almost all the rights to an artist's music.
It is easier for a record label to gain control over master recordings than for anything else. Usually such control is stipulated in the language of the contract, and young musicians often do not pay attention to this practice.
And, of course, everyone by now knows the story of Taylor Swift, who had to re-record early albums, because she couldn't regain the right to the original recordings in any other way.
Even Prince fought for years for control of his works and stage name before he succeeded. He even performed with the inscription "slave" on his face... Hearing stories like these about huge names like those does not inspire a lot of confidence in the traditional music industry.
Credits: Jimi Hughes, CC BY 2.0
There are even more subtle things novice artists probably don’t know about. Original music can generate income in several dozen ways (the link contains a short table of types of royalties). There are "mechanical" royalties, royalties for public performances, royalties for "synchronization" and so on. Truth is, this isn’t rocket science or quantum mechanics. It may be dense but almost anyone can figure this subject out, even without a legal advisor.
Unfortunately, most aspiring musicians don't do this. Labels do. Even the "anti-labels" and "artist-friendly labels" are well versed in the topic. And they, of course, want to get their hands on all the possible types of royalties by signing an artist who performs their own music.
Often, you’ll see cases where the creator of the original tracks, who has taken an advance from the label, is left with only one right of authorship, and that one remaining right just doesn’t have enough juice to help pay the bills.
Confusing contract formulations and footnotes in small print — commercial musical alchemy taking place in legal labyrinths. How can a young artist be expected to navigate it?
Look, there is no universal recipe. No cure-all. The most important factor at the start of an artist's career is capturing the attention of potential fans. You want simple proof of this? Look no further than the aforementioned service "Royalty Exchange.” They note: "‘Royalty Exchange’ matches creators seeking funding with investors seeking catalogs. This gives creators the ability to raise money and fund their careers debt-free, and investors access to a new, high-yield asset class."
It is not difficult to calculate how many plays are needed in order for music to generate such royalties on streaming platforms. On Apple Music, the music has to generate about half a million plays. On Spotify, you’re looking at about a million listens. Or, basically, the listeners of a novice musician have to exist in big numbers before the author can begin to "trade" shares of the rights to their music.
Another startup, called DeMuzo, is entering the music catalog rights management market. We managed to ask its founders a few questions and here's what we learned.
DeMuzo will help musicians at an early stage of their careers sell shares in ownership of the rights to master recordings (we are not talking about any other rights yet). The responsibility will be on the artists themselves to promote their music. However, it has not yet been declared that the artist will be required to show that they already have an audience.
Services like Royalty Exchange and DeMuzo offer some hope that an aspiring artist might be able to independently obtain seed funding without selling their soul to the devil. This is definitely an interesting change in the music market. But what should an artist who has released only a few tracks and is still relatively unknown do?
Perhaps DIY musicians should look to the good old ways. For example, one might work part-time in a non-musical job and leave several days a week for the development of their musical project. Or maybe they could turn to their uncle. You know, the one who played in local punk bands for 10 years when he was younger. You could always ask him for a small interest-free loan or other assistance.
Kurt Cobain's early bands recorded their demos in his aunt's home studio, after all. A friendly helping hand never hurts! You never know!
Friends or relatives who believe in you as a promising musician may even have internet marketing experience and might be able to help you there. Or they could do something as simple as help you create a video or take some great pictures.
In the early stages of their careers, musicians won’t likely need to crowdfund or hunt for new forms of financing as much as work towards attracting the attention of an audience. Building a large social network will be key. A vertical smartphone-style video made on the cheap (or even free) may be able to do much more for a beginner musician than an investor's money.
The most important value, outside of the ability to make original music, that a DIY musician can possess is holding the attention of the audience. If, at the initial stage, a musician can manage to interest people who are already flooded with musical content, then we’re looking at a musician who has laid the foundation for future royalty flow.
And even if you meet someone who genuinely wants to help your career, it’s still worth carefully negotiating with them about the division of rights and income from your music.
Remember what we were talking about at the beginning of this article? It’s important to think about your career like an entrepreneur. Owning master recording rights and copyrights is more valuable for an artist than even cash. You’re going to deal with burnout, unfair competition, and other obstacles, but if you stay focused and remain committed, you can take your career to the next level.
We spoke with Los Angeles-based artist CARLY and asked her, as someone who has collaborated with producers in the past, why she chooses to continue on the path of the independent artist and whether she’s even looking to be signed to a label. Here’s what she said:
“I’ve got to say, where I am at now, choosing and pursuing a career as an independent artist versus the person that I came into this industry as, started this pursuit as, are two different people.
“I came into this wanting a record deal, shopping stuff to labels, doing the contracts and deals and situations and wanting all of that and desiring that. But there's a couple of things I think play into it, as the music industry has developed and changed because of social media and because of technology, how the industry has changed, but also my experience, the negative experiences I had in different situations.
“And then the third level of that is observing friends of mine who are artists and what happened to them in their deals, in their label situations.
“To me, gone are the days of a label or a company. It's very rare that you see artists actually being developed. They actually get the tools they need for the success of labels, not artists.
“It's kind of like, hey, you have an audience, you have a viral song, we're going to do this deal with you, try to make a buck out of it. If it goes somewhere further, awesome, but if not, you know, it doesn't.
“And I think that I have seen too many artists, friends that are not making money, essentially doing what they love to do for free because they owe this amount back based on their deal. And they also don't have say over when they release something or how they want to dress over.
“I mean, I had that experience, you know, being kind of told who I was supposed to be and what I should do. And that just doesn't interest me.
“For me, I am not opposed to a deal or a label or anything like that. It would just have to be the right one. And it would have to make sense for everyone involved. I would want to go into the situation with a lot of leverage, a big audience, just bringing a lot to the table so that I can keep a lot of the say over who I want to present myself as and what I want to do.
“But I've had a lot of experiences. And my year is being involved more so with the quote unquote traditional industry and how that goes. And that's kind of what has led me to continue to pursue this life as an independent artist.
“I love having say over those things. It's important to me to keep the integrity of it. And if I find a team and people, or a deal that aligns with that and keeps that integrity, then I am all in. But that's why I would say I'm not actively pursuing. Or hoping that that, you know, happens because it would just have to be the right thing.”
