What Types of Record Label Deals are Available?
Part 2 of the Label Series - Distribution & Deals
The role of the Record Label is probably the most disrupted part of the music industry since the transition from a primarily physical to a digital world. The impact is so huge because all aspects of the services that a label provides have changed, so the deals changed with them.
Recording used to be done exclusively in studios: buildings full of expensive equipment and now there are artists who make whole albums on a $500 DAW (digital audio workstation) in their bedroom.
Distribution used to mean warehouses with pallets of albums, shipping boxes to record stores. Regional sales people calling on accounts. Purchased co-op to get your project on the end-cap. Now for as little as $10 you can have your song on a playlist right next to the Billboard #1 without leaving your house.
Marketing used to mean radio, publicity, TV appearances, MTV, advertising, and touring. Expensive, cumbersome investments in growing a fanbase one-by-one. Now you can post a 15 second video and millions of people may see it, and some of them will stream your song and become fans.
As a reaction to this disruption, the types of deals available to artists have evolved. Many deals are structured with the understanding that the artist is delivering finished work and taking responsibility for the marketing or audience engagement. Other deals still exist for full investment and development.
From DIY distribution all the way up to a full copyright ownership deal with a Major Record Label. In this section, we’re going to explore both the label deals, as well as other distribution options.
“Retail” Distribution
Congratulations! You now own your own record label.
This could also be called DIY distribution - it’s the most accessible level and, while it can’t really be called a ‘record deal’ the one consistent offering of these companies is the most important parts of a record deal: distribution of your music and the collection and payment of your royalties.
There are a number of these companies out there with varying services in general, all of them:
Have no screening system or minimum business threshold.
Distribute music for flat up-front fee (and sometimes a small percentage of revenue - generally 10% or less).
Have no genre focus, though some do better with different types of artists.
Have no term or delivery requirements - you choose what to distribute, when, and for how long.
Take no ownership of copyright and require the uploader to affirm they own all of the copyrights for which they are using the service.
That last bullet point is a sticky one, as there is currently a law-suit against several of these companies for distributing copyrights the uploader does not own.
These companies are handling distribution to the stores where and when you tell them to deliver - you are doing everything else on your own. Creating the music, artwork, and entering in all of the metadata associated with the music is the responsibility of the person who is handling the upload. Marketing is 100% on the artist and their team, though the company may provide some tools like short URLs and pre-save links.
Each of these companies have slight differences between one another - some offer marketing tools and services, others licensing, back-end royalty splits, and all kinds of other features and pricing models. There is no ‘best’ option but it’s up to the artist to explore what they want and need. So a quick, but incomplete, list of these companies includes:
Enterprise Digital Distribution
If you’re here, you probably also still own your own record label.
This level looks very similar to the Retail Distributors - some of the Retail Level companies even have Enterprise teams. CDBaby is owned by Downtown Music who also offers these services and owns FUGA. Symphonic and RouteNote both have “custom” tiers. Even TikTok and SoundCloud have teams dedicated to offering distribution services to artists!
These companies provide global, digital distribution to all DSPs. Once again, making the music, artwork, and related materials is up to the artist. However, there is often some concierge level services where the distributor will enter metadata, and confirm deliveries and handle discrepancies.
Once again there are varying degrees of services provided, but most of these companies:
Have some form of a screening process, A&R process, or minimum business threshold.
Take a percentage of revenue as compensation - anywhere from 5% - 35% depending on the company.
Provide some marketing services - generally DSP playlist pitching, some relationships with social media, and advertising/media buying.
Take no ownership of copyright, but do require some amount of exclusivity on the material uploaded to the platform. Generally, this can be 6-12 months but may extend longer.
Have some resources for funding - whether it’s an advance against royalties or an outside funding source.
License Deals
I’m purposely splitting this up by deal type and not by label type - majors and indies both offer services deals for different artists and then there are indies that are distributed by majors who also offer services deals. So breaking it up by indie and major would not work.
A license deal is any record deal in which the label does not take ownership of the copyright. For all intents and purposes these deals may look, and function, exactly like any other full ownership deal with the exception that the artist retains ownership of the recorded music copyright and simply licenses it to the label for a period of time.
The key factors that are flexible in this negotiation is the period of time (the term) and the percentage paid to the artist. If the license deal is for 20 years and the artist earns a royalty of 15-20% - this looks very similar to a traditional record deal, however that remains negotiable. There are two very common license deals that will be explored below, but keep in mind a deal can be anything offered and negotiated between an artist and the label.
Label Services Deal
A “Label Services” deal is the first deal on this list that starts to look like what we would think of as a record deal. As a matter of fact, for all intents and purposes, they ARE just record deals, but with a shorter term and generally a lower percentage kept by the label.
One key difference in a true label services deal, the artist is usually expected to deliver their recordings independently - so the A&R process happens outside of the label environment. As a matter of fact, in most services deals I’ve actively worked on, or negotiated, the artist had nearly completed their recording prior to even making the deal.
In a label services deal, the record label licenses the right to distribute and exploit the recordings for a certain period of time and provides the services of a record label.
Distribution, marketing, publicity, radio, international marketing, sales - everything we think of a record label doing, the company provides.
Here are some key commonalities I’ve seen among services deals:
The artist retains ownership of their copyright.
The term is generally shorter - as low as 3 years but generally 5-12 depending on the label.
The label receives a ‘services fee’ rather than the artist receiving a traditional royalty - generally that fee is 25-50% of revenue. In almost all cases, the artist receives the majority of the revenue in these deals.
While it’s generally more favorable for the artist to do these types of deals, there is an impact on way the business is treated by the label because they have less ‘up-side’ in success. Therefore there are a few key differences that tend to be true but are not always the case:
Advances tend to be a direct calculation of potential income. If the recording isn’t generating revenue and the artist needs money during the term, sometimes the label isn’t able to provide additional advances.
Since they are earning less money and working on a higher volume, services focused companies may not be as focused or provide as much dedicated staff for each project.
The artist has complete creative and financial control. Generally the artist has to approve every time the label spends any money.
For these reasons, a services deal tends to be more advantageous for an artist who is has an established fan-base and can bring their own audience, versus a more developing artist who may need further investment before connecting with fans.
Many labels provide services deals, however, some companies are specifically set-up for these deals. Those include:
BMG
AWAL and The Orchard (owned by Sony)
ADA (Owned by Warner Music Group)
Virgin Music (Owned by Universal Music Group)
One caveat for any artists considering a label services deal is the services fee is not a distribution fee. If the label is an independent label it is likely they are paying a 3rd party some fee for digital distribution and that fee will come off the top before the services split. Keep in mind a 35% services fee may quickly become a 45% complete distribution fee.
Joint Venture (JV) Deal
There are a couple different types of Joint Venture deals including executives and producers having JVs with larger labels. For our purposes we’re going to focus on JVs that the artist will do directly with the label partner.
A JV is very similar to a label services deal, except there is the expectation of more investment and complete services from the label side. Generally, in a JV deal the label provides all investment and services and keeps a ledger of expenses. Once the music starts making money, the overall account recoups the expenses and a profit is calculated - that profit is then split 50/50 between the label and the artist. The label may hold certain fees (e.g. a distribution fee) that make it slightly more advantageous for the label, but the spirit is an even split.
In essence, each JV becomes a ‘company’ with it’s own P&L - the label takes all of the risk and then they split the reward with the artist. In these deals, artists also generally have complete creative and financial control with the right to approve every expense.
Once again, these deals are more common with very established, and often legacy acts who have an existing audience and fanbase.
Other License Deals
As artists have more power and a desire to own their copyrights, license deals are getting more and more popular. Here are a few others you may see:
A traditional PPD style label deal with a shorter term - the artist earns a 15-20% royalty on the “Published Price to Dealer” and the deal look exactly like a record deal but the term is only 10-20 years. These deals give more short-term revenue to the label, but allow the artist more flexibility in long-term rather than being locked in for 30-35 years before reversion.
Singles Deal - Thanks to TikTok and other social platforms, we’re seeing songs take off without necessarily launching the artist. We’re seeing deals now where labels will license a single track from an artist to help market and distribute it - the artist gets to cash in on their ‘moment’ with an advance, and hopefully the label will help it reach a wider audience.
Traditional Ownership Deal
These are also sometimes called PPD deals. The reason for that name is the artist is paid an advance to make the recording and then given a royalty that is a percentage of the Published Price to Dealer.
These deals still look very much like they did in the past with the one exception that 1+6 deals are no longer the norm - as artists have more power they tend to not get locked in for the full 7 album deal and instead more like 1+3 or 4. The additional options protect the label and allow them to participate in success, but also give the artist flexibilty to renegotiate their contracts sooner and move on to another type of deal if it suits them.
Major and indie labels both offer deals where they receive full ownership. These are, theoretically the type of deal where the label would be most invested in the artist, so for a developing artist, this may be the only type of deal available.
It is important to note, labels don’t just want these because they make the most income - obviously these deals are often risky and expensive to fund. Labels want these because it grows their catalog of assets that they will own into the future, and for potential sales.
Generally these deals break down as follows:
The label provides an advance to the artist. This may be split up between cash for survival and other expenses, and a fund the artist can access for recording and production.
The label owns the copyright in the sound recordings produced.
Each term is generally for 1 year or the delivery of 1 album (whichever comes later). Labels generally have a set number of options that allow them to renew the contract on pre-negotiated terms, up to 6 times (the 1+6 deal mentioned above)
The label is responsible for all investments in the project - all artwork, marketing, video, publicity, radio, etc.
Most expenses are recoupable - meaning the artist is paying back for artwork and marketing, etc. However, certain expenses can have reduced recoupment such as music videos which are often 50% recoupable.
The artist is paid a percentage of the ‘sales’ - generally 15-20% of the retail price, but with streaming that has become quite hard to calculate.
Other forms of exploitation may have different income streams - specifically licensing may pay 50% rather than the PPD royalty.
Generally, there is a reversion clause where the artist is able to receive ownership of the copyright in the recording after a period of time - often 30-35 years.
Clearly, this type of deal is the least ‘favorable’ to the artist but it’s also the highest risk to the label in most cases. These deals should mostly be reserved for artists that need investment to even make their music - a pop or R&B artist who needs to hire producers, or a rock band that is just starting out and needs a major studio. In these cases, the label is fully invested in the creation of the music itself and therefore they own the underlying rights - hence these are usually for artists that are less established.
Due to the risk, some labels also seek ‘360’ deal terms - meaning the artist pays the label for elements they don’t own, including tour, merch, licensing, and other revenue streams. Luckily, the 360 deal era did not last long, and most deals with 360 elements are very small percentages of those revenue streams as a way to de-risk the investment, rather than a full take-over of the artist’s life.
There are many variables that impact these deals. I intentionally did not go into producer deals, for example, because they generally don’t come with distribution so they do not fall under my definition of a Record Deal. However, a deal with an imprint, or label JV will likely look like one of the above even if a manager or publishing executive is leading the charge rather than a label A&R.
These deals are evolving and changing rapidly, but these are the ones I’ve seen or negotiated in recent years.
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