What Exactly Is A Record Label?

The role of the record label has evolved dramatically over the past couple of decades, and while it isn’t fair to say that the record label is dead, its function and purpose in the music industry sometimes needs a little defining.

Guest post by Aaron Trumm of Soundfly’s Flypaper

Twenty, even ten years ago, the answer to this very basic question (“what is a record label?”) would have been a pretty straightforward one to answer. Now, it’s a philosophical quagmire, and you’re likely to get a hundred different answers if you ask a hundred different people.

It’s true, the role of the record label in music as a whole has changed quite a bit in recent years. The role a label may play in an individual artist’s career may even be different, but contrary to popular opinion, the record label is not dead, nor is it likely to die any time soon.

But we’re not going to spend fifty pages on the subtle history and nuance of record labels today, and we won’t be covering the varying opinions as to their usefulness or morality either. Instead, we’re going to stick to the basics here so you can get a fundamental understanding of what a label is, and what they might do for an artist like yourself.

First things first. The standard definition which you will see a thousand times if you Google “What is a record label?” is: A record label is a company that manufactures, distributes, and promotes music recordings.

A Simple Proposition

At its core, what a label does is simple. A record label monetizes recorded music.

That’s it. Record labels’ sole business mission is to find ways to make money from recordings of music. But that doesn’t mean they’re inherently evil, or ripping you off. The best labels are ones with models that allow artists greater shares of revenue, more decision-making power and independence, and who raise their rosters like a family.

Record labels may fund the recording process or not. They may fund the manufacturing of recorded media such as CDs, LPs, and cassettes; or they may not. They will usually fund and negotiate the distribution of recorded media, say to old fashion record stores or mailorder catalogs. And most importantly, they will often put money towards the promotion of an artist’s music.

If you’re an artist signed to a record label, you’re considered an independent contractor contracted with the label to make recordings.

Before we go any farther there is one thing to understand about a record label: A label is not a publisher. A publisher finds ways to make money from the songs themselves. This could get confusing, because many companies operate as labels and publishers, but the two are separate.

Learn more on Soundfly: Find out once and for all how streaming and sales royalties work — and how to get the money you deserve — in Soundfly’s free course, How to Get All the Royalties You Never Knew Existed. 

Make Money, How?

This is where things get more complex, as there are a variety of ways to make money with recordings. Even more complexity gets introduced into contracts, with even more confusing twists and turns added almost daily due to streaming, new internet thingamabobs, and various and sundry other craziness. We’ll keep it simple.

Let’s boil it down to basics again. Recorded music generally is monetized in one of these three ways:

1. Sales – Sell a CD in a store. Sell an MP3 download from your website. Sell a vinyl record on tour. This means sales to customers who then listen to the music for their own enjoyment.
2. Licensing – If the producers of a TV show or movie or any other media project want to use your recording in their production, they need to negotiate and pay for a Master Use License. Remember this is separate and distinct from licensing the song itself.
3. Digital Performance Royalties – Traditionally, broadcasters of recordings such as radio stations were only required to pay songwriters/publishers for “performing” their songs, not the owners of recordings. Now, however, labels can make money from performances on digital platforms such as the internet or satellite radio too. Learn more about royalties here if you want a refresher.

Every way of making money directly from music falls into one of those categories. But that doesn’t mean labels can’t make money in other ways.

A modern label might make money from merchandise like shirts or stickers, YouTube monetization (advertising), licensing the likeness or name of an artist, ticket sales from live appearances and concerts, or any number of things that are not associated with the selling of the music itself.

Another Way of Thinking About It

Now that we have the basic picture of what a record label is, if you’re an artist you may want to think about it another way.

From an artist’s perspective, you could think of a record label as a service. This service is a business structure that allows you to make money being a musician, but it’s not always a necessary one. The label provides services like recording funding (think of this as a loan you could never get elsewhere), manufacturing, graphic design, marketing and promotion, and distribution.

If you sign with a label rather than building that structure yourself, you will have to pay them. Luckily, you don’t pay up front. Instead, you share the revenue generated from the monetization of your music. And even better, they’ll do the accounting for you.

The idea is that your ability to build the structure and promote your music on your own is so minuscule compared to a big company doing it, that even though you’re sharing the revenue, it’ll help you grow faster. This was certainly true in the beginning — just to access a recording studio before the digital age was such an expensive proposition that artists had no way to make a record without a label.

Now of course, it’s only partially true. Not only can you make a recording on your own, you can even build a following, distribute music, promote, and create the entire business structure yourself, skipping the label entirely. Think of Chance The Rapper and you’ll see how far it’s really possible to go independently.

That doesn’t mean there’s no place for a company that can do all that, or even some of it, for you. The fact is, not all musicians want to become graphic designers, recording engineers, digital marketing gurus, concert promotors, and agents. Most just want to make music and leave the rest to the pros.

If you think of a label as an organization you’re paying to help you with your music career, a lot of what you see in the contract might make more sense.

There It Is, in a Nutshell

There’s lots more to learn of course — we’ve barely scratched the surface here — but we hope that understanding what a record label is and does at a basic, fundamental level will help you understand whether or not you’d like to approach one to publish your music.

While you’re here, if you are going the independent route, take a look at one of the next most important pieces of your music business structure: Distribution.