Everything you Need to Start and Operate a Digital Record Label

July 31, 2010 by  
Filed under XsitePro

Anyone who has an interest in music — particularly an interest or specialty in a particular area of music — is now sitting on a potential gold mine.

Before I discuss the enormous advantages of running your own digital label — I’d like to make a comparison with anyone starting a physical label ten years ago. Firstly, a minimum investment of $350,000 would have got you started by renting a office sufficient to hold yourself plus a secretary, an a&r manager, a talent scout, a plugger/ promoter, and a receptionist. You would also need a copyright and royalty manager.

Your next task would have been to acquire good commercial recordings – with emphasis being on the word “commercial”. Finding recordings was one thing, (as is the case today), finding good commercial product is something else. Unless you were able to acquire ready made masters under license from a third party, you would have had to pay for your artists to record the masters yourself. In addition to hiring the recording studio, you would also have had to pay a producer – plus a recording engineer (although the engineer’s costs were usually included with the studio hire) – thus eating further into your $350,000 budget.

Assuming you could had got your team working nicely together- and sales from your first album had skyrocketed around the world, eighty percent of your income would have been taken up in overheads through royalty payments to the artist, producer and the music publisher (mechanical license). Then, there would have been your general overheads: salaries, expenses, office rent and so on. But we’re getting ahead of ourselves. before selling any records you would have needed a reliable manufacturer and an effective distributor to create and disperse your cds, (and maybe some dvds to promote the records), to the shops. This, however, is where it gets tough. Distributors, ever mindful of retailers reluctant to provide shelf space to unknown artists, (i.e. artists yet to achieve a playlist position on radio), would refuse to represent you (the label). Not surprising when, given the choice, retailers could choose from any of the big selling artists such as Nickelback, Beyonce, Pussycat Dolls, Justin Timberlake, James Blunt etc against the poor new artist. So, you with your new label and new artists, would be forced to plough more money to promote your record, in the hope of getting on the playlist – and thereby securing that elusive distribution deal. At this stage you would be wondering why you had started a label in the first place.

So, what enormous monstrosity of a thing happened in the music industry to change the old physical method of selling records? Enter, the golden dawn of digital music. Now, suddenly every artist, songwriter, producer, engineer and, even manager who once had a notion of starting his/her own physical label but didn’t have a $350,000 budget — is able to start and operate his/her own digital label for about the price of a new laptop.

For the first time,individuals have a great opportunity of developing their own label from zero up – and making a very healthy living. Unlike the older physical system of starting and operating a label — with all the huge overheads — the digital label operator can start a catalog and build it at his own pace without the need to employ several individuals. You can begin with just two tracks – concentrating on your niche in the music industry, testing and probing the markets as you go along. Measure that against a physical label spending wads of money hoping their records chart. Failure to chart would often spell disaster for many a physical independent and domestic label – leaving only the majors to compete. Not so for a digital label. If a particular recording doesn’t sell — you simply delete it from your site. Updating your catalog can be done in minutes. Some digital labels regularly update their catalog every few days. A digital label, too, doesn’t require the staff and individuals required of its physical counterpart.

If you’re not an artist yourself — but someone who is drawn to a special style or genre — or just someone interested in music in general — here’s what you can do to start your digital label: Firstly, you’ll need a good web host. Basic as this sounds, some people go with an outfit they think is good then, six months later they vanish into cyber space — leaving you and your site high and dry. So, please do homework before opening a web host account. I personally use Ipowerweb but it’s very much a matter of choice who you go with. Do check out on the internet first. Look to see if any of the hosts you’re interested in have independent reviews. Once your web host is confirmed, you should get a confirmation email from your host confirming your space is ready so that you can move forward and publish your site.

Some people are very creative and skillful in being able to create their own web site. Others, like me, are not. I was contemplating having someone design my web site for me when, by chance, I came across a web design system called Xsitepro, but there are many to choose from. As with the web host, look for independent reviews before making a decision.

Next, make sure you have an up to date digital contract – one you can offer artists (or the owner of the masters). If you’re not an artist yourself, you can enter into a license deal with any artist or production company willing to have you promotes and sell his/her product.

By knowing a particular field or style of music well, will help you no end build your catalog faster than if you’re someone learning as he/she goes along. However, enthusiasm will go along way. What you need to do when you start off is to ask yourself this question — “Why would an artist license his/her rights to me and not someone else?”

Firstly, to have an artist (or production company) freely license his rights to you – you need to convince him/her that you have a powerful distribution system. Unlike physical labels, with a web site, you have the ability to create your own “built in distribution system”. Having a digital distribution account is an excellent idea – but you will still need to promote your product if you want to draw large numbers to your site. Having an online magazine, newsletter or blog is one of the best ways of attracting a high reading audience. Ten thousand plus is a good target to work toward. This will help you pick up more recordings from artists looking for a site attracting thousands of hits – assuming of course artist’s genre works well with your label. There are some excellent publishers, blogs and newsletters hungry for good topical articles, presenting you with another outlet. Keep your articles fresh and original, and your audience will grow steadily with each article.

Since distribution is the key to your success – this is where you need to concentrate if you want your label to expand and prosper. Obviously, if your newsletter or e-magazine readership is increasing, it’s because people are enjoying the articles and information you’re publishing – and more people will want to buy your product. A healthy situation all round.

Now, a note on your digital agreement, you can use a contract repeatedly for different artists. I would recommend you acquire rights on-exclusively. Keep in mind that a contract may need to be updated from time to time as new copyright laws come into effect to deal with technological changes. As a rule of thumb you can check back every six months to see if your contract needs updating.

Next, ensure you have a terms and conditions policy on your site. Anyone starting off a digital label, should have a general list of conditions, setting out criteria for accepting product online, together with a privacy policy.

Next, you’ll need a strong accounting system. No matter how effective you are selling product online – if you’re not accounting to your artists accurately and to the letter of your contract – you’re dead in the water. In my view there is nothing worse than a company with a bad reputation for paying royalties. For me, trust and reputation is everything.

Work closely and be up front with the artists who put their faith and trust in you. Your good reputation and name will spread.

Dennis Sinnott is a music consultant in the entertainment industry. He was formerly Head Of Copyright at EMI Music in London. In 1983 he formed Christel Music Ltd and in 2007 MusicEnquiries.com to provide a music consultancy service for songwriters, artists, publishers, managers and record companies. In 1995 he published – THE INTERNATIONAL SONGWRITER, and in 2006 – SEVEN KEYS TO STARDOM dennis@musicenquiries.com
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One Response to “Everything you Need to Start and Operate a Digital Record Label”
  1. Nick says:

    Nice post. Except I think most artists know better than to sign an exclusive deal, especially with a one-person digital startup label.

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