When discussing independent artists, it is important to consider how labels benefit from signing artists, how they have functioned in recent history, and what artists receive in exchange for signing. Labels function largely by exchanging distribution and monetary advances. In exchange they keep a large chunk of the artists royalties. “Record labels make their money off of selling records, but there’s all kind of royalties that the record company collects when a record is played, and that’s how they make their money. Every time a record is played on the radio or sold in a record shop, or sold online now, they get a percentage of it” this quote evidences how labels benefit from signing an artist by taking a cut of their profits.
There are a few reasons an artist might sign to a label. One is because the label has money to invest in the form of an advance, which is essentially a loan. This loan is recouped by the label through the profits the artist makes. The distribution methods and promotion capabilities the label offers is another. Heather McDonald stated in early 2019, ‘When your label has a lot of money, that means they'll be able to spend a lot of money promoting your record - which is exactly what you want. It also means they may be able to offer you a large advance and invest a lot in recording, touring, video shoots and other opportunities for you.’ this evidences some of the main reasons for signing to a label and provides a basic understanding of why an artist has traditionally looked towards a label to achieve success.
The reality for many artists is the risk can outweigh the reward. This is due to the business models that have existed and have been sought after. For many tens of years the industry had heavy reliance on the business model of selling large numbers of copies of only a few particular albums to cover the high-cost of producing and creating records, then plugging this music songs to radio, and covering loss from their other commercially unsuccessful projects. Record companies had the ability to use the access to recording facilities, and links to radio airplay to their advantage when negotiating deals with artists, which levelled their risk from the gargantuan costs and needed to create and push a record. - In a typical label deal, the label covers all of the initial costs to make a record. This covers the recording costs, hiring additional musicians, studio stuff, and producers. These costs, however, are considered advances against the income due to the recording artists, known as a royalty. Any other costs paid out by the record company need to be recouped before the artist actually makes any money from the sales of the album. The many things that are often included in this arrangement include video creation costs, marketing expenditure, radio airplay exepnses, packaging costs, etc. The typical royalty rate for an artist in this set up is a percentage of the wholesale price of records sold and is around 9-12%. This percentage is based on the wholesale price of the album, any record which is discounted due to bargain sales wouldn’t count toward the artist’s royalty payments at that rate. In this type of contract the artist gives up their rights to their copyright in a sound recording in exchange for the opportunity just to create and have a record released. -