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Setting Up Your Own Independent Record Label: A Sound Guide for the Music Entrepreneur

November 2006 (Creativebias)

Recording and releasing music by a new and/or unknown artist can be a very risky and costly venture especially with the current state of the record business. Whilst independent labels such as Domino are testament to what can be achieved, if you are considering starting a label on your own you need to be aware that there are far easier ways of making money!

The major recording companies are consolidating their assets to retain their position in the market, whilst the influence of supermarkets and digital stores means that recorded music is cheaper than ever to the consumer. Despite the early optimism that the Internet would provide a greater opportunity for independent labels to reach music fans, so far market conditions have not altered that much. In fact, as it stands less independent singles reach the Top 40 of the charts since all legitimate digital sales have been included.

People who have a real passion for music set up most small independent record labels. Often they are or have been artists themselves or are fans of a particular music genre or particular artist that they feel doesn’t get enough attention from the music buying public. Invariably being in it for any other reason, like a quick return on a financial investment is likely to end in disappointment. The rewards of owning your own independent record label, certainly in the early years, are more social and emotional than economic. Yet it can be a great way of developing a professional reputation, opening numerous doors into the industry or simply meeting other likeminded people and filling your spare time. And of course every now again one of the thousand or so small indie labels in the UK elevates itself from the pack with a band or a record that everyone wants. There is no reason why that label can’t be yours! The following guide will help you get all the basics right, the rest will be up to you.

INTRODUCTION

Running a label is a full time job (on top of the full-time job you may well have already). Most importantly, it requires tireless determination. You may want to set up your own record label for a couple of reasons:

  • The type of music you like is not readily available
  • You know of an artist who has potential and doesn’t have a record deal
  • You believe in a record and think it’s worth releasing
  • You are a composer / producer with material and want to release your own music
  • You may have been rejected by other labels but still believe your product is saleable
  • Your band have a following and believe you can make some extra cash from a CD release

FIRST THINGS FIRST

You’re probably excited about a song or a band that the rest of the world will love, but just doesn’t know it yet. You may well have spoken with the artist about your ideas and you decide you are going to go for it. You then need to decide on what terms you and the artist are going to work together and formalise the relationship by contract. This doesn’t necessarily have to be heavy or expensive initially, however you should work with a music industry specialist lawyer to draw up the contract you offer to the artist.

Other things you will need to do is set up a business bank account and define the business status of your label (see Trading Status section). Speak to AIM (Association of Independent Music) about becoming a member as they provide very useful information and support for small labels in their formative stages.

Most importantly join PPL (Phonographic Performance Ltd). PPL is not for profit association established by record companies to ensure that record labels and performers are paid royalties for the broadcast of the recordings they own or appear on. The only way to officially register your recordings is with PPL. On joining they will provide you with a unique catalogue code so that you can number and identify your releases to your label. And through PPL’s CATCO system you can register each track and each release format so that when you receive airplay for your records the royalties you are entitled to find their way back to you. Furthermore attaching ISRC codes to your individual tracks is essential for releasing online. For full information on this, visit the BPI (British Phonographic Industry) website.

Once you have a bank account, a PPL membership, a contract and an artist or three you’re interested in, you’re ready to go. Even before signing acts however, you need to have a keen awareness of their potential market.

Be aware that like any business the label will have fixed operating costs such as:

  • Phone
  • Internet & Website
  • Travel
  • Legal and Accounting Obligations
  • Communications
  • Sundries
  • Membership fees

Depending on where you are based there may be other costs such as rent, rates and utilities. Remember these costs are not chargeable to the bands and have to be covered from the label's share of income.

THE MARKET


If you don’t know the market already, you will have to learn very quickly to understand your potential audience. It is not enough to rely on what you think you know (i.e. your "gut feeling”, although this helps). Obviously this depends on the types of acts or music you choose to work with. In the digital age arguably there is a market for just about everything, however what you need to figure out is that market big enough to garner a return on your investment, if so where is it and most importantly how do you reach it?

Reading as many specialist magazines as you can find, talking with people in the industry, promoters other A&R’s etc. will all help. The term 'A&R' originally meant 'Artist and Repertoire' and is now used for record label reps who recognise potential, develop acts and generally point them in the right direction.

Compile databases of specialist distributors, labels, publishers, DJs, press agents and shops. Your instinct may have got you so far, but you are going to need to know your audience if you are introducing a new act to them. At this stage, it’s essential to establish that there really is an audience and market for your type of music. Carry out some basic market research, the attendance at the band's live shows (if well promoted )is often a good indicator, and find out what people really think about the music and whether they would part with their money to listen to it, and then apply your findings on a larger scale.

After establishing that there is a market for your act(s), you need to put together a realistic budget that includes:

  • Recording (if you are not licensing the product from another label or artists)
  • Mastering (as above)
  • Artwork (As above)
  • Marketing & Promotion
  • Manufacturing / Distribution

Make sure it is affordable, and that the market is big enough for you to generate the sales that you need to at least break even. Don't put all your money into one release. Remember most small indie labels sell somewhere in the region of 500-1500 copies of their first few releases, if not all the time, so temper your optimism and be realistic when calculating your figures.

Once you’ve established a budget for the release or release campaign and have a plan of how you are going to introduce the act to the market, then you are ready record (if you haven’t already).

RECORDING

In this day and age recording in home studios is common, and for certain genres of music works very well. However you need to ensure that your product is professional in terms of sound quality, so this needs to be the first consideration when recording your acts. Producers, if you use them, are also an integral part of the recording process and have the technical and contractual responsibility to ensure that all performances on recordings are logged accurately so that later when you register the tracks with PPL all the performers details are in order. Usually if you are engaging a professional producer you will need a contract with them, outlining how and how much they are to be paid in return for what they are to deliver to the label in terms of recordings. Often bands and labels choose producers together as it is the band that has to work with them closest. Often producers will help choose studios, but be aware of your budget and stick tight to it, ensuring that you get what you need delivered on time.

Whilst the recording process is underway, or just after it is completed, you will need to get artwork together, even for online releases. Again you can do this yourself or engage maybe a student or professional depending on your resources and what you can blag. Remember that often people will do you favours if they love the band, however if you do not pay for the artwork there may be issues as to who owns the copyright further down the line. Check with the Intellectual Property Office to make sure you do this properly - www.ipo.gov.uk

Once you have your studio recording and your artwork you are ready to master the recording. Mastering technically balances and equalises the overall sound of a recording(s) whilst also compressing certain sounds and frequencies so that the track works well on mediums such as FM radio. Additionally at this stage often tracks are embedded with their unique ISRC codes so that they can be identified digitally and aligned with databases of information about the track. Apart from the technical processes mastering is a very important step in creating the overall aesthetic of the recording. If you are planning on releasing on different format you may need to master specifically for them, certainly this applies where vinyl is concerned.

VINYL, CD OR SIMPLY A DD?

Since January 2007 all legal digital downloads (DD) purchased from online stores such as iTunes, Napster, 7 Digital, Emusic, Break My Ears, Bleep.com and many others have been eligible for inclusion in the weekly singles charts. This means with enough sales in one week pretty much any track that is digitally available can be a hit. Although limited edition 7” vinyl for indie music and 12” vinyl for dance music still remain popular formats for singles release, fewer and fewer music stores are stocking physical formats for singles, with cd singles in particular becoming increasingly rare. So unless you have a niche market that expects its music on a certain type of format the most cost effective way to release chart eligible singles now is as a DD.

For this you will need a digital distributor, sometimes referred to as an aggregator. If you have a distribution deal then you distributor will usually look after the digital side of the business as they do with physical distribution. However if don’t have a distributor or they don’t yet do digital, online is a good way to get your first few releases out. AIM has a recommended list of digital distributors, has blanket deals which as a label member you can sign up to, and also has digital days in London were you can meet the various companies and figure out who is best for you. When you have a digital distributor depending on the service they offer, the process of getting your tracks for sale online can be pretty straight forward once you have a master of your recording and all the details (often referred to as Metadata) for your release.

For albums physical releases and especially CD remain the dominant format and are likely to for some time to come. There are various ways of pressing and distributing CD albums, from CD-R’s burnt in your home PC and sold at gigs, to professionally replicated products produced at one of the many pressing plants across Europe. The advice here is to start small in terms of how many CD’s be it singles, EP’s or Albums that you press. There are some duplication services in the Creativebias directory that produce high quality CD’s with on-body print and sleeves in small runs, that are good for both promo to press, radio and promoters etc. or sale via your website, sites such as CDBaby or at gigs.

Once you have a distribution deal however, and are looking to have stores stock your records you will most likely need to use an actual pressing plant to produce your CD’s. Very few plants do runs of CD’s shorter than 500 copies, many have their minimum runs set at 1000. Your distributor may be able to help you locate the best plant. Price-wise some of the European plants are very competitive, however be sure to get samples and test pressings of your recordings before committing to an order. Again AIM or online forums such as indielabels@yahoogroups.com are good places to seek advice on a pressing plant you are considering using before actually spending your money.

A WEBSITE

A website works for you in many ways; marketing your band or product, as a general information portal and can be used as a point of sale by offering downloading capabilities. It is crucial to ensure your site is on all the search engines to generate as much traffic as possible. You can pay for this service by using a search engine optimisaiton agency but remember, this can be expensive as you can receive a lot of support including website traffic reports, keyword analysis, search engine submissions, search engine rankings, website optimisation, competition analysis website maintenance and website monitoring. .

FINANCE

If you are going to look for investment and you need to convince other parties, (family, friends, business associates) to invest money in your label, then you have to convince them it’s a winner. You might persuade people by telling them, but banks prefer to see a business plan. This will include proposed marketing and promotion of your product, and also its financial forecasts for the first few years of trading. By working out how much money you need to earn in order to cover business and personal expenses, you can decide on a price for your record, and work out how many units you need to sell in order to break even (i.e. the point where sales income equals costs). Alternatively, you can deliberately make a loss to shift units and thereby get your name and label on the street. If you start with a release of say 500 to 1000 copies, the investment could be small. This can be a good way to grow if you’re re-investing your profits. Your next release could be 2000 copies then 5000, then 10,000 and so on. Admittedly, all this financial stuff can get a little complicated, but there are plenty of organisations who can offer advice and assistance.

Not only banks and accountants, but Enterprise Centres, Chambers of Commerce and Trade Associations such as Business Link or Creativebias can be invaluable. These organisations generally have local offices: (these would usually be listed in your phone book under Government Departments). Only seek advice if you think you need it. Don’t go trying to turn over every stone for financial support, because you are going to get bogged down searching. Keep your focus on what you are trying to achieve. Funding is the biggest distraction. Just because it seems free, it quite often isn’t. Funders will require business plans and forecasts that could pull you in the wrong direction. Weigh up the need. It may be possible to start up the label without any outside financial assistance by using savings or day jobs in order to keep things ticking over. It doesn’t take much initial capital investment to start a record label, but money will be needed for recording and pressing your first record and for its promotional costs. Tip: If you go and speak to the local CD burning companies, you might be very surprised at the deals you can make. Give them guarantees that you’re going to return for the next release and you could negotiate a really good deal and hey presto, you’re acting like a real business person.

HOW MUCH WILL YOU NEED?

The cost of starting up a company starts at zero, but if you want to make a fair go of it, you will need to join various industry organisations (listed below) and if you plan to employ a public relations (PR) company, you should set aside at least £500 for each campaign. When approaching funding bodies, bear in mind that grants rarely cover stock (i.e. the cost of recording and pressing your records), but a personal loan probably will, as long as you’re sure you can meet the repayments.

TRADING STATUS

Legally in the UK, it’s a lot simpler than you might think. There are three types of bsinesses: (1) the sole trader; (2) the partnership; and (3) the limited company. If you plan to operate as a sole trader (i.e. just you, working for yourself), you only need to tell the HMRC (formerly the Inland Revenue) that you’re working for yourself. Similarly with a partnership, but, as the name implies, you’ll be working with one or more partners. It is therefore very important to draw up a partnership agreement with the assistance of a solicitor. This outlines exactly who has put what in to the partnership, how profits will be split, how the work is to be shared, and what happens if the business is wound up. It could save a lot of bad blood and legal wrangling in the long run.

The third option is the limited company. Before your business can begin operating as a limited company, it has to be registered with the Registrar of Companies (Companies House). Incorporation is the process by which a new or existing business is converted into a corporate body. This doesn’t have to be a complex and costly process, but you’ll need to be clear about a few things before you start. In addition to protecting your company name (nobody else can use it)you’re protecting your own personal liability if the company folds with huge debts. This means that you won’t have to pay out money from your own pocket since the company is, legally, a separate entity. In the case of the sole trader or partnership you could loose your house if your business goes under. There are other limited liability company criteria which need to be satisfied, not least the presentation of annual audited accounts which could involve employing a book-keeper or an accountant. For these and other criteria, again contact Companies House. www.companieshouse.gov.uk or visit www.businesslink.gov.uk Limited companies have to pay corporation tax on their income and profits. They also need to operate a PAYE system to collect and pay income tax and National Insurance contributions from their employees – who include company directors.

OFFICIAL BODIES

There are a number of official organisations you should join. By law you are not required to be a member of any of them, but if you’re serious about your enterprise, they should be borne in mind. For example, Mechanical Copyright Protection Society. MCPS need to be notified of your releases and if you cover someone else’s song the royalties will be paid to them through MCPS. It may also be worthwhile keeping in touch with umbrella groups such as AIM and the B.P.I as contacts are essential and information seminars are often run by these groups.

BAR CODING

Bar coding is commonplace in the record industry and benefits record companies, retailers and distributors by simplifying the process of stocktaking, reordering and delivery and easing the collection of sales data. The weekly industry charts are compiled using electronically recorded sales data. The BPI’s bar coding information explains how to compile bar codes in accordance with industry guidelines. www.bpi.co.uk

TAXATION

The biggest potential headache at this stage is keeping regular accounts. You can employ an accountant or book-keeper to do this for you, which will obviously cost money, or you can keep the books yourself. Although it’s tempting not to bother, especially if your business turnover isn’t significant, consider the fact that company tax is assessed at the end of each tax year, and what you pay depends on how much profit you’ve made (i.e. the higher your profits are, the more tax you will have to pay). The good part of this is that legitimate business expenses can be deducted from taxable profits. However, the downside is that if you can’t prove how much profit your company has made, a figure will be assumed. Always keep sales receipts and expenses. Even if you don’t enter them in a book, at least you’ll have something to show the taxman when he comes looking for money. Some independent labels are run by band members, but if your plans include employing other people, there are legal obligations you need to know about. If you have any questions or doubts contact a solicitor.

CONTROL

Remember you’re in complete control of your own destiny. There’s nobody making you compromise your music in any way. Your career is in nobody’s hands but your own. You will also own the ‘sound recording right’ in the songs that you release, which means you profit from them further if you license tracks for compilations or for use on TV, in films and in adverts.

SUCCESS

This is possible, but can mean a very long slog in terms of time, effort and money. However, by running your own label you’re effectively cutting out the middle section of the ‘profit-takers’ so you stand to make a lot more money in the long term.

..AND FINALLY, MONEY

There are higher profits to be made by starting your own record company instead of signing to one. The overall sales value of the company increases with the quality and success of its portfolio of bands and artists. Chris Blackwell sold Island Records to PolyGram (Seagram) for £300 million and Richard Branson sold Virgin Music to EMI for £210 million. This is obviously the top end of the scale but they both started out as unknowns.


Useful Contacts

Distributors

  • ALPHAMAGIC (HARD DANCE) +44 (0)20 8960 4777.
  • C&D COMPACT DISC SERVICES (ELECTRONICA & PROG ROCK) +44 (0)1382 776595. Philcdser@aol.com
  • CHANGING WORLD(TRANCE/WORLD/NEW AGE) +44 (0)1458 253838.
  • SHELLSHOCK (VARIOUS) +44 (0)20 8800 8110. www.shellshock.co.uk
Online Distributors

Further Reading

  • Kalmar, Veronika (2002) Label Launch: A Guide to Independent Record Recording, Promotion, and Distribution St. Martin's Press
  • Fisher, Jeffrey P. (2001) Profiting from Your Music and Sound Project Studio Allworth Press
  • Davis, Sarah, Laing, David (2001) The Guerilla Guide to the Music Business Continuum International Publishing Group

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