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Why We Need To Leave Record Labels Behind

Author: Max Iskiev

Record Labels Are Outdated

Before artists were able to use social media, Soundcloud, and Garage Band to take promotion, distribution, and recording into their own hands, being signed by a record label was the undisputed gold standard for a successful music career.

While the internet and inexpensive home studios put more power into the hands of the artist, the fact that nobody actually buys music anymore is the nail in the coffin for major labels, opening the floodgates for artists to become independent.

In 2002, the Recording Industry Association of American (RIAA) reported that 95.5% of the music industry’s revenue came from CDs. Nowadays, 75% of that money comes from streaming, with only 10% from physical sales. This is devastating to record labels as they make drastically less money off of streaming, which is so inexpensive that Spotify didn’t even turn a profit until early 2019.

Imagine the enormous revenue made by Eminem’s label, which moved 10.6 million copies of The Marshall Mathers LP, the best selling solo rap album of all time. Keep in mind this was in 2000, when the average cost of an album was above $18. Now compare that to a Spotify subscription where you pay between $5 to $10 a month to listen to over 30 million songs.

However, streaming services like Spotify aren’t to blame — the music industry as a whole has suffered tremendously since physical sales plummeted in the 2000s with the rise of the internet, Itunes, and piracy rendering CDs irrelevant.

Quite the opposite, it’s thanks to streaming services that music revenue started growing again for the first time this millennium, although still at a fraction of its peak.

Nowadays, CD sales are just a fragment of the industry’s revenue, and labels are struggling to stay afloat, as their business model is still centered around selling physical copies.

Back when they produced CDs in mass quantities, labels would keep 85–92% of royalties, leaving the artist just 8–15%. Whether this number was justified or not, the music business has shifted from a product based industry (CDs) to a service centered one (streaming), but record labels have failed to adapt to an age in which artists can easily and inexpensively upload an album to streaming services themselves, without selling a single CD.

In 2019, musicians no longer need labels to distribute their music, yet the percentage of royalties they offer continues to reflect the CD production model of the past. While record deals differ, a Citigroup report claims artists are still taking home just 12% of the $43 billion made by the music industry in 2017.

According to musician Moby, this disconnect exists because record labels are“trying to justify their survival and keep their lights on,”as it is incredibly difficult to make money from streaming alone and nowhere near as lucrative as CD sales were.

To save you the math, 1 million Spotify streams is worth just $4,300, the same as 233 album sales in 2000. Even though labels keep a majority of that revenue, it pales in comparison to the amount they made off of CDs.

To stay in business in the digital age, labels have embraced a controversial practice of offering what’s called a “360 deal” in which they get a cut of all of an artist’s revenue streams, rather than just from their music sales. This includes tours, performances, merch sales, and more.

While some see the “360 deal” as a blatant money grab by labels struggling to turn a profit through streaming alone, labels claim it allows them to focus on developing their artists rather than chasing #1 hits and massive record sales. Either way, this type of deal is becoming more and more common in major label contracts.

Independent Artists Are On The Rise

The “360 deal” may be a great solution for record labels, but now that independent artists can do everything the label does, the idea of signing over your creative freedom and a majority of your earnings is unappealing as ever.

After the record label takes their cut, the previously mentioned $4,300 profit made off of 1 million Spotify streams leaves just $645 for the artist (assuming they get a “generous” 15%). In a 4 person band? Split that up for a measly $161.25 each.

Furthermore, artists don’t get paid any royalties until the label recoups the money they invested — meaning if you got an advance of $1 million, you’d be paid nothing until the money was made back.

While major labels definitely have a lot to offer artists, such as vast amounts of capital, radio connections, marketing, publishing, distribution, and legal teams, musicians signed with majors will get the smallest share of earnings.

Alternatively, musicians can sign with indie labels, which generally have smaller budgets and take less of the artists’ earnings while offering musicians more creative control.

Indie labels have been responsible for many world famous acts such as Mac Miller, Drake, Kendrick Lamar, and Radiohead. These artists often transition from independent to major labels using their proven success as leverage to negotiate favorable terms and in turn take advantage of the wide reach and deep pockets of a major label.

A third option is doing away with labels entirely and releasing music independently, which is becoming increasingly popular and has never been easier.

According to the U.S. Bureau of Labor Statistics, the number of independent artists increased sixfold from 2003 to 2012, while the amount of label-employed musicians shrank by 78%.

Artists such as Chance the Rapper, Joey Bada$$, Macklemore, Tyler the Creator, and many others caught on to the trend early and rejected lucrative record deals, but many upcoming and well-established artists still sign with major labels.

While there are some success stories, there are plenty of examples of rappers such as Lil Wayne and Lil Uzi Vert feeling trapped by their contracts and having their music held hostage by their labels for multiple years.

In 2014, Lil Wayne was slated to release Tha Carter V, but contractual disputes between him and Cash Money Records (signed to Universal) led to a lengthy legal battle. During this time, he dropped a string of tweets apologizing to fans about the delay and claiming that the label was refusing to put out his album. Only after being freed from his contract in 2018 was he finally able to release Tha Carter 5.

Lil Uzi was currently in a similar situation and claiming his label is preventing him from releasing him album, Eternal Atake. Label troubles are nothing new for Uzi, who tweeted a warning to upcoming artists not to sign back in 2017:

Frank Ocean is another prime example of an artist who regretted signing with a label, except in this rare case, Frank came out on top. By releasing Endless as a “decoy album,” Frank fulfilled his contract with Def Jam and was able to put out Blonde independently the very next day.

Frank initially released Blonde as an Apple Music exclusive (like Chance did with Coloring Book), netting him over $1 million in just a week with sales and streams included.

The “Record Labels” of the Future

Nowadays, independent artists are finding ways to cut labels completely out of the equation when releasing their music by working with streaming services directly or through disruptive new tech companies like Landr, Distrokid, and UnitedMasters, to name a few.

These companies distribute artists’ music to all streaming platforms, provide detailed data analysis, and allow musicians to own their music and keep 100% of their royalties in exchange for a small fee or a low commission rate. Distrokid, for example, charges just $20 per year, while others are completely free.

UnitedMasters is another forward-looking distribution company started by music industry titan Steve Stoute. Previously an executive at Interscope, Sony, and former manager to Nas, Stoute launched UnitedMasters with a $70 million investment from Alphabet (Google) and a clutch partnership with the NBA. Taking just a 10% cut, United Masters will do everything a label does, plus give artists the chance to be featured on all of the NBA’s digital platforms, reaching over 1.5 billion viewers.

Streaming services are also trying to get in on the action and work with artists directly, with Spotify recently inking direct licensing deals with several independent artists, reportedly splitting the profits 50/50. In this agreement, musicians own their recordings and are not bound to releasing music on Spotify exclusively.

These trends all point towards a future in which artists own their music and get their fair share of profits, and frankly, it’s about time for musicians to turn the industry upside down and cut the labels out for good.

If you enjoyed this post, follow Max Iskiev on Instagram @HipHopUnrapped47 for more content!


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