What Does A Record Label Do?

A record label’s sole function is to create and sell records. The term “phonorecords” is defined in the copyright law and was originally created to refer to all recording configurations created and eventually was used by the music industry to refer to physical configurations such as vinyl records, cassettes and compact discs. Though it is perfectly acceptable to refer to all configurations, including digital downloads as “records”, since its likely that physical configurations eventually will become obsolete, the industry has been transitioning to the term audio products or just “product” to refer to generally refer to all formats.

Except for the money a label invests in producing audio products, every dollar it spends has one purpose: to sell these audio products. In this sense, a record label is really no different than a company that sells soap or cereal. It will conduct marketing studies to determine the type(s) of consumers that will like its product. Then, the label will promote its products to encourage those consumers to buy it. And like soap or cereal, both the artist and the recording that he or she has worked so hard to create are considered products—sources of income—to the parent company.

Record companies promote their artists’ audio products through advertising in the media, such as magazines, radio, television and the Internet. They may hire independent radio promoters to seek radio airplay. Labels also may promote sales in record stores by paying for those posters you always see on the walls, and by having a copy of the record at a listening station or in special high visibility areas in the store. A label’s publicity department will send newly released audio products to magazines and newspapers, hoping to obtain good reviews or stories about the artists. The size of the label and its monetary resources will dictate the kinds and amount of promotion it is able to do.

Not surprisingly, smaller labels tend to have smaller promotion budgets. Therefore, they have to find creative ways to promote their artists’ audio products. If you’re starting a small independent label, you may be able to do no more than produce the artist’s recording, pay for minimal advertising and promotion, and provide the artist with audio products to sell at his or her live performances. This arrangement benefits both parties and should be acceptable to an artist who is in the early stages of his or her career. Your label is able to make a small investment in its product and your artist gets someone else to pay for recording, packaging, and promoting his or her audio products.

There are some things a label should not do. The record company’s job is to promote and sell the artist’s audio products, not to develop an artist. Yes, an independent label will sign artists who are less experienced and less developed than artists on major labels. Therefore, artists will be developing their talents and gaining experience while recording for your label. But many small labels make the mistake of signing artists who have raw talent but no performing or recording experience. Certainly, you want artists with talent, but ideally, you want to sign people who also have been playing live and spent at least some time in a recording studio. This will allow your label to spend its time and money promoting audio products, while your artists perform at live music venues and make appearances to promote their audio products further.

It may be difficult for your new label to attract developed artists, especially at first. But you should make it a priority to seek artists with some level of experience. very helpful to find artists who already understand this concept and will do the things necessary to develop their talents. They will utilize your record company as one resource in their endeavor, but will not rely on the label to develop them.

One note of caution: you may hear about labels, usually locally, that say they can do it all for an artist. They’ll provide coaching to help develop the artist’s live performance and recording skills. They’ll manage the artist and book the artist’s shows. And of course, they’ll produce, promote, and sell the artist’s audio products. This is too much. They’re spreading themselves too thin, and are almost certain to fail to live up to their claims.

Don’t be one of these labels. As I tell my clients, if you are going to be a record label, be a record label and leave the coaching, managing, producing, etc. to the professionals who know those jobs best. Through networking, you’ll meet managers, agents, etc. who develop talent. The best thing you can do is to establish a good relationship with these professionals and introduce your artist(s) to them. Allow them do what they do the best, while you focus on your business: producing, marketing, and selling high-quality recordings.

Things You Can Do Today To Build Your Label

1.    Understand that a record company’s sole purpose is to promote and sell audio products, and think of creative ways to promote and artist’s record with limited resources.

2.    Seek out talented artists who have at least some prior recording and performing experience.

3.    Focus on running a record label and leave the coaching, managing, and booking to other industry professionals.

This blog entry is an excerpt from the book titled Music Business Made Simple:  Start An Independent Record Label that can be purchased at this link: Music Business Made Simple. MusicContracts.com provides all the necessary contracts for an independent record label at this link: Record Label Contracts.





How Does A Music Producer Get Paid?

Usually, a producer is paid by the hour, by the number of master recordings completed, or a flat fee. He or she probably will ask for a royalty from the sale of the record as well. If you agree to such an arrangement, you’ll have to account to the producer and make regular royalty payments, based on record sales. These issues must be agreed upon in advance and laid out in a written contract. As always, it is recommend to consult with an entertainment attorney to provide guidance in drafting and/or negotiating this contract.

The producer’s up-front fee will vary (usually from $250 to $10,000 per song), based on his or her experience and success, your artist’s level of success, and the number of songs to be recorded. The fee also can be influenced by whether the label is a local, national independent, or major record company. “Producers of tracks,” discussed in the previous chapter, will receive an additional royalty, because they create the original music to which artists add vocals. Ultimately, the producer you and the artist select will depend on the artist’s musical style and naturally, on the budget.

Aside from his or her fee, the producer, like the artist, will receive a record royalty. Traditionally this was based on the same way the artist was paid, which was a percentage of the record’s sales price, multiplied by the number of CDs or downloads sold. The record royalty to the artist is around 15% to 16% of the sales price of the audio product.  The record royalty for a producer is usually between  3% to 4% of the record’s sales price or 20% to 25% of the artist’s royalties. On a CD that sells for $10.98, the producer’s royalty would be about 33 cents for each copy sold and for a digital download of an album priced at $9.98 the producer receives  30 cents.  However, this 3% record royalty (or “three points,” as it’s called in the record industry) comes out of the artist’s royalties and is not an expense incurred by the record label.

How does this work? If the recording agreement says the artist is to receive a royalty of 15% of the retail price for each record sold, the artist actually will get only receive 12%, or “twelve points.” The three points paid to the producer will be taken out of the artist’s 15 royalty points and paid to the producer. A record contract will refer to this payment system as “all-in.” It means the label will pay a total of 15 royalty points (or however many points are agreed upon), and no more. All royalties paid to producers or anyone else will be deducted from the artist’s 15% royalties.

Today, because of the drop in sales price of all audio products and the varying ways music makes money, record labels are moving to calculate the royalties of an artist on a percentage of what the label actually receives when an audio product is sold and not based on a sales price. Thus the artist’s royalty rate may be higher such as 15%to 20% of the wholesale price paid to the label. It becomes easier to actually calculate the producer’s royalty by just stating the producer is paid 20% to 25% of the artist’s royalties than stating the producer is paid 3% to 4% of the suggested retail list price when the artist is not being paid a royalty based on that royalty business model. Even in the scenario described above when the artist is paid based on the sales price, the producer was still making 20% to 25% of the artist’s royalty (3% of 15%=20% or 4% of 16%=25%). Since the producer’s royalties are a percentage of the artist’s royalties, it is just easier to contract this way. This reduces the mystery of what the producer (and artist) are to be paid from the sales of audio products.

If the producer assists in writing or arranging the artist’s music, he or she will  receive a mechanical royalty in addition to the record royalty. As described more thoroughly in the chapter, The mechanical royalty, is paid by the record company to songwriters for the right to record their songs. Some producers, namely “producers of tracks” who compose the music, are entitled to 50% ownership of the song, and thus, 50% of the mechanical royalties also referred to as the publishing rights to the song. The record company would pay the other 50% of the royalty to the other songwriter(s), usually the writer(s) of the lyrics. If the artist is the sole songwriter then normally the producer would not share in the mechanical royalties if the producer does not contribute to he songwriting. However, because some producer’s assistance in crafting an arrangement of a song written by an artist into a hit song, a producer may still ask for a percentage of the publishing income, which is the money made by the song apart from the money made from the recording.

As you can imagine, this system can get complicated if a label or artist uses several producers for the recording. An entertainment attorney should probably be consulted to determine the best way to structure the contract when there are more than one producer. In all cases, it is important to have a written agreement to make it clear what rights the producer will have and what royalties the producer will get paid. When there is no written contract, this can cause arguments, which can lead to lawsuits. Therefore, the best time to complete a contract is before the producer ever begins any production services.

MusicContracts.com has a version of the contracts described above on the website at the following link: Music Production Contracts


Understanding the Artist Management Contract

One of the most important contracts an artist will sign is an artist management contract. Entering into a written management agreement will make it clear the services a professional artist manager will or will not provide to an artist and make it clear how the manager will get paid. Some of the most important terms of an artist manager’s agreement is set forth and explained below:


The manager will be exclusive to the artist. What this means is that the artist may not hire anyone else to act with the same capacity or with the same authority or to provide the same services as the manager. The artist will have the right to hire an attorney for legal advice, a booking agent for employment or booking opportunities, an business manager to handle the artist’s money, etc. And in fact the manager will work with all of these people. While some manager’s contracts will not make this clear, other than to state that the manager is exclusive, an artist should try to make it clear in the contract and a manager should be flexible and realistic enough to understand that the artist will need others to assist in the artist’s career.


The term sets forth how long the contractual relationship will last. Sometimes this just states how many years the agreement will be. Or the terms might be expressed with an initial term with options. For example the contract may be for 1 year with 6 additional 1 year options. This means that after the first year, the manager has the option or choice to extend the agreement for another year. Usually these options are exercised automatically which means the contract continues for the next year unless the manager notifies the artist in writing that the contract is over.

The total number of years or options that the manager and artist agree upon will be affected by the manager’s experience and artist’s prior success. Therefore, a manager will need a longer time to work with an artist that is only starting out and developing in the business. In these circumstances that manager does not want to spend years of time and money developing an artist, only to have the artist leave the relationship after the hard work has been done. The manager wants to be able to be compensated once the artist has become successful and to continue the work the manager has started. The length of the term is also dictated by industry standard and state laws. The industry standard for the maximum term just happens to be influenced by the laws of the state of California limiting personal services contracts to 7 years.  Therefore, most management agreements will be between 3 and 7 years.


The expression of services will range from a simple statement that “the manager will advise the artist in all aspects of his or her career and be available at reasonable times” to a specific list of duties and responsibilities.  Because management is an inexact science, manager’s are hesitant to list specific duties in their contracts because an artist might point to several of the specified duties and claim a breach of contract. But on the other hand, if a manager can list some of the duties he or she will perform in the contract, it can help an artist understand the services that will be provided. Some of those services that can be listed as follows: (i) assist in decisions concerning the artist’s professional activities and career; (ii) assist in the general practices in the music industry and with decisions respect to compensation and terms of contracts;  (iii) assist with respect to he selection, supervision and coordination of third parties that will work with artist such as business managers, attorneys, publicists, booking agents, etc., and; (iv) assist with matters pertaining to publicity, promotion, public relations and advertising


Money is one of the most disputed and argued issues in all relationships and it is no surprise that it affects the artist and manager relationship too. Therefore, a written agreement addressing this issue can help to get both parties on the same page at the beginning so as to reduce problems later on when an artist’s career is going well. An artist should understand that just because the manager is assisting in your career, it does not mean they are paying for it too. Whether an artist has a manager, if an artist without a record deal is going to go into the studio to record music to upload to their website or a social network page, the manager is not responsible for paying for these recordings. The same is true for basic expenses such as the creation of promotional material, payment to a publicist, advertising, postage, etc. The point, is the artist would have to pay for these things if there was no manager. Consequently, an artist should also have some level of control or decision making over these expenditures and not leave them to the manager to make these decisions and then send the bill to the artist. Therefore, there must be a balance and a working relationship so that this process is understood by both parties so that the outcome is reasonable. An experienced manager will talk to the artist about a plan and the expenditures necessary and will consult with the artist on how the things will be paid for. If the manager wants to spend their own money to help do these things-then this just needs to be understood and agreed to in a written document or even in an email later. Also, the contract can limit the manager from spending more than a certain amount of money on a single item or in a single month without the artist’s approval. Therefore, if the artist is making money and can afford $500 to be spend on all expenses including publicity and promotional materials or services of $500 a month then this can be put in the contract. The manager can also be limited to spending more than $100 on one single item. For any amounts after these limits, the manager can be required to seek approval in writing from the artist (like an email), to go beyond these amounts.


Because an artist’s success cannot be determined and its usually not feasible for an artist to pay a manager a salary, the manager is paid based on the monetary success of the artist. The best way to calculate this is based on a percentage of the money the artist makes in his or her career. The industry standard percentage ranges from 15% to 25% depending on the manager’s reputation and prior success managing artists. There are many of creative ways to have this percentage range go up or down based on the artist’s success. But for this article I will limit the discussion to the basic range. Therefore, once a percentage is agreed to, then it’s important that the artist understand that this percentage is usually on everything the artist does in the music industry. Some management agreements just state the commission is on all income the artist makes in the entertainment, music, film, literary, merchandise and television industries.  While many music industry artists may cross over into the other industries, the manager may or may not be instrumental in those areas. Therefore, the artist may try to negotiate that the manager’s commission are limited to the income the artist makes form their music career. But even so, the manager can help reduce disputes in the future by listing the income sources specifically. For an music industry artist it might be helpful to list income from the following: (i) sale and exploitations of recordings; (ii) live performances; (iii) music publishing; (iv) merchandise, and; (v) name or likeness product or service endorsements.


Another important and highly negotiated set of terms in the contract relate to the authority the manager will have to do things on behalf of the artist. The manager usually wants authority to: (i) negotiate contracts on behalf of the artist; (ii) be the sole representative to third parties; (iii) accept payment and deposit the payment into a bank account; (iv) pay third parties for services, and; (v) make publicity decisions and authorize the use of the artist’s likeness and name in publicity matters.

There is a balance between what the manager can do without the artist’s approval and not slowing the manager’s efforts down to obtain the artist’s approval on all things. Again, if the manager has a good reputation and represents many successful artists, the artist usually will have less need for oversight in these areas than if an the manager is just starting out. An artist should insist on being apprised of a manager’s actions on the artist’s behalf, especially matters dealing with money. But the artist should try to avoid micro managing his or her career, after all this is why the manager was hired.

MusicContracts.com has versions of different manager agreements on the website at the following link: Artist Management Contract






A Guide To Music Producer Contracts

A record label or artist contracts with a music producer or record producer to oversee the entire production of the artist’s recording(s). Record producers will participate in the recording, mixing, and mastering process, more or less, depending on their level of experience and skill, and on the skills of the other professionals involved.

With the creation of hip-hop music a new kind of producer has arisen that is referred to as a “producer of tracks”. He or she wears two hats: one as the creator of the music and one as the producer of the recording of that music. The “producer of tracks” creates and records the music. After that, the artist records vocals to go with the musical track. Some “producers of tracks” will help the artist to complete production of the vocals, but most will not. Instead, the artist will employ a different producer to mix the vocals with the music to obtain a final version of the song.

The music producer contracts that are used for these two types of producers are different and used in different scenarios. And the terms may be different depending on whether the producer is being hired by the artist or the record company.  Some of the different types of producer contracts are listed below with a brief explanation of each contract and its purpose.

Record Producer Contract:

This agreement is used by a producer that will produce an entire album for an artist. Even if the producer is producing a hip-hop or pop artist that is using recorded from tracks from other producers, the producer that is helping the artist, group or band perform in the studio, will use this contract. The producer is traditionally paid a fee and an additional “record royalty”. A record royalty is an amount paid each time an audio product (CD, digital download, etc.) is sold. This royalty is related to the sale of the master recording used in the audio product.  Typically the producer receives 20% to 25% of the royalty the artist is paid from the record company each time an audio product sells. The artist is usually paid between 90 cents and $1.50 for the sale of an entire album or about 9 cents to 15 cents for each single download. The producer is paid 20% to 25% of that amount.

The producer produces the album as a work for hire for the artist or the artist’s label. This means that the record label or artist owns the copyright to the recording created. The producer only retains the right to receive a royalty and has no control over the recording. Unless the producer helps the artist writes the songs on the album then the producer is not paid a separate mechanical royalty for the songs just because they help to produce the album. However, some producers help an artist arrange and craft the songs for an artist may attempt to negotiate the right to receive some income from the publishing rights to the songs. This will depend on how much the producer plays in this area, how successful the producer is in creating hit songs. The producer must negotiate this in the contract since by the copyright law they are not a natural owner of the copyright to the songs must because they produce the album.

If the artist is on a record label the label may contract with the producer directly or the label may require the artist to negotiate the contract separately. However, if the artist negotiates and signs the agreement with the artist, the record label may ask the producer to sign a producer declaration. This declaration merely states that the producer has signed an agreement with the artist, the producer will look solely to the artist for payment and that the label will own the copyrights to the recording.

The contract can be used by the producer, record label or artist when a producer is being hired to complete the entire production process of one song, several songs or an entire album.

Producer of Tracks Contract

The Producer of Tracks Contract is used by a producer that creates only a musical track. An artist or other songwriter will write lyrics to the musical track and the artist will then sing or rap vocals over the musical track in the recording studio.  These tracks are usually used by artists in the hip-hop and pop genres. The producer usually creates the music and the music track simultaneously on a computer or electronic musical instrument like a keyboard. Even though this is done in one process, there are two separate copyrights that exist–the copyright to the music (the notes) and the copyright to the recording of the music. The copyright to the music is considered publishing rights and the producer of tracks should retain these rights. The producer of tracks will co-own the song with the person that writes the lyrics and they will share in any publishing income from the song which includes sales of audio products or synchronization income from the song being placed in a movie or television show.

The master recording is simply the recording that the producer created while recording the music. Another person could take the same notes and record live musicians playing the music. The producer of tracks still owns the music, but because a new recording was created with musicians playing the music, the producer does not have rights in the new recordings. Typically, the same recording the producer created is the recording the artist uses in the studio to record over that eventually get mixed together for the audio product.

The producer of tracks, like the producer of an album is paid a fee for the services of creating the recording. The person who hires the producer and pays the fee will own the recording of the music. However, the producer will keep the rights to the music as explained above, and along with the writer of the lyrics and be paid half of the mechanical royalty each time an audio product of the song is sold.  The producer of tracks may also negotiate a record royalty just lime the traditional producer. However because the producer of tracks is only producing the music and not the whole album the royalty is a 5% to 8% of what the artist is paid. And this royalty is shared with the other producers of tracks for tracks that appear on an album.  The artist pays a total of 5% to 8% to all the producer of tracks and each producer gets his or her share based on how many tracks a producer produced that end up on an album.

This contract can be used by the producer, record label or artist when a producer is creating a musical track that someone else will write lyrics to and that will be used as the musical recording that will be mixed with the artist vocals for the final recording to be released as an audio product.

Producer Development Contract:

This contract is entered into between an artist and a producer when the producer is producing master recordings of the artist that will be shopped to record labels to try to obtain record deal for the artist. The producer, artist or both may be the one sending the recordings to the labels. The contract will address who owns the recordings, who has the right to shop the recordings to labels and what amount of money is paid to the producer for the producers services up front or in the event that the artist receives a deal.

There are many variations of these types of deal. The producer may be paid their full fee, a reduced fee or no fee. The producer may have their own studio and require the artist to pay only for studio costs or none at all. If the artist gets a deal the contract can provide for the producer to be paid a percentage of the advance the artist receives, a flat fee, and/or a royalty from the sale of the recordings released by the artist’s label. If the producer is successful in being the person that obtains the deal, the producer may get an extra fee or percentage. The contract may also provide for the artist to use his or her best efforts to get the artist’s label to use the producer to produce several tracks on the album or the entire album.

This contract can be used by the producer or artist when an artist is recording demo or master quality recordings that will be used to shop around to record labels to try to obtain a record deal for the artist.


MusicContracts.com has a version of the contracts described above on the website at the following link: Music Production Contracts

The Importance of Contracts For Independent Record Labels

It is important that independent record labels enter into written recording contracts with a recording artist. Entire law school classes are taught, and entire books are written, on legal battles related to the music business (see, for instance, They Fought The Law: Rock Music Goes To Court, by Stan Soocher). Most of these problems focus on contract disputes. That’s why, next to your attorney, the most important business tool available to you as a record label owner is the written contract. In fact, you can’t make money, sell records, or even exist as a label without contracts.

     The copyright and trademark laws are clear: whoever creates the vocal and musical sounds on the master recording (e.g., artist, producer, side artist, etc.), owns those sounds. Likewise, graphic artists who create the artwork for your records own that art as soon as it is created. Unless you obtain your rights in writing, any agreements you make with recording artists, producers, side artists, graphic artists, etc. are not valid or enforceable in a court of law.

As a result, you could lose your rights to the recordings made—and paid for—by your label, including the right to sell them.

The only way your record label can obtain the rights to use and sell the recorded performances on the master recordings, or the artwork you have chosen for the CD cover, is for the label and the artist(s) to enter into a written contract, or agreement, that grants those rights to your label. (Note: the terms “contract” and “agreement” are interchangeable in the music industry.) Without this written contract, the master recordings will continue to be owned by the artist, producer, and any side artists who created them. And the graphic artwork will continue to be owned by the graphic artist. This is only one of many issues to be addressed in the contracts you sign with musical and graphic artists, but it is probably the most important.

 For any successful record company, written contracts are a fact of life. Over time, your label will have contracts with recording artists, of course, and probably with producers, graphic artists, distributors, and others. So make sure you obtain the necessary contracts (described in the following chapter), study them, and use them. This is a great way to establish good business practice from the start.

MusicContracts.com provides all the necessary contracts for an independent record label at this link: Record Label Contracts