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The Law Offices of Bret D. Lewis
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HOW TO START A RECORD COMPANY FOR UNDER $1,000.00.
By: Bret D. Lewis*
The explosion of independent record labels across America is occurring, in part, because of the abandonment of new artist development by the major labels. Increasingly, the big record companies are looking to buy complete packages with minimum risk-acting more like investment banks in signing new talent than talent scouts.However, the current state of the music industry development process presents a tremendous opportunity for studio owners to take the lead in developing this new talent, because of the way recording agreements are presently structured—studio owners and/or production companies can effectively present themselves to new artists as bonafide indie (independent) labels.
Let’s face it, the studio business is up against stiff competition with recording equipment being made more affordable, thus allowing many artists to purchase their own home studios. Increasingly, top-line studios are being used as nothing more than mixing centers for recordings completed in low-cost home studio environments.
So what should you do if you are the owner of a $250,000 Neve mixing board, an analog 24-track or digital 32-track recording machine, various digital and hard disk components running in the neighborhood of $8,000 for a few tracks, and business is starting to trickle off and you can’t afford to pay our engineer?
Well, you could consider packing up the bags and calling it quits—after all, nobody expected you to make money in the music business anyway. But the answer really couldn’t be clearer: diversify. Why not start an independent record label?
Now, here are the five steps on how to do it for $1,000 or less - excluding legal fees, of course. It’s simply a matter of finding the talent, recording the talent, selling the talent and doing it over and over again.
1. Find the Talent. Where is the talent to be found? There is no set formula, and there never has been. Most A&R executives draw on sources in the artistic community. Accordingly, many artists get to record companies via managers, artists, disc jockeys, entertainment attorneys and other industry professionals, including studio owners. The key is to be tied in and connected--not to listen to a million demo tapes. According to indie label executive Dax Callner (Callner Music):
You don't have to be a corporate executive to find talent. The key is to get to the talent first. This is something studio owners are ideally situated to do.2. Sign the Talent. Signing the talent means getting the Artist to sign an Artist recording agreement, which is no easy task. New artist deals often provide for options to record up to as many as eight albums—a period which covers the entire career of most artists, and, not surprisingly, gives many artists pause.
One signing incentive for the Artist is the advance the record company offers, which may be a sizable sum if the Artist signs to a major label. How, then, is our newly formed indie label/studio with a $1,000 budget to compete?
The answer is simply that we can't compete with million dollar offers for new artists caught up in outlandish industry bidding wars. Fortunately, new artists typically receive only enough tot cover recording costs, which, after the expense of a studio, producers, engineers and musicians, can be substantial. Studio owners, who can schedule recording sessions during down time, work out spec deals with engineers and producers because of relationships, can effectively compete by making the studio available to the Artist in lieu of an advance.
From the point of view of the Artist, who may never see an initial advance after the payment of album production costs, the offer of our label/studio is virtually identical. To further sweeten the deal, some indie labels offer attractive signing incentives such as profit sharing, a trend the majors have been reluctant to extend to new artists.
3. Record the Talent. When the budget is small or nonexistent, deals of all kinds can be made. If a label/studio owner is well-connected and negotiates wisely, he or she should be able to attract producers, engineers, writers and musicians on a spec basis (whether by calling in favors, or offering attractive back-end deals), and record an entire album during down-time. According to producer Jeff Robert (Blueprint Entertainment), “It goes without saying that the music is most important…The record buying public doesn’t know or care how much an album costs to produce.”
4. Sell the Talent. Selling the talent means releasing records, and that means manufacturing costs, promotion and marketing expenses, all of which can be substantial and risky undertakings for a new business venture-costing much more than $1,000.
If such costs are not within your budget, don’t worry, you haven’t breached the contract. Under the terms of a standard new artist deal, the contractual commitment a label makes to release a record is irrelevant anyway. The typical new artist deal provides that the artist’s sole remedy for a label’s failure to release a record, is the right to purchase the record back, after the expiration of the release period, at the label’s production cost. Moreover, most artist agreements afford the label nine months to release an album after its delivery to the label. During this period, the label can raise funds for a U.S. release with essentially no out-of-pocket expense by licensing the record abroad—especially if you don’t mind a business/pleasure trip to the south of France to the Midem Convention! Then build a buzz at home and sell the project to a major.
Following this formula, the breakdown of our $1,000 budget would be as follows:
a. album artwork expense=$350
b. manufacturing expenses for 250 copies=$350
c. postage and telephone expense (for solicitation of European and Asian record companies)=$300.
5. Do it Again. Assuming you are able to find the talent, sign the talent, record the talent and sell the talent, then do it again. Nothing succeeds like success, particularly in the entertainment business. If you are successful with one project, build on the successes and do it again. A licensing deal in Europe can turn into a European label deal. A licensing deal in Japan can turn into a Japanese label deal. A Japanese label deal and a European label deal can turn into a United States label deal--all, potentially, for a cost of $1,000 or less.
So, if you’re a recording studio that happens to be struggling at the present time, don’t’ sell that expensive recording equipment just yet. Start an indie label for $1.000 or less. And then let’s talk about buying some expensive video equipment, or perhaps, hiring a promotion staff or maybe a team of marketing and publicity professionals, and after that we’ll hire…
This article appeared in Music Connection Vol. XX, No.20 9/30/96 - 10/13/96
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