The Record Label Recovery, Part IV: Deals
Why the record deal is still critical to long term artist success, and why risk and effort are still critical factors to which deals to offer.
This article is the fifth article in a series of linked articles that started with The Record Label Crisis. If you want to read more, read The Record label Recovery part I: Purpose, Part II: Analysis ; Part III: Artist Development — and keep an eye for more articles in the series by subscribing to get articles on email here.
Music recordings were the most lucrative part of the music economic ecosystem for many decades; record labels who managed them were the most invested stakeholders in an artist’s career. For that reason record deals — the contracts between artists creating recordings, and the record labels that exploit them — are perceived as foundational to success. Even as other parts of the ecosystem, such as live performance, are now more lucrative, the primacy of the record deal in the mental model of artist development hasn’t changed.
Pre-internet, a new artist would be signed after a process of scouting, whereby A&R teams would scour small venues, watch bands and discover new talent. Rarely, they might sign an artist who had released a single or two on a small indie label. The sum of this act’s fanbase might be a hundred people in their home town. They’d also have a clutch of songs, maybe demo’d in a local studio, but rarely enough well-recorded songs to make an album — the most economically-viable release format at that time.
At the point of signing, inherent risk was high. The band might fall out, they might not get on with the label-appointed producer, or they might struggle to write more songs. Risk persisted after the delivery of music. The vogue for that artist’s sound may be over. A fickle journalist could do a hatchet job on the band or the record, their bad sentiment picked up by radio producers who had the power to break music. A retailer with the right shops in the right towns might decide not to stock the first single. The project was dead in the water. And unlike now — where streaming and TikTok can revive a dormant track and give it a new lease of life, as it’s always available — it would require a lot of effort (and additional investment) to revive a project that hit the buffers.
Record labels shaped their deals to mitigate for that risk, creating an exclusive economic relationship that had three key elements. A recoupable advance to the artist of possible future royalties — best conceived as a loan against future earnings that is refundable in the event of success. A royalty split in favour of the record label, so that they earned the most of any profit on a project; those royalties would accrue against the advance. The whole deal would also be in perpetuity — the artist would sign over their rights to that music for all time. (For a detailed breakdown of traditional record deals,read this piece by Drowned In Sound).
Even factoring in the risk outlined, it is easy to look at this traditional deal and perceive it to be inherently unfair. But labels had the money, teams and expertise to elevate artist creativity, the budgets to market new artists and the leverage to push artists through the artist development funnel described in the Record Label Crisis, especially the critical staging posts of radio and retail.
We’re in a completely different era now, with music streaming the dominant mode of consumption in mature music economies. The factors that impact risk and effort now, compared to then, are very different. Music technology and social media means an artist can have a much more developed set of recordings and may have built a significant fanbase independently of any interaction with a record label. An artist with creative flair can more easily put together the other creative elements required to release their music.
The risk relationship between artist and label has changed. There is less leverage for labels now: not only because the expertise in, and access to, better quality music is no longer exclusive to those companies, but also because access to the marketplace is now completely open. Barriers to entry don’t exist — anyone can upload music to a self-release platform and have it appear on a streaming service. Artists with more developed fanbases, looking for better investment or some level of service, can also partner with distribution or artist service companies. There is a myriad of choice.
Why sign a deal at all? Barriers to entry are gone and artists can be truly independent, but that means the noise from all the other music sloshing around in the streaming “bucket” described in The Record Label Crisis blocks out the ability for a new artists to cut through and develop long-term careers. For that you need investment, expertise and a long term strategy, alongside great creativity, from a partner incentivised for you to be successful, which record deals offer.
If there is a broader array of possible partners to sign an artist’s recorded music rights, then there are now many more types of deals available. The table below summarises some of the different deals I’m aware of (though more will exist).
How these deals differ, in theory, is down to the investing entities’ capture of risk in the project, as well as the relative effort on the part of those entities in managing these rights.
The traditional major label deal implied it would take on a lot of risk developing a new artist and would invest a lot of effort from the sizeable teams they employed making and marketing music. Contemporary deals offered by some indies may offer an equitable split of royalties or profit; this reflects an understanding that their teams are smaller and the artist and/or their management team will have to do more of the work required to take the music to market. Artist services or distribution deals come with little risk for these bridge-to-market service — distributors are passing on data to streaming services; artist services companies have extensive portfolios of artists to mitigate risk (with little bespoke attention) and offset costs by charging for services. They invest less effort-per-artist than a record label and offer a higher return accordingly.
As discussed earlier, the risk signing a new artist used to be very high; but now, since artists and their teams can do so much of the work required to make music and build fans, it is possible for deals to be offered at all stages of their development on a sliding scale of risk and effort. This trend accelerated during the transition to streaming, reaching a peak as TikTok facilitated mathematical predictability of a song’s trajectory. Record labels could write a big cheque for a song that had generated momentum on TikTok, with little need to do anything except send it to streaming services.
This has created a long-term problem for the recorded music sector. The collective knowledge and expertise of those experienced in A&R and artist development hasn’t always been brought to bear as the responsibility for this has been outsourced, and a culture of quick hits and sucrose-charged songs has depleted the creative culture that has been the traditional strength of record labels. A correction may be on the way: the data suggests the half-life of a TikTok hit is shorter and shorter, so those labels that would chase these records are less incentivised to sign them. Frontline labels are under pressure to demonstrate their value to their shareholders and the atist community, so there is greater impact for them in breaking “real” new artists, especially in the UK, where colonisation by US-signed artists continues apace. This British-specific issue breaking acts and exporting them globally has also prompted collective soul-searching in the industry, with many arguing that only patient artist development can help us change things.
Investing in artist development is also a prudent economic measure. It’s hard to see why an artist, faced with an array of deal types, would choose a major label contract with an 80:20 royalty split if the project is already quite developed and the label has little incremental effort to offer the project. But if the label is offering dedicated and bespoke A&R expertise (from the sort of “music people” Ed Sheeran was talking about), as well as investment in creative services and content delivery so that the artist can focus on making the best music possible — plus investment in areas like tour support — such a deal may look more attractive.
For companies in the new music economy working on recorded rights, the optimal framework for deals is therefore one of maximum flexibility, taking into consideration the two axes of risk and effort .
The matrices above and below show what this might mean in practice. New artists with a cogent body of music that has been well-produced and some experience in live performance, but a small fanbase, imply a bit less risk but still some effort. They might be offered a deal that allows the label to offset their investments in overhead and marketing but potentially more equitable share of upside. A heritage act with a loyal fanbase and clear musical vision require no effort and come with little risk. They can ask for, and expect, a deal akin to distribution terms, or a favourable royalty split. Conversely, if it’s true that the appetite for risk on the part of labels is on the increase, nascent artists with a few decent songs and something about them might be offered traditional royalty split deals, perhaps with a twenty year license from artist to label for the music in that deal. This allows the label to see some upside in return for the risk and effort they’ve invested.
Term is a factor in the effort calculus. The effort required to successfully release music from an artist should decrease over time as their fanbase grows in size and loyalty. Additionally, risk and effort putting out a song today is at it’s maximum, but in five years that same song may be capturing recurring streaming revenue with risk and effort totally absent. Shorter deal terms can provide flexibility to allow for this; an artist manager I spoke to suggested the creation of a deal with a sliding scale royalty rate based on time since release, whuch if workable, is another way to capture this.
The other consideration for music firms in the new music economy is which rights are captured in the deal. Releases of recorded music are still the catalyst for progress in an artist’s career: they provide a focal point for campaigns centred on the artist which trigger fan engagement, generate publicity and broadcast opportunities and drive sales of concert tickets. Yet they’re no longer reliably the most lucrative aspect of an artist’s career, often loss-leading some of these other aspects. In The Record Label Recovery Part I: Purpose, I argued that labels needed to widen their vision, given that the connection of music to culture, which tends to signify success for musical artists, is now marked by an artist’s billing and subsequent performance at Glastonbury rather than having a song on the Radio 1 playlist or a hit in the charts.
To be incentivised correctly then, a label should have an economic interest in a broader set of rights. There’s some reticence about this: 360 degree deals were trialled in the late 2010’s, but as discussed in Notes On The Fan Economy, they failed because labels didn’t have the infrastructure to make them a reality. With artist-to-fan services now such a potent area for investment and growth, there’s little excuse for a music firm not to be able to find the right partners to exploit these other rights. The other blocker goes back to the topic of risk: with major label deals being offered to artists late in the development process with little risk attached, the artists have more leverage and can hold back rights for themselves. This should encourage a greater appetite for risk, as artists earlier in the development cycle will have less reason to hold back rights from this type of deal.
In The Record Label Crisis, the angst experienced in recorded music was outlined. Believing that companies loosely termed as “Record labels” play an integral part in British music culture, this series of articles offers possible solutions to this perceived crisis going forward. In a fractured landscape where artists can choose from a broad range of different deal types, it may be threatening for record labels to feel forced to offer terms that may not align with their long-term business model. If the label’s purpose is to release music that resonates in culture, and if deals need to be structured a certain way to keep doing that over time — then make the effort and attention offered to artists the best they can be, so that the trade-offs the artist might make are worth it in the long term.
