In today’s new music model, artists are expected to develop themselves to the point that investment by a major player is warranted. Bigger labels are simply not willing to take chances on new acts. That being the case, many artists are being forced to set up their own record label and publishing companies.
What is a label?
In its simplest form a label is the company which funds and markets the sound recordings for an artist. A label normally owns the copyrights in the sound recordings. A pure label does not get involved in music publishing, live performance or merchandising. Today, the lines have blurred as the collapse of the music retail market has forced labels to take on new roles. Managers, producers, studios, publishers, artists and many other traditionally segregated music companies have been merging into each other. This has lead to the use of the so-called 360 deal where a company takes an interest in all of the aspects of an artist’s career, something that managers have been doing for years.
Artists who fund their own sound recordings are record labels by default. Until a label becomes interested in the artist, it is the artist’s responsibility to do everything a label does from release to marketing to distribution.
Do you need to do anything formal to set up a label?
Most labels are set up as limited companies. Limited companies are great legal vehicles for owners for a number of reasons including (a) limited liability – protecting individuals from personal liability, (b) lower tax base – companies pay tax in a different manner than individuals usually resulting in a tax benefit and (c) it is the preferred investor vehicle – owning shares in a company. The disadvantage of incorporating for an artist just starting out is that any tax losses in a company stay in the company. As a sole proprietor or partnership, business losses can be flowed through to your personal taxes.
The advice normally given for a new artist who is starting up a label is to start as a sole proprietorship or in the case of a band a partnership. Both of these legally recognized entities can be registered relatively easily and inexpensively at any government agent office. It is advisable, however in the case of a partnership to have a partnership (or band) agreement which deals with the many aspects of partnership band name and copyright ownership and other issues surrounding the running of the partnership including leaving members and revenue splits. It is strongly advisable to hire a lawyer familiar with the music industry to draft a partnership or band agreement.
Once an artist becomes profitable, it is a good time to roll the sole proprietorship or partnership into a limited company by incorporating through a lawyer. Again, it is advisable to have a shareholder’s agreement which clearly deals with all of the issues of running the company. In the case of a company, an artist will have to formally transfer all copyright to the company in order for the company to exploit the copyrights. The artist basically signs themselves to their own company.
An artist may want to run all of their revenues and expenses through their music company in order to build the business story for the artist. This could become very beneficial when going to a bank for a loan. Showing healthy gross revenues from touring, publishing, merchandise and CD/download sales will help the artist to establish a track record.
What does an artist do once they have set up a label?
One of the big things to remember in the music business is the importance of joining the right royalty collection agencies.
AVLA – registration allows for payment of neighbouring rights and private copying levy royalties to a label owning the copyrights in the sound recording. If an artist is not signed, then the artist must register directly with the AVLA to receive these royalties. AVLA also pays out on commercial television play, so it is important to register your videos upon release.
ACTRA or AFM – an artist also needs to register their sound recordings with ACTRA/AFM in order to receive their share of neighbouring rights and private copying levy royalties. So, an artist who is also indie must register with both AVLA and ACTRA/AFM.
Soundexchange – Register tracks with www.soundexchange.com in order to receive royalties on digital cable, internet and satellite radio play.
Copyright registration – Register sound recordings with the Library of Congress in Washington, DC – include songs as well to save on filing fees (sound recordings cannot be registered with Copyright Board of Canada, but song titles can).
Mechanical Licenses – Secure any mechanical licenses prior to release. If the artist is also the writer, then the artist can also provide this. If there are third party co-writes or covers are being released, then the artist/label can go to the CMRRA to secure the mechanical licenses:
http://www.cmrra.ca/Mechanical_Licensing/mechanical_licensing.html (note if the co-writer is not published, then artist may have to secure a mechanical license directly from co-writer by agreement). Manufacturers require mechanical licenses prior to pressing;
ISRC codes – in order to digitally release tracks on iTunes and many other online retailers, tracks must be encoded with ISRC codes. These codes create a digital watermark on the track which allows it to be tracked online. A label or artist can apply for these at CRIA. These are self assigned numbers once you get your ISRC code template number.
Distribution – this is a tricky one today. Many retailers and indie distributors have gone bankrupt or into receivership. The majors have contracted dramatically to the point that they are not developing new artists to the same extent that they used to. While organizations like FACTOR may require a distributor to apply for funding, this should not be the primary reason to enter into a deal with a distributor. The reality is that 90% of CDs are now being sold as merch off-the-stage by indie artists. Securing digital sales through iTunes and other online retailers is accessible through aggregators such as IODA, The Orchard, CD Baby and TuneCore.
If you do sign a distribution agreement make sure that the off the stage sale buy-backs are not too high. Many distributors charge up to $7.00 per CD to buy your CDs back for sale off the stage. Consider that 90% of indie sales are off the stage in today’s market.
Online releases – make sure that you comply with all of the required online retail requirements from ISRC codes, to UPC and catalogue numbers, to songwriter credits, to bios, one sheets, release notes, cover art and all other such requirements. Failure to give your aggregator all of the correct information and uploads will result in a delay in release.
Business and marketing plans – artist labels should create both a business and marketing plan to make sure that all of the label’s scarce resources are used in the most optimum way. Plan out your goals and expectations. Figure out how you are going to reach those goals. Set them out in writing.
Website – Create and maintain a label website which keeps up to date and current information about the artist. This could be combined with the artist site.
It is still advisable to press a limited number of CDs. These are very useful for off-the-stage sales, promotion and marketing, servicing to college, CBC and co-op radio and to music supervisors for film and television.
When creating the packaging, remember that the front cover should be very compelling. It is often very frustrating when artists create incredible recordings only to produce very amateur graphics. Spend some time designing your cover and other artwork.
Insert information is very important – credits for performances and songwriting are essential. Also, it is very important to give credit to the producer, engineers, studio, mixing engineer, mixing studio, mastering studio, photographer, graphic designer and other professionals who worked on your recordings. Thank-you’s are a good idea, but be careful – the longer the list, the more you are going to offend someone if they are missed.
Other things to consider:
Tray card – this is very important for industry purposes. The song titles and order must be clearly set out with the song times. Also, place copyright information on the tray card (c) and (p) date and owner of these copyrights.
MAPL – this is the CANCON designation for music, artist, production and lyrics. Two of four of these must be Canadian to qualify for CANCON. If the recording is CANCON it is essential to indicate the MAPL logo is filled out appropriately.
Barcode – for Soundscan retail sales, the barcode is required. The UPC code is also required for online releases. Most manufacturers can provide these barcodes.
Funding credits – most funding agencies such as FACTOR require specific words and logos to be placed on CDs.
Logos – if you have a label, then make sure to develop a recognizable logo to place on all CDs and other printed materials. This will help build name recognition for your company. You must also place any distributor or other logos on the tray card.
What do publishers do?
Traditional publishers like EMI, Warner-Chappell, Peer and others were created to exploit the revenues generated by musical works or songs. These include mechanical license fees (from sales of CD/downloads), public performance royalties (SOCAN), synchronization license fees and print/sheet music revenues. For many years, the primary motivation for an artist songwriter to sign a publishing deal was that publishers were willing to pay large advances on potential revenues. In other words, publishers became banks for songwriters.
Publishers administer all of the rights associated with the copyrights in musical works or songs. They charge anywhere from 15%-50% of all royalties depending on the deal.
Do you need a publisher?
Many labels now insist on the publishing when they sign artists. This can, however, be a real problem for labels that aren’t familiar with what publishers do. Also, the value of an artist’s publishing increases with the artist’s popularity. Signing away the publishing too early could lead to some serious losses in possible revenue over time.
Another disadvantage of signing a publishing deal, especially with a major is that indie artists often get priced out of the market. For film, television and video game synchronization licenses, major publishers will often insist on higher fees than the production can afford. Indie artists are actually in a far better position of power controlling their own publishing and masters – the so-called “one stop shop” is very attractive to music supervisors.
Good publishers will work their catalogue. Most will sit on their catalogues and wait for someone to call with the licensing offer. As an indie artist this can be the death of their song catalogue. Be very careful about signing a publishing deal. Research the company to ensure that other artists are happy with how they were treated. A few phone calls to artists who have had bad experiences will certainly open your eyes as to how publishers work.
In some territories, some kind of local publishing company involvement is necessary to actually collect on your royalties. These so-called “sub-publishing deal” can be done directly with artist songwriters to administer foreign royalties.
Does an artist need a publishing company?
If an artist songwriter does not have a publishing company in Canada, the artist is the publisher without having to take any formal legal steps. As an unpublished artists, SOCAN will pay out 100% of any royalties generated – both the so-called “publisher’s share” and the so-called “writer’s share” to the artist.
An artist may want to set up a publishing company. In Canada, SOCAN will recognize a sole proprietorship or partnership as a legitimate publishing entity along with limited companies. In the USA, due to the historical nature of the development of the public performance societies, a limited company is preferable. If an artist is a member of SOCAN, then all registrations can go through SOCAN and an artist will have no problem having a publishing company recognized – no matter the form of the company.
The important thing is that there must be a publishing agreement in place to deal with the administration of the copyrights in the songs or musical works – there are different deals that exist from publishing administration deals (where the publisher does not own the copyrights in the works, but administers those copyrights for a percentage ranging from 15-25%); Co-Publishing deals (the norm in the business today, where the publisher and the writer co-own the copyrights in the musical works or songs and the publisher administers the copyrights in the works or songs); and, Publishing Agreements (not as common today as in the past, where publishers own 100% of the copyrights to the music works or songs and has sole administration rights).
It is advisable for a band to have at least a publishing administration agreement in place allowing one or two of the band members to sign off on licenses for the works or songs. This can become critical when a minority writing partner leaves the band or becomes unavailable. Musical work or song clearance is not a democracy, all rights holders must sign off in order for any license to be valid – 100% of the rights need to be secured. So, a 5% songwriter could hold up the exploitation of that song. Artists should be careful before giving up small percentages of songs without retaining the right to administer those copyrights.
Songwriters who are earning significant funds from SOCAN are advised to set up companies for themselves allowing them to receive the songwriter portion of the royalties into the company which in turn takes advantage of the benefits of the lower corporate tax rates. SOCAN will allow a songwriter’s solely owned and controlled company to accept these royalties as well as the publisher’s share – if the songwriter is self-published. In this way 100% of the SOCAN royalties can flow into a limited company.