How to start a music business and become an independent phonogram producer

It also allows the flexibility to sign to another record label when the time is right, if this is desirable, as the recording rights are owned by the artist or by both the artist and the manager.

Another advantage is that the unit income will be far higher for physical sales and/or digital downloads and streaming than if the artist signed to a conventional record label. Instead of receiving a royalty of perhaps 15 – 20 percent of PPD (the wholesale price), as is usually the case with a major phonogram producer, the artist receives 100 percent. Any manufacturing, packaging, marketing and distribution costs must be deducted from this 100 percent, but the net income per unit should be higher than would be received from a major record label. The other advantage is that the artist will have control over his/her rights. Also a third party record label will usually require that the copyright is assigned to it for life of the copyright, which varies between 50 and 150 years, depending on the country in which the contract was signed.

The disadvantage of the artist becoming their own independent record label is that the artist will not be able to benefit from the financial and structural resources of a large third-party record label, particularly in regard to advances, recording costs, marketing, distribution and tour support.

If the record label can achieve far higher sales, the more mechanical royalties will be payable for the underlying musical composition to the author and his/her publisher. If the artist is also the author, this can mean far greater income, and if sales are higher there may be much more radio play, so that the public performance income is also considerably increased on both the author’s side and the performer’s side. The most important advantage of all in signing to an established record label would be that the artist may reach and create many more fans, thus increasing the artist’s fan base and social networking integration, which will mean playing larger shows and generating greater income from live work.

Here are the main issues to consider when starting a record label and becoming your own phonogram producer:

1. Choose a business structure. (This could be as a corporation/limited liability company, a partnership or a sole trader. The artist and/or manager need to obtain advice on this from an accountant or lawyer.)

2. Choose an original name for the label (do an online search to make sure that the name has not been used previously).

3. Create a business plan.

Prepare a business timetable

Prepare a cash-flow forecast

Obtain several quotes for manufacturing records

Obtain several quotes for preparing artwork

Make an estimate for distribution costs

Make an estimate for advertising and marketing costs

Make an estimate for mechanical royalty payments

Make an estimate for artist advances (if any) and royalty payments.

1. Build a team

The artist and/or artist manager/record label will need:

A business bank account

A music business accountant

A music business lawyer

A physical distribution structure

A manufacturer

An aggregator for online sales.

1. Apply for a license from a mechanical collective management organization for each track released. The artist/manager/record label will need to apply for a license from the CMO in the country of residence that collects mechanical royalties on behalf of publishers and authors. It will be necessary to obtain mechanical licenses from the mechanical rights CMO for the works contained in the recordings, after which mechanical royalties will have to be paid to that CMO for every sound carrier, download or stream sold.

2. Become a phonogram producer (record label) member of the appropriate related rights CMO that collects the public performance and broadcasting income for sound recordings. These CMOs collect income from radio and television stations, as well as other public performance uses when a recording is broadcast or played in public.

3. It may also be beneficial to join the trade organization representing record labels in the country of residence. In some countries there are two such organizations, one which mostly represents the interests of the major record labels and another which represents the interests of smaller independent record labels.

The international umbrella organizations for these two types of trade associations are IFPI (www.ifpi.org), which represents the major record labels and others, and IMPALA (www.impalasite.org), which represents the interests of independent phonogram producers.

The above outlines the procedure for the artist and/or artist manager setting up as a record label even if it is only on a small scale. In the very early days it will probably be just a matter of manufacturing 500 CDs with a simple one-page printed insert, or by-passing the manufacturing process altogether and releasing online only. In either case, it will be essential to keep good accounting records and to join the appropriate CMOs, especially if the author of any of the works recorded and released is someone other than the artist.