How to start a record label (in the South African context)

There's a growing culture of 'doing it yourself' in South Africa than overseas, quite simply because of the apathy of the majors in promoting South African talent until recently. Our unsigned artists and their managers have been forced to learn production and marketing techniques, simply because fair and reasonable deals have been so hard to come by. Nevertheless, even some established South African artists have decided to leave their labels, recognising the value of going it alone.

There may be several advantages in an artist deciding to set up his own independent record label.

In the first place, the uncertainty surrounding needletime income hopefully gets resolved, because if it does turn out (as seems likely) that SAMPRA will succeed permanently in its intention to distribute the whole needletime royalty to labels, the artist, as performer will simply get his share (and presumably the rest as well) through the label that he controls. Others signed to third party labels may not be so lucky. Right there, a very good reason exists to start your own label.

But there are other possible advantages as well:

1. it is easier to acquire financing today than ever before, because of the crowdfunding model - this makes the decision, if the artist already enjoys some popularity, far easier;

2. The master license can be owned and controlled by the artist's own label, in perpetuity - a huge advantage

3. It allows the artist to sell physical recordings at live performances or anywhere else, at a price he chooses, without having to seek third party label approval;

4. creative control will not be an issue;

5. it also allows the flexibility to sign a licensing deal with another label in any territory, since the master recording rights are owned by the artist;

6. unit Rand income will be far higher for all physical sales and downloads than if the artist is signed to a conventional label, although the financial risk might be greater. The artist keeps 100% of Producer Price to Distribution (PPD), as opposed to 10% - 15% (but now is responsible for all manufacturing, packaging, marketing, video, touring and distribution costs);

7. other artists can be signed to your label

The disadvantages are:

1. assumption of the financial risk;

2. responsibility for all copyright-related risks;

3. The artist will not be able to benefit from the resources of a conventional record label, particularly in regard to reducing expenses (a bigger label will have "bulk" discount opportunities), recording costs, marketing, distribution and tour support;

4. any advance that the artist receives, he will have paid himself. Major record companies can offer successful artists advance money, although it is true that advances today have been cut dramatically.

5. lack of marketing muscle, resulting in decreased sales, is probably the biggest factor, although the internet has ameliorated this a lot. The fact remains, though - it is better to have 15% of R500,000 of than 50% of R50,000

6. If the artist is also the composer, his mechanical royalties are both a cost and income stream, therefore they are cancelled out. He will miss this aspect of being signed to a third-party label.

If you as an artist, have decided to go it alone, here are the main practical measures and decisions that you will have to face when starting a record label:

1. choose a business structure (a company, partnership or a sole trader), the most likely structure being a (pty) ltd company, registered at CIPC . Remember, however, that companies have to be audited and auditors are expensive.

2. Create an MOI (Memorandum of Incorporation) and other legally-required documents;

3. appoint a Board of Directors and create a shareholder's agreement (even if you are operating alone);

4. pick a name and do a name search at CIPC. Create a logo design and trademark the logo;

5. open a business bank account;

6. register with SARS for VAT, PAYE and company taxation;

7. appoint a good accountant. Proper accounting is of paramount importance;

8. write a business plan, including financial forecasts and expense budgets, and do a cash-flow forecast;

9. get to understand the expenses. Acquire quotations for studio time, recording, producers, mixing, mastering, CD and DVD manufacture, MP3 conversion and artwork;

10. gain an understanding of distribution and aggregation costs and build relationships with the right companies;

11. Decide which digital online providers you intend to partner with and negotiate the appropriate deals;

12. set up appropriate licensing relationships with labels in other territories;

13. create a detailed marketing plan, and start to estimate your advertising and marketing costs including "below the line" costs, not forgetting album release events and concerts;

14. Predict and estimate mechanical royalty payments, remembering that mechanical licenses must be paid up-front, even if you're the composer;

15. Treat yourself (the artist) as a company "expense" and draw up appropriate agreements between yourself and the company (remember, a company is a seperate juristic person);

16. Make an estimate for artist advances (if any) and royalty payments, again at arm's length;

17. Join RiSA, (therefore SAMPRA) and AIRCO. Remember how important needletime income, whether collected by SAMPRA or any overseas neighbouring rights agency, will be to your label;

18. Prepare the correct template documentation for all other performer and producer relationships; including "featured" and "non-featured" performers, for needletime, union and all other purposes;

19. Acquire ISRC (and perhaps ISAN) software for master identification purposes;

20. With today's recording technology, you should own, rather than hire, a recording studio. Buy the correct gear, learn how to use it, set up professionally and become technically proficient;

21. apply for a license from CAPASSO and the mechanical collection society in any territory where you intend to release (including online), and/or where the composer/s is/are resident; in some territories it may be possible to obtain a mechanical license directly from the author's publisher