There has probably been a point in every musician’s life when he or she has dreamed of capturing the all-important, all-consuming record deal. If you read through memoirs of professional musicians, that thrilling first deal either sets them up or tears them down.
So when you get down to brass tax, how much money does a record label take from an artist?
What Percentage Do Record Labels Take?
But before you make any conclusions, it is worth keeping in mind that record deals are notoriously convoluted and involve a lot of people from managers and record producers who cut into the record label’s profit.
Also, broadly speaking, record labels do not always make money off their artists. In other words, not everyone has the kind of selling power as Lady Gaga does.
A Chron article reports that Maggie Lange, a professor at Berklee College of Music, believes that the vast majority of recording artists do not sell enough music through streams or tangible media to generate a royalty check.
Add to this the increasing popularity of streaming services, which are notorious for shortchanging artists, and you have a lot to talk about when it comes to the take-home pay of the record company. How do record labels make money from streaming?
What Factors Affect the Record Label’s Percentage?
One of the big factors that can affect a record deal is your history and prestige as an artist. According to the Mashable article linked earlier, a good record deal example big-name stars are usually able to get; which is typically a better deal. Is one to the tune of roughly a 50/50 split of the royalties.
What is a 50/50 record deal?
In a 50/50 record deal, the artist and the label split profits 50/50. This is also sometimes called a "profit-sharing" deal. Under this type of agreement, the artist retains ownership of the recordings and can exploit them however they see fit.
The label advances money to the artist to help them produce and promote their music, and then recoups that money from sales along with its share of profits.
You can learn more about the different types of record deals, here.
But most recording artists are not big names, even if they have a presence in the industry. So what else can affect the percentage split of the deal? According to the independent label AWAL, here are some factors that can affect the deal:
- Competition among other labels to sign the artist
- The established presence of an artist in terms of how many albums he or she has recorded and sold as well as social media presence
- The artist’s ability to generate excitement in a live setting
AWAL also notes that there are different areas of a deal that can affect the overall negotiation, including the territory that the label can sell music in, the extent of commitments the label asks for, and what rights they have over an artist’s profits.
Several sources note the growing popularity of what is called a 360 deal. In effect, this gives record labels carte blanche in deciding which of the artist’s revenue streams they want a cut of, from merch to live shows. This kind of deal greatly increases their percentage.
How does this break down in different deals?
Different record deals will result in different percentage splits. A book called “Making It in the Music Business” also lists several kinds of deals that artists, both major and independent, can embark on.
Ultimately, your deal proposal will reflect your ability to bring in revenue. If you are just starting out, your deal will probably be very small with a large record label. As the years go on, your bargaining power increases and so does your percentage of royalties.
If you have a proven track record, you can renegotiate your deal, which is an arduous process that can take months or years. When you are making your pitch for a better percentage, you need to weigh the pros and cons of what it will do for your career. For example, if you are able to renegotiate with a bigger label that has more distribution channels available to you, then it might be a good idea.
However, if you have already established your brand and have a lot of loyal fans, you might not want to give up the rights to the music that you worked hard to build over the years.
As with any negotiation, it is important that you do as much research as possible and use everything at your disposal for leverage.
There is a lot involved when you deal with a record company, and all the ins and outs of the business can be dizzying at best. Perhaps this is why there is growing popularity in Indie music because, at the end of the day, the artist is usually the one who gets the short end of the stick that the label is holding.