Starting a Record Label? Future-Proof Your Operation Now

Starting a Record Label? Future-Proof Your Operation Now
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Starting a record label? Here’s how you can future-proof your operation early on.

The following comes from Lynn Lowe, President of Label and Publishing Administration at Music Services, a division of SESAC Music Group and partner of DMN. Music Services provides comprehensive licensing and administration services for independent record labels and music publishers.

Creating music is what artists love the most.  We get it and we love the songs as much as you do.  But, from the start of that first cut, artists need to put as much focus on protecting the    intellectual property, and properly planning for future success, even if that feels like a far-off dream right now. The temptation to act for today needs to be balanced by educated thinking for tomorrow. 

It’s thrilling to start a label as an artist, songwriter, or music lover, and it’s easier than ever. There are so many tools, technologies, and services to help manage every aspect of your business, from distribution to royalty collection. But as someone who’s spent two decades helping label owners clean up the mess after a well-intentioned start, I’m here to tell you: be slow to sign a deal until you get your house in order and build your systems as if success is already yours. Your future self will thank you for it.  Here’s five lessons learned from my career as a record label and music publishing administrator that will get you on the right track:

Think big before you sign.

It’s easy to be intrigued by free and easy-to-sign-up-for services when you’re just starting out, but instead, you should future-proof your agreements by adopting the mindset that you’re going to make it big, and that what you sign today will impact the years to come. 

A songwriter for one of the publishers we administer learned a song he co-wrote scored a valuable sync–but to his dismay, he realized that five years before, he had signed over his publishing to his manager. This meant that even after the songwriter had resecured these rights, the manager kept the songwriter share of that sync. The songwriter signed without thinking what a big opportunity might mean.

Good intentions don’t make you a good partner.  Systems do. 

A lot of cleanup is required in our world because people start with good intentions but have no idea who, what, or how they’re supposed to pay out royalties once they’ve collected them. And for a small operation, that cash flow can get confused with other expenses, leaving the label owner with lots of obligations—but no cash on hand. For example, you need to account for what you’ll owe producers and publishers for the tracks you’re collecting on, ideally setting aside 15-20% of your collections to pay these rights holders. Sadly, we’ve seen independent artists and labels, who had every intention of paying their collaborators, find themselves years behind on these payments, leading to debt and years of anxiety.

Before you’ve earned a penny from your releases, set up your systems to set aside a percentage of sales to pay artists, producers, publishers, and the songwriters the publishers represent. Also, make sure you have written agreements in place.  Even the best of friends with good intentions should have all the details ironed out before the first dollar is earned.  

Codes matter.

Make sure your Performance Rights Organizations songwriter and publisher IPI numbers are correct when collaborating and registering songs. Create a central point of truth to make sure you always get them right everywhere. Be meticulous with your data, and if you can’t, find someone who will for you.  

A song is a piece of art, but when you upload a song for distribution, the data has to be correct from the outset. You have to know the ISRC code is correct to link the master recording to the artist, and the IPI numbers are correct to link them to the correct songwriter and publisher.

This is not a minor detail. I have seen songwriters give out the wrong identifier and lose out on years of their royalties.  Managers and labels should support songwriters in ensuring this is handled correctly, as it will make a difference in the long run. These mistakes can take months to correct and cause a lot of heartache in the process.

Collect everything.  It all counts.

There are lots of ways for labels and artists to earn royalties, such as SoundExchange and other micro-sync avenues. It’s easy to look at a tiny revenue stream now and say it doesn’t matter. What if that turns into a steady stream? If you’re keeping track of things early on when it’s easy to manage, you won’t be caught off guard or miss out on a crucial revenue stream when it grows into something significant.

For example, I have repeatedly helped artists find tens of thousands of unclaimed royalties via SoundExchange. You need to sign up, of course, but you also need to maintain your account, making sure it includes all your works, and is connected to the correct bank account. Clients have had significant funds sent to dormant accounts, only to realize months later that they had sizable payouts waiting in some long-forgotten bank.

Cultivate a future-proof mindset.

Success is never guaranteed in the music business, but just imagine if you are successful. Will the deal that feels great right now make sense if you’ve scored a hit? What if that hit isn’t fully licensed? 

Adopt the mindset that the agreements you’re signing today will influence your money-making power years or decades from now. Because they really will. Don’t give your work away without really thinking through the alternatives, even if you aren’t sure what its commercial potential is.

And before you unleash a track on the world, make sure you have correct permissions for any sample or derivative work. Asking for forgiveness can lead to difficult decisions and to loss of significant revenue. Do the right thing, which in the case of clearances can take several months. That way, if things go well, you’ll be able to benefit fully from your and your artists’ hard work.

Starting a label can be an exciting endeavor and for many artists or creatives, and financially for many independent artists, it’s a beneficial thing to do. However, if you get the setup wrong or partner up with the wrong people (either nefarious or misinformed), you and the artists you bring on board can get in a world of hurt quickly and miss out on lots of money.

Administration is not the shiny side of the music industry, but it’s the engine. If you don’t want to dig into the data and the details of the business side of music, make sure you have a trustworthy partner that can navigate all the various deals and contracts on your behalf, and ensure you are creating sustainable systems to collect everything you’ve earned.