by Susan Rabin,
The music industry is in trouble. For some time now labels and publishers have been consolidating, downsizing, and signing fewer artists and songwriters. The struggles with piracy, illegal downloading, and catching up with new technologies continue. As a 19-year attorney who represents musical artists, songwriters, producers and others, I have well observed the frustration among my clients. The doors to the major labels and music publishers were never wide open. Now, there are even fewer doors to approach.
It’s time to reinvent the classic story of how to become a rock star: form your own record label. There are little more than a handful of major labels. There are thousands of independent labels (indies). You can start a label featuring only one artist (perhaps you), and distribute regionally. Sometimes, we refer to such a company as a “vanity label.”
If and when you would decide to sign other artists and seek some sort of distribution, you would shop your recordings to various distributors to find one who likes your product and believes it will sell. If you start moving product and getting reviews and a good reputation and build a track record, you may be able to persuade a major label to handle distribution on a national and even international level.
Your label could also partner up with a larger label in a joint release. Major labels often look to indies to locate new and edgy artists who are appealing to a particular demographic. They would check if the releases get a lot of play on college radio or on internet radio. The major may offer decent money to acquire your indie as one of the major’s own sub-affiliates.
Forming an independent record company requires certain steps and procedures. Many are similar to those you would take to form any other type of business. Start-up capital is a basic ingredient to get the business formed and to operate the company. Many musicians are in the dark as to whether a partnership, corporation, or other type is best for them. The answers depend on your budget, needs, your own business savvy and expertise, and the size and scope of your company. How many artists will you release? How many employees will you need? What office equipment and recording equipment must you acquire? Do you have assets that need to be protected from lawsuits?
A sole proprietorship is what you are now if you alone own and operate whatever music business activities you presently conduct. This form is fine if you know how to find talent as well as handle business matters such as licenses, applications, contracts, etc. You would need to apply for a city business license and file a fictitious business name in the county in which you operate your business.
A partnership might work best if you are strong in the creative area but need a partner who has more experience and skill in running a business. The city business license and fictitious name filing are again necessary, and a partnership agreement that spells out everyone’s rights and responsibilities is recommended. Profits and losses are generally split evenly, but your agreement can designate for you to be a majority owner, managing partner, or otherwise, particularly if you bring in initial funds or talent.
A corporation or limited liability company (LLC) costs more to set up and requires taxes to be paid to the State. These forms offer protection for your personal assets in the case of a lawsuit or other claim. In addition to a city business license, Articles of Incorporation and other documents must be filed with the Secretary of State, and the corporation or LLC must following certain practices to stay legit because someone who wishes to sue you personally might claim you set up your business as a corporation or LLC merely to hide behind the organization and avoid liability.
Before you spend a lot of money printing stationery, packaging and other promotional materials, you should check if your rights are solid in your business name. If you have been using the name for a long time, you have certain “common law” trademark rights in the name. More protection is available if you obtain a federal trademark registration. A first step would be to search a wide array of databases to determine that no similar business is using a similar name. The party using the name the longest normally has priority. A professional search and trademark application are somewhat costly. You can hunt by yourself by searching online through music industry directories, ASCAP, BMI, the Harry Fox Agency, the Patent and Trademark Office (PTO), the Copyright Office, the Yellow Pages for as many cities as possible, and wherever else you can explore. The name you use should be as different and unique as possible and not at all similar to other labels, music publishers, distributors, music marketing companies, etc. The PTO will not register a name that has a liklihood of confusion.
The independent label needs artists to record and release. If and when another artist is signed, an “Exclusive Artist Recording Agreement” would grant your label rights to record the artist’s performances and release records, subject to payment of royalties. Without the contract, the artist is the owner under Copyright Law of his or her performances. The agreement should include your company’s right to “shop” the recordings to a distributor or other label. I advise against promising to release whatever the artist records. Written agreements are essential to keep the artist from jumping ship after you have invested time and money in the artist’s career.
A “Producer Agreement” would secure the copyright in the Producer’s work on the recording. You would need to decide if you will grant the Producer some degree of creative control over the selection of songs, the studio, recording and mixing process, and general creative input. Producers can be hired for a flat fee or for royalty payments on a project basis.
Musicians, background vocalists, etc., who are hired only for the particular recording project, need to enter into a “Sideman Agreement” or “Service Release.” It is essential for your label to own the copyrights of their performances. Compensation in these situations can be a small flat fee rather than ongoing royalty payments, particularly until your company is financially strong. Flat fee payments also avoid the cost and time of future accountings.
Be sure your company registers the sound recordings with the U.S. Copyright Office (Copyright Form SR for sound recordings) and obtains “mechanical licenses” for any cover songs or samples on the recordings. Music (with or without lyrics) is registered on “Form PA,” for works of the performing arts. Forms and informative circulars can be downloaded at no charge from the federal government office’s website: www.loc.gov/copyright. I often recommend that my independent label clients acquire a publishing interest in their artists’ songs. Publishing income from uses of music (soundtracks, commercials, radio play, etc.), may be the major method of funding your recording expenses.
If you acquire some publishing rights, you need to set up a publishing company through one of the performing rights societies (ASCAP, BMI, SESAC). If your publishing activities grow, you may need to use a collection agency such as the Harry Fox Agency in New York, to issue “mechanical licenses” to other record companies who wish to use the songs you own or co-own. The Fox office would collect these royalties and pay them out to your client, who would account to the writers involved (and the co-publishers, if any).
The best way for your fledgling company to get noticed is through promotion and marketing. Easy to say, but costly to do. One must “create a buzz” to get the interest of major labels as well as consumers. Yes, there are expensive radio promoters. If your are less than typically commercial, they may not get much radio play even with the promoter’s push. Sometimes a retail promoter makes more sense. Some of my clients have sold well at specialty shops such as The Nature Company, Starbucks, Victoria’s Secret, etc. I do encourage your courting the program directors at college radio stations that look for unusual, less mainstream releases.
I assume those of you reading this article are of the computer generation. So perhaps you already know that the internet is a fertile ground for promotion and marketing of independent artists and labels. There are a number of online media companies whose sites actively help independent releases sell their recordings. You can send music tracks online to companies such as Yahoo! and the now fully legit Napster who will upload the music for users to check out. Yahoo! observes which music selections are getting accessed the most and then promotes the artist or label to attract even more users and potential record buyers. Napster does live online recording sessions.
Live performances can be set up at record stores that take your product on consignment. Some stores will work with you to place the product with a promotional display. Other places to perform and find new fans are shopping centers, colleges, universities, high schools, athletic events, restaurants, as well as the familiar nightclub venues. Local newspapers and underground publications are happy to hear about new creative ventures and should be contacted often. Press reviews will help sell product.
Be sure to have legal help and a CPA for the business formation and tax issues. Avoid potential conflicts when your artist or producer brings to you various musicians, producers and writers who are working on a project. Encourage the parties to seek independent counsel regarding all business and legal issues and agreements.
We all know there is much mediocre music out there, and that talent is not necessarily the critical factor for success. Continue to have confidence in your ambitions and creativity. I know most of you have the ability to develop a viable place in the music industry. Keep on truckin’!
Note: This article is not to be construed as legal advice and is written for information purposes only. If you have legal questions, seek the advice of an entertainment attorney.