How and Why Major Labels and Independent Labels Work Together
By Christopher Knab,

Note: The following article is an edited and updated version of the introduction to a chapter on major label and independent label relations published in the book "The Musicians Business and Legal Guide, 3rd Edition" by Prentice-Hall.

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Major labels and independent labels have a legacy of exposing and discovering all the great music of the last century, but the role these two types of record labels have played over the decades has changed as much as the music itself has changed. Defining the roles these different kind of record labels have in today's marketplace, as well as understanding the reliance they have on each other, is important for anyone who wishes to start their own label or develop an existing label. The independent labels and the majors realize that to maximize their marketing efforts in an increasingly competitive environment, working together to achieve their mutual goals can be quite beneficial to both parties.

A 'major label' is the name given to those labels that currently control over 80% of the records sold every year in this country. These labels have achieved such a high profile over the last couple of decades by operating their own distribution companies that sell directly to the many music chain stores, sub-distributors, and mass merchandisers across the country. Examples are Sony, BMG (Bertlesmann Music Group), UMG (Universal Music Group), WMG (Warner Music Group), and EMM (EMI Music Marketing).

'Independent labels,' in the purest sense of the word, are those record labels that distribute their records through what are called independent distributors, and are not usually connected to the major's distribution systems. But of course it can't be as simple as all that now, can it?

In today's popular music environment, there are more records being released every year than ever before. The cost of recording and manufacturing records over the last two decades has decreased dramatically, so there is more music being recorded and competing for the attention of a consumer than ever before. However, when it comes to exposing any of this music, the ownership of and the relationships with the media that plays and hypes popular music is now controlled for the most part by the Majors and/or their parent companies.

Without access to the essential media outlets of radio, TV, internet, magazines and newspapers, an independent label might have a difficult time today without the assistance of a major label. (There are, however, more and more independent labels that have learned how to find a niche and through unique marketing efforts, have been able to thrive.)

Recently, the high cost of major label mergers and buyouts has put pressure for the major labels to return a profit on all the investments they've made in controlling the lucrative music marketplace. The time when a major label could slowly build an act over several releases has come and gone. Any act signing to a major label these days must impress the label with significant CD sales on their initial release, or they run the risk of being dropped by the label. What we have now is a scenario in which the major labels and the independent labels do rely more on each other than ever before.

Independent labels, which find and champion most new trends in popular music, do the artist development work for the majors, in many cases. This is not unlike the situation in baseball, whereby some AAA team develops the talents of an outfielder who someday gets promoted to the major leagues. The independent label of today can be a label started by an artist/band or an entrepreneur businessperson who has the talent, finances, and determination to build projects to a point where they fill a particular music niche or realize that they can only grow so far without the power or clout of a major label.

Possible Reasons For Major Label Affiliation

Major label affiliation can provide the independent label with a substantial cash infusion, which eliminates the need to continually focus on day-to-day survival issues and allows more effective operation. The major label may also take on such responsibilities as manufacturing and promotion. These factors may in turn permit the independent label to expand and/or upgrade its artist roster, or enter a mainstream genre where developmental and promotional costs are much higher than for niche market music.

Independent labels affiliate with majors to increase their artists' exposure in commercial media and to expand their distribution networks by increasing their access to major retail record chain stores and rack jobbers. Affiliating with a major label can maximize the likelihood of the independent getting paid for records sold. Independent labels, using the traditional independent distribution system, have always faced the risk that an independent distributor will go bankrupt and not pay them.

This risk is drastically reduced (if not eliminated) when an independent label distributes through a major label distribution system. These distributors have the financial backing of their multinational parent companies and are able to weather the financial storms of the music industry. They also have more clout than independent distributors to collect from retail and wholesale accounts, and are better able to implement strict controls over how many records those retail and wholesale accounts are allowed to buy on credit.

Issues to Consider

When an independent label is considering an affiliation with a major label, there are many issues to consider. Here are some specific questions that will help to focus research and analysis:

* What are the independent label's present sales volumes and what are they likely to be in the next few years (i.e., with major label affiliation versus without major label affiliation)?

* Will the major label distribute to the mom-and-pop stores, which formerly carried the independent label?
* Will the major label be responsive to regional demands and the demands of niche markets?
* What kind of reputation and support does the independent label have among its fans?
* Will a major label affiliation jeopardize this?
* Will the independent label's core fans be best served by the major label's distribution system?

There are other issues to consider as well. For example:

* Will an affiliation with a major label create an unhealthy pressure on the independent label to sell more records than it can comfortably or realistically sell?
* What is the present financial status of the independent label and what is its access to additional resources without major label affiliation?
* Assuming affiliation, what will the cash infusion (if any) be used for?
* How can the independent label's existing staff-promotion, marketing and administrative-be best utilized after affiliation?
* How will the long-term business objectives of the independent label be served by affiliating with a major label?
* Do the owners of the independent label really want the responsibilities and financial burdens of operating a fully staffed record company and overseeing the promotion and marketing of records?
* Are they only interested in the creative process of signing artists and producing records?
* What is the personal style of the independent label's owner(s)?
* Do they place a high value on being able to operate independently?
* Are they willing to take input and direction from a large corporate entity?
* What is the major label's real motivation for entering into the relationship? Is it to use the independent label as an "indie front," or to take over the label's strongest artists?
* Does it view the relationship as a mutually beneficial long-term strategic alliance?
* What is the corporate style of the major label's management? Is there sound long-term vision?
* Is there good personal chemistry between the management of the major label and the independent label?

Types of Deals

There are numerous types of deals between independent and major labels, the most common of which are as follows: (1) Pressing and distribution (P&D) deals; (2) distribution only deals; (3) fulfillment deals; (4) production deals; (5) joint ventures; (6) equity deals; (7) the licensing of records to major labels; (8) the licensing of records from major labels; and (9) rights buyouts.

As a practical matter, the type of contract offered by a major label, its specific terms, and the degree of flexibility in the major label's bargaining position, will all be dictated by the extent to which the independent label has strong artists, a healthy and ever-improving sales record, and the confidence of the major label in the independent's key personnel.

Provided by the MusicDish Network. Copyright © Tag It 2004 - Republished with Permission

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