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BPI's brief guide to setting up your own record label
Article Post Date: Sunday 28.03.2010

There are plenty of books out there on how to set up your own business. This guide is a jargon-free overview (and it is just that, an overview) on what to look out for when setting up your own record company.

First step – money

The first thing you'll need to set up your own label is funding and many are set up with personal savings. However if you're looking to raise any kind of external finance you'll need a business plan.

This will basically set out the figures e.g. how much income you expect to make and future costs for say the first 3-5 years. This will be backed up by your business strategy that will include things such as who you see as your main competitors and your target audience.

Don't worry if you've never done a business plan in your life, there is plenty of help out there if you just know where to look. Most High Street banks have a small business advisor and often have packs you can pick up with useful advice and checklists.

Business Link is a government network giving advice to start-up companies and small businesses – contact your local branch to see how they can help or search their site at www.businesslink.gov.uk

An overdraft or bank loan is only one of the options open to you. A record company may invest in your company in return for a shareholding which means they will get a share in any future revenues and could also expect a director's seat on your company board which means they have some say in how the company is run.

Alternatively you could try approaching a distribution company to provide basic funding in the form of an advance.

Artist and repertoire (a&r)

You may be releasing your own material or you may want to sign artists to your label. If you're signing artists then you can basically chose between licensing existing recordings (a licensing agreement) or opt for an exclusive recording contract.

The licensing route

This is when the artist or another third party owns the copyright in a recording. You can license some or all of the rights, for a limited period or for a specific territory, it's entirely a matter for negotiation. The licensing route can allow you to build up your catalogue initially while keeping your costs down.

Exclusive recording agreements

This is where the artist agrees that you will own the copyright in the recordings made for you during an agreed period. The contract should cover everything from the amount of the advance payable to the artist, what costs can be recouped by the label as well as royalty percentages (usually calculated as a percentage of Published Price to Dealer) and the artist's consent on how the recordings can be exploited. Try to ensure you agree on sublicensing clauses (so for example you can license recordings for compilations) and synchronisation rights which apply when a recording is used on TV programmes and advertising campaigns.

Recording

Your choice of studio will depend on location, cost and reputation. London studios tend to be more expensive, reflecting their higher overheads, and many studios require prepayment. Shop around for different quotes and negotiate the best deal you can. Once recording starts make sure you watch your budget and it's easy to waste studio time and end up with a large bill.

Manufacturing

Generally it's preferable to avoid brokerage companies and to deal direct with the manufacturer. Always negotiate and if you can afford to pay upfront you'll probably get a better deal.
Don't forget the 'hidden costs' such as transport, shipping, booklet and repro costs (this is the design cost of film that the repro house sends to the pressing plant). These costs all
add up and are often forgotten about.

Pressing plants may offer a free delivery and it's a good idea to split this eg have the promotional stock sent to your office, have some product sent to the distributor and the remainder to a fulfilment house (see below under distribution).

Packaging: at first keep it simple – a plain booklet and a standard jewel case are perfectly adequate when you're starting out. Once you've established a sales base then you can look at doing limited editions or collectors' items.
Make sure your product carries the correct copyright notices (a leaflet explaining these is available from PPL) and each release must have its own individual barcode. Retailers rely on barcodes and your release won't register for the chart without one. BPI has produced a leaflet explaining how to barcode your product that you can access on our website.

Formats: again keep it simple and stick to a single format for your early releases; either CD or vinyl (often the preferred format for dance labels) and increasingly for singles the DVD format. Only opt for multi-formatting once you've established your fanbase.
If chart placing is going to be your yardstick for success then make sure your recordings meet the chart rules such as amount of multi-media content, number of tracks and playing time. The rules are overseen by the Official Charts Company. You'll also need to send two copies of your finished product to chart compilers Millward Brown to ensure it is entered onto their database.

Publisher's copyright

There are two copyrights in each recorded work; the publishing for the songs themselves and the recording copyrights.

The Mechanical Copyright Protection Society (MCPS) collects the publishing royalties on behalf of the songwriters and composers. Known as mechanical royalties they are payable to MCPS on every record made or shipped and not returned (depending on which MCPS scheme you fall under) and calculated as a percentage of published price to dealer (PPD). You must get a licence from MCPS before manufacturing your product. MCPS operates different payment schemes but if you're a new record label you are likely to be charged upfront on the gross amount you manufacture, regardless of whether you sell all of it. Once you have a proven track record you may be able to pay in arrears on net shipments on a quarterly basis.

Regardless of which scheme you are under you can claim a royalty-free allocation provided the discs are clearly marked as being for promotional use only and not for re-sale. Please ask MCPS for guidance as to allowable promotional use.

Remember to build in the cost of mechanical royalties to your budgets.

  • What happens if you've written your own songs? If you are the copyright owner of the song and you are not a member of MCPS, or are not published by a member of MCPS, you do not need a licence from MCPS for your own work. You should still apply to MCPS to get a Notification Of No Claim that you will need to show your manufacturer but you won't need to pay royalties on your own songs in these circumstances. If you've written your own songs, but are an MCPS member or have assigned your songs to a publisher that belongs to MCPS, you will have to pay MCPS to use your own songs.
  • What if the song's owner is unknown? If MCPS does not know who owns a song at time of manufacture it will mark them as Copyright Control and will not collect royalties. MCPS can come back and claim these royalties up to six years later. You should put these royalties into an interest bearing suspense account at time of manufacture so you get no nasty shocks when asked for the royalties at a later date.

Distribution

There are more than 26,000 albums released in the UK each year - getting the finished product into the shops may prove your biggest challenge.

This area can also be a minefield of additional charges – such as line charges where companies charge for each of your titles that they carry on a monthly basis, and this is over and above your storage fee.

As an alternative to storing your product with a distributor, explore the option of using a fulfilment house where you will normally pay a fair monthly storage fee per pallet and only get charged per unit if the product is moved.

Distributors come in all shapes and sizes from the majors to the independents and distribution fees vary enormously but are generally calculated as a percentage of PPD.

While there are many independent distributors in the UK, bear in mind that major distributors also distribute on behalf of independent labels.

When you sign a deal it may be worth trying to keep it to one year rather than longer so you can renegotiate terms which may be more in your favour. Make sure the distributor can only scrap unsold/ returned stock with your consent i.e. this must be stated in the terms of the distribution contract.

Overseas distribution: check your contract only covers UK & Eire retail and keep your overseas distribution separate so you can negotiate other territories individually – this allows you more flexibility. It can also reduce your risk if you sign up with different distributors for each country rather than doing a European-wide deal; for example if the distributor for a particular territory runs into difficulties and can't pay you. Although there  are insurance schemes such as the Export Credit Guarantee Scheme, the premiums  can be very high for a start-up company, when arguably you need insurance most.
Although you can do a licensing deal with a local label to make your product available overseas you will usually make more money per unit by exporting physical product.

Key accounts staff: these are the people at the distributors who will get your product into the stores. Check how quickly your stock can be turned around, because if this takes too long then you could be losing sales. Don't forget to take into account file discounts – these are the agreed discounts given on larger accounts to retailers and exporters and are normally at the label's cost.

Sub-distribution: some labels may be willing to distribute your product via their existing partners in a sub-distribution deal. The distributor prefers it as it's one ordering point rather than several smaller ones and the label benefits as it increases their catalogue.

Releases

You need to prepare a summary of all the information surrounding your release.

Known as 'presenters' or 'sale sheets' in the UK and 'one sheets' in the US, this summary should be no longer than one side of A4 and contain the following: title, artist, visual of the record, catalogue number, barcode, dealer price, release date, ordering and contact details plus half a dozen bullet points explaining what the campaign is and why it's different.

Pricing

Do your research and compare prices; your distributor should be able to advise you.

Promotion

At the start it's worth doing as much of this yourself as you can; try to meet press people and build up your own radio contacts.

Make your press packs as interesting as possible and don't underestimate your own commitment and enthusiasm when talking to journalists.

Hand out flyers and sell your product at gigs, develop your own database and if you advertise always include mail order details so that people can get hold of your record if it's not stocked in the shops.

If you decide to use an independent promoter, look carefully at what they are offering, who they work for and check for any minimum terms – although you may be quoted a monthly fee you may be tied in for a minimum of 3 months.

Another option is to use an advertising agency or media buyer specialising in your music.

They can negotiate cheaper rates for magazine adverts and are well placed to offer advice on the creative side eg what works for the sleeve artwork and posters.

Remember that promotional stock is not free to produce and you must include the cost in your promotional budget.

Overseas licensing

Although distribution of finished goods is one method of exporting (either via UK exporters or foreign distributors) you may opt to license your product. This is when a foreign company licenses your repertoire for exploitation using their own resources in their territory.

You will generally negotiate an advance and set a royalty rate against this.

Returns and deletions

In reality most stock supplied to retailers will be sent on a sale or return basis i.e. you'll only get paid for what sells and the rest will be returned to the distributor or fulfilment house.

Stock may be deleted for two main reasons; either your contract has expired or the product simply isn't selling. Recycling is one option for getting rid of stock – some recycling companies will collect the product for free.

Catalogue

Your catalogue is your lifeblood and you should work it as much as you can.

The bigger your back catalogue and the more successful it is, the easier it will be to get better deals with distributors and the more you'll be able to sell. Ensure you have written in your artists' contracts that you can issue mid-price releases after an agreed time so you can rework recordings – mid-price promotions can be a very effective way of boosting catalogue sales.

Website

How much use you make of a website depends on many different factors; the type of music you deal with, the attitude of the acts you're working with and the kind of fanbase you're appealing to are just a few to consider.

At the very least a website is useful for your company profile and promoting your catalogue – you can direct enquiries to your site and save on brochures and postage. It can also be used for mail order sales.

Some artists want to be heavily involved and encourage interaction with their fans through message boards, online chats, webcasts and so on. Whichever approach you choose always keep a careful eye on the costs as it's easy to get carried away.

Performance royalties

As the copyright owner in the recording you will be entitled to receive royalties when your songs are broadcast in public. Phonographic Performance Ltd (PPL) is the collecting society that ensures record companies and musicians are paid when their recordings are performed in public.

It's free to join as is Video Performance Ltd (VPL), which performs the same task for music videos. Both negotiate licence fees with terrestrial and satellite broadcasters and distribute the income on an annual basis.

Trade shows

Overseas trade shows such as Midem (January in Cannes, France) and Popkomm (August in Cologne, Germany) are good opportunities to meet overseas labels, managers, distributors and UK industry personnel who attend these events.

The BPI is represented at several international trade fairs and can provide useful support and information on grants to help you attend. It's very difficult to 'cold sell' so the golden rule is to make appointments beforehand – many people will have a full schedule on arrival.

It's a good idea to base yourself on a group stand such as one operated by BPI or other industry organisations. There may be a fee for this but in return you'll be able to use their facilities and people will know where to get hold of you or how to leave you a message. If you have a foreign distributor you may be able to use their stand as a meeting point.

Although Midem and Popkomm offer a varied conference schedule they are primarily an exhibition area. In The City (October in Manchester) and South By South West (SXSW,March in Austin, Texas) may offer greater learning opportunities.

Professionals

Legal: Find yourself a good solicitor. The indispensable Music Week directory lists legal firms that specialise in the music industry and word of mouth recommendations may be your best bet. You should take professional advice before entering into ANY business agreements and ALWAYS get any contract looked over before signing. A music industry lawyer will also be able to advise you on typical artist royalty rates as well as distribution fees.

Accounts: Save money by keeping your own books or employing a good bookkeeper rather than outsourcing your bookkeeping. There are software packages available that can generate everything you need on a daily basis such as spreadsheets, invoices, bank reconciliations etc as well as all the information that auditors will require for your year-end audit.

Useful publications

The BPI's library also stocks current and back issues of all the music trade press such as Music Week, Billboard and Music & Copyright. It also stocks virtually every book ever published on the business of music – and is free to all.

The BPI publishes all of the record industry's trade statistics and information, in excess of twenty reports per year – all of which are free to BPI members. This, in addition to the heavy discounts that BPI members get on data from the Official Charts Company is essential to know your market

We would advise any label to join the BPI as the advice in this section is just one of the advantages of membership.  There are three packages available - (1) full membership to record labels (set at £50+VAT annually plus 5% of PPL) (2) £500 to associates - i.e. music companies such as distributors that don't own sound recordings but want the benefits of membership and (3) the information series - all the BPI's info and stats for £180 annually. Simply visit the about us section of the BPI website at www.bpi.co.uk to find out about the massive range of services BPI membership brings.

Glossary

Artist and Repertoire (a&r) - The a&r function in a label is the seeking out and signing of new talent.

Audio Product (AP) Schemes - These are run by collecting society MCPS and your AP category will determine how you pay royalties on your finished product.

Barcoding - The barcode is a set of numbers that will identify your release for chart sales and retail reordering purposes. You need to get this right – BPI has a leaflet on barcoding which you can also print off from the website.

Chart Eligibility - To be eligible for the charts your recordings need to meet certain rules eg amount of multimedia content, number of tracks and playing time. The rules are overseen by the Official Charts Company. Your product must also be entered on chart compilers Millward Brown's database.

Copyright - There are two copyrights in a composition; the lyrics/tune and the recording copyrights. The former is generally owned by the songwriter/publisher and there are two royalty income streams; mechanical royalties collected by MCPS on the production/sale of the record and the performance royalties collected by PRS. The latter copyright in the recording is usually retained by the record label and royalties will be collected by PPL for the broadcast and public performance of the recorded track.

File discounts - This is an agreed discount that your distributor will give to their larger retail and export accounts (to avoid renegotiating on repeat orders.)

Mechanical royalties - Income generated for the songwriter/publisher and collected from record companies by MCPS.

One Sheets - US term for presenters or sale sheets that summarise all the key details of your release.

Override royalties - If you release an artist early from their contract you may be able to negotiate override royalties in return. These apply to the recordings that would have been covered under the terms of the original contract.

Published Price to Dealer (PPD) - This is basically the wholesale price of your finished product and is used as the basis for many calculations such as mechanical royalties or royalties payable to your artists.

Sale or return - You only get paid for the records that sell – the rest will be returned.

Synchronisation rights - Often referred to as 'sync rights' these are payable when your music is used on TV.

Sub-licensing - This is when you license your recordings for use on another project e.g. as part of a soundtrack or compilation album.

The authors

Paul Birch has run his own independent label for many years and has been a BPI Council member since 1991.

Pete Macklin freely admits he's an idealist when he says he only wants to 'work with nice people'. He set up Evangeline Music with business partner Andrew Lauder at the beginning of 2000 after working at music group Demon for 15 years. He goes along with Andrew Oldham's quote about working in the music business, "happy to be part of the industry of
human happiness."

Article provided by BPI.  Please note that this guide is for information only, and the views expressed within are not necessarily those of the BPI.

 

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