The Different Kinds Of Deals That Await Successful Independent Labels

Over the last few years this column has concentrated on issues related to promoting and marketing your career as an independent musician. The most important thing an artist can do to get the attention of the recording industry is to start your own label, and build a reputation for your music by showing the industry how popular your music is, i.e. how many people bought your record.

As the new year begins I wanted to give you some information about what can happen if you do get the industry's attention. Starting an indie label is really quite similar to starting your career as a musician. Your label needs to impress the music industry with its stories of success, just like you as a musician need to do the same with your creative talents. The reward for building a successful label is the possibility of doing business with a major label someday... on your terms. Major labels need to work with successful indie labels to maintain their viability in a ever-changing popular music environment, so they keep their eyes open for indie labels and artist who have had success with a certain musical genre or musical styles.

There are several deals that may come your way as you get more successful. The following short summaries of the most common kinds of indie/major deals are given to you as an introduction to them. They are discussed with far more detail in the book "The Musicians Business and Legal Guide" published by Prentice Hall. There will be a new 3rd edition of this book available in the spring of 2001 by the way.

I would like to thank Bart Day, my co-author of the chapter dealing with this topic, for his cooperation and help in preparing this information.

• Pressing and Distribution ("P&D") Deals: The name of this deal describes its basic premise. The indie label finances the recording process and delivers the final master recording to a major label distribution company, which then presses (i.e., manufactures) the records and distributes those records to sub-distributors, retailers, etc. In the case of P&D deals, as in the case of the next three distribution-oriented deals discussed below, the independent label will retain all ownership rights in the master recordings.
• "Distribution Only" Deals: Basically the same as the "P&D" deal described above, except that here it is the indie label, not the major label that presses the records. The major label's role is "distribution only."
• Fulfillment Deals: Again, basically the same as the "P&D" deal described above, except that here the records are not distributed through the major label's traditional distribution system, but instead through an ostensibly "independent distributor" that is owned by the major label. This "independent distributor," acting on behalf of the indie label, then ships such records as are ordered by indie sub-distributors and indie record stores, and it also handles all billing responsibilities. In short, the "independent distributor's" role here is to fulfill orders from third parties for the independent label's records.
• "Piggyback" Deals: Used when an indie label doesn't have the clout to get its own distribution deal. Instead, in order to find distribution, the indie label must instead "piggyback" onto another indie label's already-existing distribution deal with a record distributor.
• Production Deals: The "independent label" here is really just a production company financed by the major label, and is created solely for the purpose of producing records. The production company uses the major label's financing to sign artists and produce records, and then delivers the masters to the major label. The major label will manufacture and distribute the records and handle the marketing and promotion activities. The major label will own the masters.
• Joint Venture Deals: The word 'joint' implies a joining of forces by a major label and an indie label, whereby they agree to share responsibility for the making of records and for the marketing and promotion of those records. These responsibilities are divided in whatever way the two labels agree upon in their formal joint venture agreement. The major label finances the joint venture. Then, from records sales income, the major label will reimburse itself for the expenses that it has occurred, and the net profits are then divided between the two labels.
• Equity Deals: Think of 'equity' as having an investment in something. With this type of deal, the major label invests money in the independent label, and in exchange the major label acquires a part ownership or total ownership of the independent label and the independent label's assets and its contracts with artists.
• Licensing by Major Labels: Here the major label owns the masters, but "licenses" (i.e., leases) the masters to the independent label for a limited amount of time (usually a few years), during which time the independent label will have the rights to sell records made from those masters. In return, the independent label will pay a royalty to the major label for each record sold. All manufacturing, marketing and promotion costs are paid by the independent label. The major label continues to own the masters at all times.
• Licensing To Major Labels: The exact reverse of the above deal. Here it is the independent label which owns the masters, and which is licensing (leasing) the masters to the major label for a limited period of time. In exchange, the major label will pay royalties to the independent label.
• Rights Buyouts: In a "rights buyout" situation, the independent label will have previously signed a recording contract with an artist. Then at some later time, a major label buys all of the rights of the independent label in the artist-in other words, all rights that the independent label has in the artist under the terms of its recording contract with the artist. In short, the major label steps into the shoes of the independent label. In return, the major label normally agrees to pay a cash advance to the independent label and a royalty on future sales by the major label of records featuring that artist.