JK, AJ, Thunderhouse...labels and studio biz

Recording, Mixing and Producing
#1

Taken from another thread…

[quote=Thundershouse]
but since labels aren’t really signing artists to develop anymore, these artists are forced to do it on their own, which means if they can get a solid demo or album down at a home studio or in some cases by themselves at home that means that the studios that did have work no longer do and times that by a big number… [/quote]

This is good discussion. Its not that labels aren’t signing artists. What’s really going on here is that the definition of a label is changing. And more importantly the roll of the label. To really understand the concept of a label, you have to understand the relationship between the investment banking component and the ip acquisition component. That’s the rudimentary foundation of a label. Your publishing, licensing, and distribution methods are getting overhauled, but the core anatomy of a label is very much still operative. The first part (finance lending and ip) is taking on a completely different face. I see a lot of private equity investor and venture capitalists stepping in to overhaul the crashing system, and they’re making money. Because the new wave of ‘labels’ looks at investing through the eyes of the technology and information era we’re currently in. They understand the metrics of property acquisition investments better, and they’re smart enough to take the old model out back and shoot it. Because its dead. I’m busting my fucking ass 24/7 learning how to tap these investors, and I highly suggest anyone who’s interested at making money at this do the same. So the BOTTOM LINE is that you don’t move product without money. You need the label to scale the financials of the business in the same way you needed cash in the 80’s to do the same thing. That hasn’t changed one bit.

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#2

The labels certainly have a vested interest. Making sure the capacity for the artist to promote a product coincides with the risk/reward decision to invest.

Even more than promotion, what the labels offer is a LOT of cash. And traditionally, you couldn’t get it elsewhere because the labels were in a far better position to analyze market risk than a large banking chain that primarily specializes in real estate mortgages. The caliber or ~quality~ of the promotion may have been much more effective through the label than on your own, but the other thing that has changed is the distribution. It used to be and still is very very very hard to get a product into a large retailer. Now it doesn’t matter. That’s a very evident part of the system that’s become worthless.

…about the records and non-sales, what usually happens there is the record labels will set a quota for re-financing. An artist that is loosely attached to my industry network with is required by RCA to sell 250,000 CD’s with very stringent distribution criteria in order for the label to fund the next project.

See…think about your mortgage lenders. At your local bank. They WANT to issue loans. But they ONLY want the loans that get paid. That’s the current roll of the label, and the case with this artist signed to RCA. They are not helping her with promotion. They are not managing her. I know exactly who is, and its not the label. RCA only consented to the financing under the conditions that her management had their shit together, but they are not promoting or managing the artist. They’re only promoting the specific CD, then sticking her with the tab for the promotional costs.

Now the label IS responsible for the production and manufacturing of the mechanical product and the digital downloads online from which they recoup their funds. That is only means to sustain the ip pipeline. Where they have really gone to town on her as an investment asset is in other areas that I probably don’t need to get into at the moment.

#3

I think there has long been a lack of understanding (amongt wannabees) about the dream of signing a $multi million contractw ith a label.
Many such contreacts were signed but on a loan basis: the “label” funded studio time, distribution, marketing out of money the artist borrowed from it. Only when those fees had been repaid did the artist start to see real money.

#4

[quote=“Jonathan, post:2, topic:1135”]
Even more than promotion, what the labels offer is a LOT of cash.
[/quote]Sometimes, but even then it’s almost all on a ‘you’re going to pay back all of this cash before you see any money coming in’ basis, which makes the situation no different to securing a bank loan.

To be fair, they are only supposed to promote the CD. That is the main role of a label - to promote the product that they are contracted with the artist for. That is the main reason for an artist to be ‘signed’. It’s not their job to promote the artist in general, that’s the job of the management.

But if she is picking up the promotion tab, that’s very naughty. You’ve got to ask why she signed in the first place. What is the record company actually doing for her that she couldn’t do herself, assuming she could lay her hands on the required funds?

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#5

In a way yes, but in a way no. The difference is that a bank DOES NOT WANT to be investing in this space. The reason is that their risk management tools are helplessly insufficient to assess and validate the assets the structure and stability of an entertainment company. They are so different than a manufacturing facility or a restaurant that applies for a commercial real estate loan. A ordinary local bank, just like everyone else, won’t invest in what they don’t know.

Yes they do. And people still buy CD’s. Though a lot fewer. For individual artists you can track stats. Those barcodes aren’t printed on disks to make them look pretty. Or you can download the shareholder reports from publicly traded companies like the Warner Music Group and see for yourself. Clear as day, there are mechanical sales and digital downloads on those shareholder reports. Instead of saying “and the digital downloads online from which they recoup their funds”, I should have said “recoup SOME of their funds”. Direct sales HELP sustain the artist and keep them producing ip, in combination with other sources. It is ALL about ip.

[quote=“AJ113, post:4, topic:1135”]
To be fair, they are only supposed to promote the CD. That is the main role of a label - to promote the product that they are contracted with the artist for. [/quote]

My whole point is that the roll is changing. Consequently, that’s no longer the case, especially with the new VC (venture capitalist) models. The VC acquisitions are NOT based on mechanical sales. They’re completely based on equity, in particularly catalog equity. The contracts include whatever the hell the investor decides they want and the whatever the artist is dumb enough to sign away (unfortunately). There aren’t any ‘standard’ record deals anymore. Though parts of the contract are standardized by US federal law, such as compulsory licensing for example.

For this particular artist, even if she had the funds, even if she had top notch management, key components of her infrastructure would never enabled her to scaled to 7 Grammys without the help of Clive Davis. He comes with a big price tag, and his price tag came in the form of a weighty contract. What’s worth more - 8% of a watermelon or 100% of a grape? Could she have been successful? Yes. To that level? No way.

#6

They don’t need to know. A loan is a loan. You apply for one and you either get one or you don’t, depending on multiple factors such as credit record, income etc. Banks generally don’t give a shit what the money is used for, as long as it is paid back along with their pound of flesh.

[quote=“Jonathan, post:5, topic:1135”]
And people still buy CD’s.
[/quote]I’m fully aware of that, CDs have 50% of the market.

[quote=“Jonathan, post:5, topic:1135”]
For this particular artist, even if she had the funds, even if she had top notch management, key components of her infrastructure would never enabled her to scaled to 7 Grammys without the help of Clive Davis. He comes with a big price tag, and his price tag came in the form of a weighty contract.
[/quote]Fair enough, so what’s the gripe? She wants a high ticket service and she’s paying a high ticket price for it. The big problems arise when the label screws you for everything you’ve got and you end up with nothing to show for it. Seven grammys is a pretty decent return, in the long run she can probably live off that - in some shape or form.

[quote=“Jonathan, post:5, topic:1135”]
The VC acquisitions are NOT based on mechanical sales. They’re completely based on equity, in particularly catalog equity. The contracts include whatever the hell the investor decides they want and the whatever the artist is dumb enough to sign away (unfortunately).
[/quote]You’re moving the goalposts, this is not what you were talking about, and not what I was replying to.

If an artist sells their back catalogue they get PAID for it. I don’t see the problem in that for either party, if both sides have agreed on a price and that price is paid, what’s the problem?

What is ip? I thought it was internet protocol.

[quote=“Jonathan, post:5, topic:1135”]
My whole point is that the roll is changing. Consequently, that’s no longer the case,
[/quote]Not sure what areas you are involved in but my band has two recording contracts and they are both exactly the case.

You’re right, the role is changing, but not how you say. Record companies used to pretty much own their artist’s asses because they would pay for the recording sesions, producer, etc. plus all the vinyl/CD production and the distribution. Only the very biggest artists ever had any money to show for their efforts because they were all millions in debt to their record company.

Now it is very common for the artist to take care of their own recording and artwork, leaving the record companies doing very little:

  1. They pay for the physical production of CDs and vinyl. (The artist could easily and cheaply do this themselves)
  2. They take care of distribution. (The artist could also do it for themselves: CD Baby - $69 one-off payment)
  3. They promote the album. This is their last stranglehold, the only part that is still very difficult for the artists to do themselves, and therefore the only real reason to sign up with a record label these days. If the record company is not going to promote the shit of the album you have signed with them for, then you will be better off - literally - doing it all yourself.
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#7

I can only respond from the framework of my own observations and knowledge of what I’ve had the privilege to be a part of in this business. That I realize may differ greatly from yours…I acknowledge your experience, though mine has led me to differ on some points.

Interesting. According to who and in which specific market?

If and only if there is material collateral. And the amount of collateral needed to secure a loan the size it takes to launch an artist is way beyond what any artist is going to own. That’s a way different scenario that doesn’t apply here, since a bank like BB&T, Wells Fargo, or Bank of America, are not interested equity sharing in startups (which is a P.I. = private equity model), nor are they interested in VC deals. You can’t even apply for a bank loan on the basis of a VC model proposal lol. Those loans (aka the new record deals v2.0 as I understand them) are handled by completely different types of investment firms. In this case, a ‘record label’ steps in and becomes the lender. The best way to understand a label is to think of them as a bank which specializes in lending to artists. They’re content to settle for a different criteria to issue the loan, because they have much more specialized tools to assess risk/reward.

I don’t have a gripe. You asked what she has now that she wouldn’t without signing away her life liberty and freedom.

Miscommunication…no problem…I thought we were talking about the difference between the old models of a label and the new ones.

Intellectual property.

If I attempt to read this response in context, it appears you are contesting that my assertion that under emerging VC investment models, the new wave of investors, with a different way of doing things, no longer see their the main roll as the label to promote a product for the artist. Correct?

To that you responded as follows:

So are you saying that since your band has two contracts (in which the primary roll of the label is to promote the CD) and thereby contradict the emerging trends, that the statement is false and/or non-applicable to the changes in the rest of the industry at large?

From what I’ve observed, thats inconsequential because of the way record deals are structured, furthermore, I’m not sure I would consider that ‘new’. The amount of work an artist is capable of managing up until the pre-cash valuation of the deal in no way minimizes the equity loss they’ll forfeit. That will be the same. An artist with exceptional business competence might get more up front, but they will all pay equally with their catalog equity. They will pay off the back end for the loan. They will pay off the back end for the infrastructure. And the back end revenue is what matters. Long term IP holdings and licensing revenues. That makes the difference between millionaires and billionaires in this business. That isn’t even what’s changed.

The change that’s happening RIGHT NOW thats different, as I’ve said is the involvement of the private equity and venture capital guys stepping into this space and re-arranging the system in a way that works. Coming to the table and buying in with different criteria for loaning the cash, a different focus on how to monetize the assets, different safeguards to hedge against being diluted, analyzing the financial metrics of the artists cashflow differently and different ways of strategizing long term capital growth in light of changes in technology. Once again, in order to adapt a billion different factors in order to make money, their rolls have changed. And the changes have nothing to do with the fact an artist can press vinyl themselves.

#8

You must live in a different world to me. You don’t need collateral for a loan.[quote=“Jonathan, post:7, topic:1135”]
The best way to understand a label is to think of them as a bank which specializes in lending to artists.
[/quote]
Agreed.

In that case, I would have to disagree. Labels are involved primarily with master recording resale rights, not intellectual property. Publishers, not labels, deal in copyright (i.e. intellectual property) issues and collection. Some companies have both a label and a publishing house, but a label - by definition - solely promotes and sells recordings.

To be precise I am contesting your assertion that labels don’t sign artists for albums and then promote the albums that the artists have signed for. That is exactly what labels do. I don’t understand why you would say otherwise, surely that is common knowledge?

[quote=“Jonathan, post:7, topic:1135”]
So are you saying that since your band has two contracts (in which the primary roll of the label is to promote the CD) and thereby contradict the emerging trends, that the statement is false and/or non-applicable to the changes in the rest of the industry at large?
[/quote] I am saying that is my experience. When you buy a car, you don’t just buy the first thing you set eyes on, you do your research and learn as much as you can about the market, the products, and the available deals. So it is (or should be) when you sign a record deal. So I feel that I have a reasonably good handle on what is happening currently in record label land. If your experience is different, fair enough, but I haven’t seen any evidence of buying up back catalogues as an emerging trend. Record companies have always dealt in back catalogues - it’s their biggest source of income, as far as I am aware.

You seem to be talking mainly about publishing, not album sales, which is what the discussion is supposed to be about. I mean, if you want to extend the discussion to include publishing, fair enough, but I think it needs a separate thread. As far as I was aware we were talking about record companies (labels) and their changing roles.

Firstly, I didn’t say anything about vinyl. But if you’re referring to the aspects of labels that artists can now do for themselves, that is exactly the reason for the changes. You don’t need to be in the industry to see that. Recording, pressing and distributing albums can be done by anyone now, and that is most of the power that labels used to hold. This power has been wrested from them through the emergence of cheap and powerful technology, the only power they now have now is promotion, and I can easily see even that fading away some time soon. Especially since many of the labels are crap at even this.

#9

Coming little late to the game…very interesting and informative discussion.

Jonathan, you’re using a lot of fancy words that I am a little lost at understanding what you really mean. Sorry but when I hear metrics my mind flashes BS, maybe it is that whole newspeak that I have trouble with…After all I am a stupid guitarist, so can you dumb it down a little even so a drummer could understand? :slight_smile:

From what I am seeing Apple, Amazon, Microsoft and other big data is really becoming the monopolist or close to it, as they have the chokehold of the public. So unless you’re on there, you’re really not being seen. Bandcamp, Tunecore, etc. sound all good in theory but the impact of these services is minimal. Just coming off of a party today, everyone was spinning tunes off of sites, so it is mainly streaming. Everyone was connecting to one Bluetooth speaker with their phones and it was kinda cool as people were open to giving everyone access to blast our choices of music, kinda rotating 2-3 songs each. So waht did everyone use? They used Youtube. I was the only one that used Soundcloud and people were wondering what was that weird site that I was playing music from :smirk:
With that in mind, I was the only person that played non big label music, and streamed a few tunes off of my Soundcloud list, people/bands that have impressed me. No money changed hands while we played this music. So, who profited? From what I could see, the tech companies, mainly the people that put the phones in our hands, Apple, Samsung, Google…probably government to a degree as they could geo-locate each one of us based on our data streams and listen to our conversations. I don’t think any musicians made a profit in this instance. Maybe their Youtube ratings got a bump.

So the only thing left seems to be performance and merch, the taboos that bands held for themselves, now labels are asking bands to sign these away as well.

I honestly don’t see things becoming better for the artist, not the one that wants to eat. Incidentally, I agree with Mixerman on his http://mixerman.net/mixerman-and-the-billionheir-apparent/ book.

#10

Depends what you mean by ‘performance’ and ‘merch’.

Music sales is not all streaming, its 50% CDs (approx, globally), so if you are including CDs in ‘merch’, then yes, that is right to a point, but most CDs are sold by labels, so signing with a label is still a major possible avenue for recording artists.

If by ‘performance’ you mean ‘getting paid to play’, yes I agree, but if you are a writer, there are also performance royalties, and mechanical copyright royalties.

I don’t think anyone genuinely aspires to becoming a millionaire recording artist, the chances of that are about the same as winning the lottery I imagine. I think most people would be happy if they could pull a reasonable living from their passion, and I am absolutely certain that is possible, if (like any other business) you are prepared to work at it (which means investing time, effort and money).

#11

…wrote a reply then had to delete because I need to double check something tomorrow.

#12

I’ll try and save myself some time by asking: What you want simplified or explained?

Is it the actually terminology?

Or do you need an illustration in context? (say like…I could show you the % rate of dilution on an annual stock report from Warner or RCA from Dec of 2016, who are traditional models of a record label, then I could contrast that same thing to a report from a newer label, then try and explain what younger VC’s (venture capitalists) with fresh ideas are trying to avoid)…

Are you needing clarification of the relevance of these general ‘newspeak’ terms to the music business?

You gotta tell me what you need clarified, because I could waste hours trying to guess.

#13

Don’t take everything Jonathon is saying as gospel. He is expressing opinions based on HIS experiences. I don’t have the energy to rebutt much of what he’s said, but a lot of it is …
Sorry, JK, nothing personal, but you know, you don’t understand everything .

#14

No worries. Not taken as such. All good.

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#15

That paragraph I put in quotes is what I’d like explained.

#16

To be fair that applies to me too, but that’s a good thing. It’s when people talk in an authoratitive tone about something of which they have no experience that it’s not really adding value.

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#17

It seems that he is needlessly obfuscating the language in order to floor us with fancy lingo and no content…or maybe I’m a little behind on my VietCong terminology :smile: )

#18

The main premise is that investors are having to find new ways to make money in the music business.

I’ll take it a chunk at a time

[quote=“Jonathan, post:7, topic:1135”]
the involvement of the private equity and venture capital guys stepping into this space and re-arranging the system in a way that works. [/quote]

This means a different genera of investors are eyeballing the music business with interest, because due to changes, the resources and knowledge that the new wave of investors have now overlaps sections of the music biz where it may not have before. And they are applying outside experience, with different ways of doing things, they are changing aspects of the industry that have failed to make money, into pathways that do make money. We’re seeing new investors are stepping in from two types of investor categories. They’re taking key concepts from other industries that are making money, and applying them to an industry that is not making money. The obliteration of the traditional label model, allowed for new expectations, standards, and norms. These new guys opted in and were now able to change it on their terms. Money calls the shots. The new industry needed it, the new guys say if you want it, you do it our way. These are examples of those ways:

[quote]
Coming to the table and buying in with different criteria for loaning the cash, [/quote]
Both AJ and I have established that a label functions like a bank. Where the two of us seem to disagree on is their roll in getting it back.

[quote]
a different focus on how to monetize the assets, [/quote] Monetize means to make money, and an asset is something that makes money.

[quote]
different safeguards to hedge against being diluted, [/quote]
A safeguard is something that prevents something bad from happening. I used the term ‘hedge’ outside of its conventional context here so ignore it. Diluted is when your equity (that means your ownership) is decreased because of more owners wanting to play in the same crib. When a company gets dangerously low on cash, they need more money or they stop doing business. One way to get more money was to dilute their assets raise capital (that means raise money). So people are doing things different now to make this not happen. If you look at a financial statement (that’s a document from a company that explains what’s going on with the money inside of a business), there are numbers on the ledger (thats the name of the graph that organizes the information) that deal with this. All of this is important because there has been lot of discussion over the best way to raise capital (again that’s a fancy word for money).

[quote]
analyzing the financial metrics of the artists cashflow differently [/quote]

Pretend numbers talk to you. Now pretend you and I are listening to the same number to speak to us. There may be a difference on what you hear the number saying, and what I hear the number saying.

Analyze means to examine and draw conclusions from, finance means money related, metrics (business metrics, or metrics of the business) are different factors that affect outcomes in the system, cashflow (oversimplified) is a financial metric.

[quote]
and different ways of strategizing long term capital growth in light of changes in technology. [/quote]

Sometimes people can agree on how to make quick money, but disagree on how to sustain money over a duration of longer periods of time. It takes a strategy (a plan) for long term (that means future oriented) capital (that means money) growth (that means doing more business and making more money).

I was communicating a main point with some general examples. Those examples WERE the content. They are examples (though non-detailed ones) of things that record labels have changed.

#19

You have me really curious, and inquiring on concepts I haven’t looked real closely at yet.

I’m taking a closer look at an industry wide range of finance statements to see if you can really divorce the two arms of the label like that. This is going to come down to the source of operating profit, and how the CFO’s at both new and old labels have chosen to define licensing revenue within the scope of the entire company. Licensing is not publishing in essence, but with intellectual property, you can’t license something that you don’t have the right to publish. Because questions of licensing will always come back to the publisher.

(@Descent that stands for Chief Financial Officer - its a guy in the company that runs the finances, operating profit is money earned from the core part of a businesses, and licensing is where you make money by letting someone else use something you own the rights to.)

And I also have the question as to how the label side (as you call it) could accurately arrive at their EBITDA and OBITDA (earnings/operations before income depreciation, taxes, and amortization) separately from the publishing. The ‘A’ in EBITDA or OBITDA is clearly a function of the intellectual property. (@Descent, those are statistic derived from the operating profit category). Thus, trying to talk about a music sales side vs a publishing side of a label as different businesses makes no sense. Ironically some companies do present their label side somewhat autonomously from their publishing side. I think this decision is about how the label feels is the clearest way to present the company on paper. So the artists and investors can understand it. It doesn’t change the fact that if you don’t have publishing, you don’t have a ‘label’.

Revisiting the main point of the conversation:

[quote=“Jonathan, post:11, topic:1135”]

…records aren’t selling, that’s entirely down to the label, because it’s pretty much all that labels are responsible for these days.

You seem to be talking mainly about publishing, not album sales, which is what the discussion is supposed to be about [/quote]

After re-reading the entire thread and trying to figure out how you arrived at your position, I started to wonder if you’re actually looking at their sales distribution infrastructure as the main reason an artist would take the deal. Clarify if that’s correct.

#20

Labels now take a cut of “EVERYTHING” to accelerate their recoup. Touring, merch, placements and ad revenue. Unless you are a huge act, this is the nature of “getting signed” these days.
Gone are the days of tour support paid to generate record sales. There is more $$ in touring so it has turned around to releasing new songs at a loss to get folks to come out and see you…