Indie or Major?
2.0 Indie or Major?
2.1 The Conventional Deal
Although all record companies and publishers have standard forms of contract, no two deals are ever quite the same. In Part II of this section we look more closely at the component parts of a typical record deal. For this purpose we assume that the deal is with a major. Under this type of deal, an artist signs exclusively to the company on a long term basis. The company owns all of the recordings made during the full length or “term” of the agreement. The artist earns royalties on record sales. Those royalty earnings are used by the company to pay off, or “recoup” any advances paid to the artist including any recording costs and certain other expenses. Within that framework there is a great deal of flexibility. Every negotiation and every contract will have a distinct flavour of its own. Whilst for many years the basic ground rules remained the same, such has been the upheaval in the industry in recent years that those rules are now in an uncertain state of flux.
2.2 Independent Arrangements
For many years the major record companies enjoyed a “stranglehold” over the record industry. There have been many successful independent labels but with few exceptions when independents have reached a certain level of success they have been acquired by one of the majors. A “major” was a record company which owned and controlled its own manufacturing and distribution facilities. This gave the major an insuperable advantage over an independent label. The landscape of the record industry is now more complicated. At the time of writing there are three remaining “majors” being Universal, Sony and Warner. They no longer necessarily have their own manufacturing and distribution facilities in every territory but, rather, their defining feature is that each of them has a substantial infrastructure with properly staffed offices in all of the important record markets. However, as time passes, digital distribution gains more and more ground against physical distribution and as a result the “stranglehold” of the majors continues to loosen. There have been drastic cuts in staffing levels and there has also been a reduction in the level of investment in new talent (including the amount of marketing spend). As a result, independent labels with access to a reasonable level of funding are now able to compete more easily with the majors. It is easier than before for artists to set up their own labels. If the artist has access to funding then it is now far easier to engage suitable independent consultants (who would previously have been employed by the majors) to orchestrate a comprehensive marketing campaign. However, it would be a mistake to think that there is a level playing field in terms of what a major is able to offer an artist as opposed to what that artist may hope to achieve with a self-funded label or a deal with one of the independents. If the aim is to achieve high profile success internationally then a great deal of effort will be required on the part of a great number of people. The logistics involved are complex and require extensive project management. A major label remains the more obvious choice for an ambitious artist.
2.3 Creative Control
An apparent advantage of signing to an indie is that the artist may retain greater creative or artistic control. Majors usually insist on a substantial degree of control over certain elements of the creative process (for example, the choice of songs, producer and studio). The major will wish to control these elements if it does not approve of the artist’s plans. Indies are reputed to be more sympathetic to the artist’s wishes. They will generally allow the artist to go in whatever artistic direction the artist wants. One reason for this more sympathetic approach is that an indie usually invests significantly less in an artist than a major, in terms of “up front” money put at risk. Also, indies are usually run by people with a particular understanding of the artists they sign and their music. On the whole, they can relate better to their artists on a musical and artistic level. This is not to say that A&R managers at the majors never have this level of understanding. However, an A&R manager at a major will tend to look after several artistically different acts. The investment in those artists (which typically is more substantial than that made by an indie) will increase the pressure to secure immediate chart success rather than allowing the artist to develop more naturally and gradually. Also, the key A&R person at an indie is often the owner of the company. He or she is freer to make decisions than his or her counterpart at the major. He or she does not have to justify the company’s expenditure to a managing director, chairperson or finance director when sales are not going that well. Nevertheless, there is a tendency to exaggerate a major’s ability to control the artistic process. A record company cannot physically force an artist to record a particular song or work with a particular producer. Some A&R managers at the majors have immense experience and understanding. A good A&R manager will operate as a catalyst for all of the ideas and other artistic ingredients involved. Indies tend to have smaller artist rosters than the majors. The majors tend to have different priorities from time to time with the result that some artists may be neglected. Different records by different artists may be competing for a gap in the major’s release schedule. Indies tend not to have these problems (or not to the same extent).
2.4 Short or Long Term
All majors will typically expect a new artist to sign an agreement committing the artist to record probably four or five albums. An A&R manager might sign an artist to a five album deal only to join another company a year or so later. Indies generally will not demand such a long term commitment. The deal may be limited to as little as one album. Even if the indie wants options for additional albums, this may matter less to the artist because of the creative factors. Indies often allow an artist to develop at the artist’s own pace, and so avoid the pressures of becoming a “mainstream” act too quickly, with the artistic compromises this may involve. An artist might start off with an indie and move to a major later. If the artist is successful and receives some critical acclaim with the indie the artist might then extract a better deal from the major over creative issues.
All the majors generally expect to sign artists for the whole world. This applies even if their overseas associates have shown no particular interest in the artist. Indies, however, often limit their recording agreements to just a few countries (e.g. UK only, or Europe, or the World excluding North America). This allows the artist to make separate agreements with other record companies in the countries not covered by the initial deal. Artists can then choose companies which are genuinely enthusiastic about them, or which might for other reasons be “stronger” in that territory.
If the artist secures separate deals overseas, he or she will benefit by having more than one royalty stream. Even if the indie insists on a worldwide deal, the indie will have more flexibility in sublicensing outside the UK to companies genuinely interested in the artist. Indies will sometimes agree to share with the artist any advances they receive from their overseas licensees.
2.6 Royalty Rates
A typical royalty rate on album sales for an artist signing to a major would be, say, 20% for UK sales; 18% in major countries such as Germany, France, USA and Japan; and 16% for the rest of the world. We examine more carefully what is meant by all this in Part III. The higher rate for the “home” territory (in this example 20%) is sometimes referred to as the “headline” rate of royalty. Lower rates apply outside the home territory because the company itself merely receives a royalty from its licensee and will wish to maintain a reasonable margin between the royalty received and the royalty passed to the artist. However, an artist signing to a different company in each territory will expect to obtain a “headline” rate because by signing direct to the overseas companies, he or she is cutting out the middle man.
2.7 Share of Profit
An artist signed to an indie will often be paid a share of profit or “net receipts” instead of a percentage of the price of each record sold. The profit share is usually 50% of the indie’s net receipts. This might increase (or “escalate”, in record company jargon) for later albums and perhaps for overseas income. The relationship between an artist and an indie is more like a partnership. The artist takes less money up front (sometimes none) on the basis that, if the artist succeeds, the artist and the record company share more or less equally in the fruits of success. Again, we look more carefully at this in Part III.
2.8 Financial Insecurity
However, there are considerable problems with the indie route. An indie is more likely than a major to have cash flow problems or perhaps go bust. It may not have the sophisticated structures, financial disciplines and professional management of the majors. This becomes a matter of particular concern when an artist “breaks” (whether domestically or internationally) because at that stage substantial investment and resource is needed to maintain the artist’s momentum and to capitalise fully on all opportunities.
If there are separate deals for different territories, the artist or his or her management will become heavily involved in liaising with and coordinating the different distributors. Each company needs masters, information, and promotional material. Each will expect the artist to tour in its territory, and may not be very tolerant of the artist’s other commitments. With a single deal with a major, many of these problems are avoided. It is for the major’s International Department to manage these conflicts.
Indies do not usually pay substantial advances to their artists. Conversely, majors often do so, which gives a degree of financial security. Similarly, indies are less inclined to allow the artist to spend as much on recording costs so the indie artist is less likely to use the top studios and producers. Once an artist breaks, majors are more likely to have the resources to exploit the opportunities fully. They can fund more expensive videos and more substantial marketing campaigns, including TV advertising. Majors can usually coordinate international campaigns more effectively.
2.11 Strength in Depth
Majors employ talented, creative people in specialised departments, such as A&R, Marketing, Press, Promotions and International. Many staff at majors have worked in the record industry for a long time. The personnel at the smaller indie labels may not have such wide or detailed experience of all aspects of the development of artists, and of maintaining success once it has been achieved. If an artist has creative flair, or an experienced and creative manager, then he or she will have less need to call upon a major’s resources. However, few artists have these abilities and resources; they need record companies to provide guidance, advice, support, commitment and money.
2.12 The Final Choice
Some of the more interesting artists in recent years have come from indies. Other artists, signed to majors, may well have made less impact had they been on indie labels. Some bands which either have, or pretend to have, the indie mentality, get suffocated when they move to a major. In choosing between the indies and majors there are many factors to consider such as:-
2.12.1 Current A&R relationship – How good is the artist’s relationship with his A&R manager when he or she signs the deal?;
2.12.2 Future A&R relationship – How likely is the A&R relationship to survive? Will it break down, for example, because the A&R manager is unable to win continued support from his colleagues at the label? Or will it end simply by the A&R manager leaving to pursue his career elsewhere?;
2.12.3 The artist’s ability – Might his or her particular talents be stifled by the major approach? The cliché of the difficult second novel applies equally to musicians. Some artists clearly have enduring appeal, others come and go. Those that fail might blame the stifling atmosphere at a major: those that endure might well have succeeded wherever they were;
2.12.4 The artist’s management – How competent and experienced is the artist’s management team? How quickly can they adapt to the artist’s changing fortunes?
2.12.5 The artist’s style – a pop or mainstream rock artist may be better suited to a major, given its marketing machinery; an alternative rock or dance artist is arguably better off with an indie, at least during the early stages.