the music business. According to the National Association of Record Industry Professionals, the record industry is a $38-billion-a-year business fed as much by the thousands of small independent labels operating out of the basements, car trunks, and studio apartments of music mogul hopefuls as it is by the four major multinational establishments. However, very few new record labels survive the startup phase due to of poor cash flow. They also succumb to the pressure of having to wear many hats and not truly understanding the business.
There’s no doubt that this business is tough. Fewer than 2% of all songs released in the U.S. make a profit, and with Mp3 bootlegging eating into overall sales, the industry is in a crunch. However, those who plan properly, set realistic goals, and exercise patience and perseverance can find success. In this installment of the BLACK ENTERPRISE Dream Business series, we’ll look at some of the pros and cons of starting a record label.
Recording the Costs
Whether you want to produce smooth jazz, soul-stirring gospel, or sultry R&B, starting a record label doesn’t have to be a costly endeavor. Startup costs vary depending on a number of factors– location, the size of your staff, the budget for recording costs, promotions, manufacturing, and the amount and types of equipment used–but new label owners can begin mixing beats for as little as $5,000.
“I’ve seen record companies start with $5,000 and I’ve seen some people start with half a million dollars. But it doesn’t really cost a lot of money to start a record label today because new technology and digital recording have made it possible to record with a lot less equipment than you needed in the old days,” says Brian Lassiter, owner of World Premier Distribution and PowerPointe Publishing. “So basically, if you have a computer, the right software, a couple of speakers, sound modules, and drum machines, you’re in business.”
While the startup phase may be easy on your bank account, maintaining and growing a label requires much deeper pockets. Lassiter, whose company has distributed products for artists such as Twista, Young Jeezy, and Ghetto Mafia, says the biggest expense for new labels is marketing and promotions. This figure can sometimes account for nearly 50% of expenses. “In fact, it costs more to promote and market music than it costs to make music,” he says.
Whether you start your label on a shoestring budget or break the bank trying to get into the biz, the costs can mount quickly. Record executives say typical startup costs for a label include:
Licenses and legal paperwork: In order to sell your CDs to the public you will need to obtain a retail license. Fees vary from state to state, so check with your state department of revenue for the exact cost. Also, secure a Universal Product Code (U.P.C.) from GS1 US (formerly known as the Uniform Code Council; www.uc-council.org). You must become a member of GS1 US to obtain a U.P.C. Bar Code. The membership fee is based on your