Since the emergence of the recording industry, there has been a broad, single model of success for a musician: record some music, develop a small following, send that music to a record label and hope for the best.
For decades, that has been the rough template followed by all the hit-makers.
A record label is an organization that handles the business side of music for the band or solo artist. They come in different sizes, in regards to their offered services, reach and ability. The label promotes the music across various media, distributes to strategized markets and organizes licensing deals for it.
James Hetfield of Metallica described a label as “a bank and marketing tool to get you where you wanted to be.”
Artists work tirelessly for years, honing their craft into something people want to listen to and pay money for to own a copy.
But people are not buying music anymore.
Sales tumble
The music business has been one of the hardest hit industries by the consumer shift to digital. Downloads and streaming services, such as Spotify and Apple Music, have overtaken the market.
CD sales fell 17 percent from 2014 to 2015, according to the Recording Industry Association of America, and fell another 16 percent in the first half of 2016.
For quite some time, vinyl record sales were making a comeback, going up 49 percent in 2013 and 30 percent in sales in 2014. That surge lost steam, however, dropping 6 percent last year.
Major record labels such as Universal Music Group, Sony Music Entertainment and Warner Music Group typically structure their contracts with artists like this: the label gives an advance to the group to record an album, then the label takes its cut of the album sales, which usually hovers around 85 percent.
Out of the money remaining for the artist, the label recoups its advance, then subtracts additional costs like promotion, packaging and tour support. After the deductions, the band is often in debt to the label, which is then carried over to the next album.
Tensions between artists and record labels have been present for decades, but with consumers buying fewer physical albums, the bigger labels have been reconfiguring their contracts into what are known as 360 deals.
Labels now take cuts of all revenue streams of an artist, including “touring, merchandise, could be publishing, licensing opportunities and endorsement opportunities,” according to former Capitol Records President Lee Trink.
In the ’60s and ’70s, when vinyl records were king, record labels charged artists up to 10 percent of their earnings to cover breakage of physical copies. This practice has carried over all the way to digital downloads, where breakage is nonexistent.
Courtney Love sold millions of albums with her band Hole in the 1990s. In her 2000 “Love Letter to Recording Artists,” she described some of the other costs that are taken out of the musicians’ royalties.
“Artists pay for recording costs, video production costs, tour support, radio promotion, sales and marketing costs, packaging costs and any other cost the record company can subtract from their royalties,” Love wrote.
Digital music has also led to contract disputes regarding payments.
In 2005, Eminem – who, at the time, was the best-selling artist – hired a group of auditors to investigate his label, Aftermath Entertainment. The auditors found the label was remitting figures of digital downloads on iTunes and paying him the lower-tier “records sold” percentage, rather than the “licensed music” royalty of 50 percent.
Eminem was receiving 12-20 percent of each record sold, which Aftermath was lowballing the amount of.
Eminem sued Aftermath Entertainment and Apple Inc., claiming that Aftermath owed him the 50 percent cut, because his songs were being licensed on iTunes by the label. Aftermath argued the songs sold on iTunes counted towards records sold and were not considered licensed music.
Three years later, the United States Court of Appeals for the Ninth District ruled in favor of Eminem.
Labels are sued
Artists suing their labels is not uncommon. The Smashing Pumpkins, Prince, Dr. Dre, The Backstreet Boys and The Dixie Chicks have all sued their label, citing various reasons.
But it is not only the artists throwing punches.
In 2008, the parent company of 30 Seconds to Mars’ label, EMI, sued the band for an ironic figure of $30 million, claiming a breach of contract.
Before the suit, the band sought to switch labels after releasing two albums, selling an estimated 6 million copies worldwide, and never receiving any form of payment. The band read the fine print of their contract and found out they were in debt to the label to the amount of $2.7 million.
The two parties eventually settled, but the band says it still has never been paid.
Serj Tankian, whose band System of a Down has sold more than 40 million records, believes labels dropped the ball in adapting to newer models of distribution, leaving an opening for what are now the biggest music distributors in the world, such as iTunes and Google Play for digital downloads and Spotify and Apple Music for streaming.
“The labels have never been cohesive enough to create their own future distribution systems, which is why it took a computer company to start iTunes,” Tankian said in the 2012 documentary “Artifact.”
Tony Pacheco, who runs the independent label Save Your Generation Records in southeast Michigan, also believes that major labels did not adapt well to the digital world.
“They’re doing the same things they’ve always been doing,” Pacheco said.
If digital continues its 13-year streak of increasing market share, these distribution systems created by the computer companies will be the only viable platform for artists, leaving physical albums obsolete.
But streaming services pay very little, with much of that amount going to the artists’ labels and rights holders. Spotify reports that artists are paid as little as $0.006 per stream and as high as $0.0084, but some musicians say they earned much less.
Geoff Barrow said in 2015 that his band was streamed 34 million times and received about $2,500, which equates to $0.00007 per stream — much lower than Spotify claims.
Streaming services give nearly every music fan in the world the ability to listen to as much music as possible for the price of a couple cups of coffee each month. Yet, artists struggle to be paid.
Some artists are now finding success by starting their own independent record labels, such as Frank Ocean and Tyler, the Creator, who both have charted in the top five in the U.S. after releasing music on their own.
Chance the Rapper decided that record labels are “a dead industry,” due to the declining sales of physical albums. All his releases have been in digital format only and independent of a label. He has been outspoken throughout his career about labels and how he feels being a true solo artist is the best way of doing things in today’s musical climate.
He won three Grammy awards in February, including one for “Best Rap Album.” He was the first artist in history to win a Grammy without selling a single physical copy of his music.
Some organizations are trying new things, such as Assemble Sound in Detroit, which acts as a licensing company to help artists sustain a career through music.
People are creating new models because the historical way of releasing music is not working anymore.
“The future of the music business is unknown,” Angelica Cob-Baehler, former senior vice president of media and creative services for EMI said in “Artifact.” “That’s what makes it exciting to some and really scary to others.”