As ECCO Moves towards the administration of Related Rights—copyright in sound recordings owned by the performers on the sound recording and the phonogram producer –as independent artists and songwriters based in the Eastern Caribbean where standard music industry structures are still being built; the idea of also becoming an independent phonogram producer and creating a self-administered record label may be heavily on your mind.

You may be wondering about the advantages and disadvantages of creating a self-administered record label, and what you should consider ahead of time before you go that route.

David Stopps, in the WIPO commissioned “How to Make a Living from Music” provides this insight.

According to Stopps, one significant advantage which an artist who is also the phonogram producer of his sound recordings has over an artist signed to a third party record label/phonogram producer is the ability to earn a far higher per unit income from physical record sales and/or digital downloads and streaming than the artist signed to a conventional phonogram producer.

“Instead of receiving a royalty of perhaps 15 – 20 percent of PPD (the wholesale price), as is usually the case with a major phonogram producer, the artist receives 100 percent. Any manufacturing, packaging, marketing and distribution costs must be deducted from this 100 percent, but the net income per unit should be higher than would be received from a major phonogram producer,” explains Stopps.

Stopps also notes the artist’s ability to sell physical recordings at his/her live performances—thereby helping to further grow the artist’s fanbase—and the fact that the artist would therefore have control over his/her rights as two other advantages the artist executively producing his own sound recordings.

The flip side, Stopps says “the disadvantage of the artist becoming their own independent phonogram producer is that the artist will not be able to benefit from the financial and structural resources of a large third-party phonogram producer, particularly in regard to advances, recording costs, marketing, distribution and tour support.”

“The one thing that well-resourced phonogram producers can offer the artist is money and marketing,” Stopps continues noting that, “It is far better to have 15 percent of US$500,000 (US$75,000) than 50 percent of US$50,000 (US$25,000).”

He expounds further; “If the phonogram producer can achieve far higher sales, the more mechanical royalties will be payable for the underlying musical composition to the author and his/her publisher. If the artist is also the author, this can mean far greater income, and if sales are higher there may be much more radio play, so that the public performance income is also considerably increased on both the author’s side and the performer’s side. The most important advantage of all in signing to an established phonogram producer would be that the artist may reach and create many more fans, thus increasing the artist’s fan base and social networking integration, which will mean playing larger shows and generating greater income from live work.”

Further, Stopps advised that the following main issues should be considered when starting a record lable and becoming your own phonogram producer:

1. “Choose a business structure. (This could be as a corporation/limited company, a partnership or a sole trader. The artist and/or manager need to obtain advice on this from an accountant or lawyer.)”

2. “Choose an original name for the label (do an online search to make sure that the name has not been used previously).”

3. “Create a business plan.

• “Prepare a business timetable
• “Prepare a cash-flow forecast
• “Obtain several quotes for manufacturing records
• “Obtain several quotes for preparing artwork
• “Make an estimate for distribution costs
• “Make an estimate for advertising and marketing costs
• “Make an estimate for mechanical royalty payments
• “Make an estimate for artist advances (if any) and royalty payments.”

4. “Build a team

“The artist and/or artist manager/record label will need:

• “A business bank account
• “A music business accountant
• “A music business lawyer
• “A physical distribution structure
• “A manufacturer
• “An aggregator for online sales.”

5. “Apply for a license from a mechanical collective management organization for each track released. The artist/manager/record label will need to apply for a license from the CMO in the country of residence that collects mechanical royalties on behalf of publishers and authors. It will be necessary to obtain mechanical licenses from the mechanical rights CMO for the works contained in the recordings, after which mechanical royalties will have to be paid to that CMO for every sound carrier, download or stream sold. In some cases, the mechanical rights CMO may insist on a mechanical royalty payment for every physical sound carrier manufactured rather than for every one sold. These royalties will then be passed on by the mechanical rights CMO, who will in turn pay through to the publisher, who will in turn pay through to the author(s) of the work. In some territories, such as the USA, it may also be possible to obtain a mechanical license directly from the author’s publisher.”

6. “Become a phonogram producer member of the appropriate related rights CMO that collects the public performance and broadcasting income for sound recordings. These CMOs collect income from radio and television stations, as well as other public performance uses when a recording is broadcast or played in public . . . A phonogram producer receives income from these related rights CMOs, whereas with mechanical rights the phonogram producer will have to make payments to the mechanical rights CMO.”

“In the situation where the artist has written 100% of the work in a recording and has no publisher, it may be possible that the mechanical rights CMO allows the artist to bypass the mechanical royalties process altogether and self-administer the mechanical royalties, i.e. in this 100% case if the artist paid the mechanical royalty CMO $100 and the CMO’s administrative costs were 15%, the CMO would pay back to the artist/author $85. If the artist can self-administer the mechanical royalty process, the artist would be $15 better off.”

7. “It may also be beneficial to join the trade organization representing phonogram producers in the country of residence. In some countries there are two such organizations, one which mostly represents the interests of the major phonogram producers and another which represents the interests of smaller independent phonogram producers. The international umbrella organizations for these two types of trade associations are IFPI (www.ifpi.org), which represents the major phonogram producers and others, and IMPALA (www.impalasite.org), which represents the interests of independent phonogram producers.”

---Stopps, N.D.

To learn more about related rights, phonogram producers, setting up your own independent record label, as well as gain further insight into how you can further advance your music career, we strongly recommend Stopps’ How to Make a Living from Music. You can access it HERE. http://www.wipo.int/edocs/pubdocs/en/copyright/939/wipo_pub_939.pdf

Reference:

Stopps, D. How to Make a Living from Music. Retrieved from http://www.wipo.int/edocs/pubdocs/en/copyright/939/wipo_pub_939.pdf