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Running Your Own Record Label: Part 7

On The Record By Tom Flint
Published March 2003

In this final part of our series, we recap on the key things you need to consider before you start your own label, and take you through the process to the first release.

If you've been a reader of this series from its start, you might be starting to feel that there are an overwhelming number of things to organise before you can get your own record label up and running to release your own music. It is true that if you are seriously intending to commercially release your music then there is much to do, and just as many things to understand about the structure of the industry. To help it all make sense, and to prove that everything discussed thus far does link together, we will finish the series by running through the notional essentials step by step, from the start of your plan to own your own record label until the label's first release.

On The Record header image.So that we don't end up merely repeating the last six parts of the series, I'll trust that you have the meanings of names like the MCPS, PPL, PRS safely stored in your memory, and that you recall the relevance of things like barcodes and ISRCs when you are intending to get your records in the chart or ensure they conform to radio broadcast systems. If you haven't recently read through the previous six parts, I suggest you go and do that now. The 'Further Reading' box at the end should help you find the other parts of this series on the SOS web site.

It's All In The Timing

All read and up to date? OK — so you have an album's worth of ideas and a single or two to release, and you have made the decision to release the products yourself. The first thing to do is call a meeting with your writing partners, band members, managers and anyone else who is to be part of the business. As a group you must decide what sort of business you are going to have. If the 'business' is just you, then you have the option of being a sole trader — otherwise you are going to have to consider establishing a partnership or a limited company. Part 1 of this series discussed the reasons why you might pick one structure rather than another, but it'll suffice to say here that you can't really progress further until this is decided.

At this point, you must hire a lawyer who will advise you as to what you need to agree with your fellow partners. Your legal representative will also make sure you sign all the necessary legal agreements that will assign the business rights according to your collective wishes and interests. This lawyer bit is essential to ensure that any future legal disputes can be settled easily. What's more, you will rely on your lawyer every time you need to check a contract, be it with other musicians, labels, distributors, advertising agencies and so on.

An expanded version of the revenue and royalty flow diagram seen earlier in this series, introducing all the concepts that have been discussed throughout the series.An expanded version of the revenue and royalty flow diagram seen earlier in this series, introducing all the concepts that have been discussed throughout the series.At about the same time, you also need to decide if you are going to sign your songs to a publisher. As we have explained more than once in this series, each recording contains two distinct rights: artist rights, which are owned by the record company, and publishing rights, which automatically belong to the songwriter/composer, unless assigned to a publisher. The second part of this series discussed the reasons why you might benefit from being published, even though you are running your own label. In short, a publisher will be working hard to have your tracks covered by other artists, included on compilations, and generally used by as many people as possible. Consequently, this exploitation may help develop your work and bring in an income beyond what you can achieve by simply selling your records.

As you work on stuff like your company name and logo, you also need to decide if you are going to have an active web site where merchandise and records will be on sale. If so, you should contact service providers, web designers and on-line credit-card handling companies, and begin to get the arrangements for these matters in place.

Unless you're good at maths, you will also require the services of a book-keeper and an accountant to manage your day-to-day cashflow and your general financial management and reports. In fact, your accountant will be almost as indispensable as your lawyer, thanks to their knowledge of (for example) complex business tax issues. Such knowledge may help you to make best use of your capital.

If you are already expecting big record sales, you may be able to find enough cash to hire a label manager to take care of the day-to-day running of the label — an approach taken by series interviewee and label owner David Gedge. If you are lucky enough to be in a band that contains five or six business-minded people you might be able to divide up the jobs between you in a way that your newly-hired lawyer thinks is contractually fair.

While all this is going on, you should also be contacting or joining a selection of relevant industry organisations to take advantage of their free legal advice, newsletters, information packs, trade discounts and any other support services they can offer. In fact, it could be worth joining some of these before contacting a lawyer, as they may be able to help you find a suitable legal rep or even an accountant. A full list of the most relevant organisations was printed in part 3 of this series, together with some information about their activities, but for expediency, you can look up the details for AIM, BACS, BPI, MPG, MMF and the MU in the 'Useful Contacts' box towards the end of this article.

Super Structure

Fairly early on you will have to join some collection agencies. The essential ones are the MCPS, PRS and PPL, and we'll recap their roles in just a moment, but at this point it is time to take a close look at the fully expanded industry diagram on the previous page, to establish how the agencies fit into the overall structure of the music business. You may remember seeing a slimmed-down version of this diagram earlier in the series, but as many more subjects have been discussed since then, this one includes more detail. Please note that items above the dotted centre line are generally relevant to recording (artist) rights, whereas those below are concerned with publishing (songwriter) rights.

The summary of performance royalty distribution percentages, as seen on PPL's web site.The summary of performance royalty distribution percentages, as seen on PPL's web site.On the left of the diagram, in column 'One', we have our theoretical SOS 'DIY' label owner represented by the white square on the diagram's left. For the purposes of this diagram, the typical SOS reader is assumed to be both artist and writer, hence their position on both sides of the dotted line. To the right, in column 'Two', we have a record-label box situated above the dotted line and a publisher box below. If you have recorded your own music and haven't signed to a publisher then these boxes will be represented by you and your business. However, even if you are taking on the roles of writer, artist, label and publisher, it is still worth maintaining the theoretical segregation of these areas to keep track of accounts and future royalties.

Assuming you are conforming to this 'DIY' scenario, you, as a label, will be selling your product directly to a distributor — represented here by the orange box at the top of the diagram in column 'Two' (in the previous two instalments, we explained how you can do your own distribution, but for this example we'll just assume there is a third-party distributor). The distributor supplies the records to shops, jukebox-hire companies and any other outlets or end users. On the diagram, the green arrow shows the theoretical flow of cash from record sales finding its way back from the buyers to the label, whereupon it is divided up according to the record contract.

Royalties are collected from some of these end users in the form of licences. These licences are issued by the collection societies, and are a legal necessity for any broadcaster or venue intending to play copyright work to the public.

As you can see from the diagram structure, PPL collects its portion of royalties for the recording rights, whereas the PRS collect publishing rights, albeit from the same sources as the PPL. The MCPS, on the other hand, collects publishing royalties from record-sales revenue. They do this by granting manufacturing licences to record labels. The licences usually have to be paid upfront (unless the label has either an AP1 or AP2A agreement, as explained in part 3) and are set at 8.5 percent of the price the label charges the distributor for each record (known as the PPD or Published Price to Dealer). This 8.5-percent licence fee is represented by the diagram's red arrow going from the record label box across the dotted line to the MCPS box. In effect, this is the writer's cut of the record's sale price. As explained in part 3 of this series, if the person(s) who own the label is also the writer(s) and is not published, they can become exempt from paying this percentage, as it would only be paid back to them — the writer — at some point in the future (less the MCPS's commission!).

Going back to further discuss the PRS, we can see that they are collecting and distributing publishing performance royalties, as illustrated by the black arrows. A portion of this revenue goes directly to the writer, but the rest goes to the publisher, where it is divided according to the publishing deal. Of course, in the scenario where there is no publisher, the writer collects all the publisher's royalty share from the PRS.

The PPL royalty situation is slightly more complicated, because recordings require performers who earn royalties from their performances. Therefore the system includes a mechanism for paying performance royalties so that, apart from the revenue paid directly to the label, PPL set aside a royalty reserve of 50 percent for performers and non-performers. That half is split into 32.5- and 17.5-percent chunks respectively.

When acquiring a manufacturing licence from the MCPS, it is necessary to list performers. As explained in part 3 of this series, PPL's CatCo on-line database is currently being phased into operation so that MCPS registration information is available to all parties. PPL use this information to help it to allocated royalties to performers. Their calculations are too complicated to explain here, but the table on the previous page shows how it works.

There are two performer royalty-collection agencies (PAMRA, the Performing Artists' Media Rights Association and AURA, the Association Of United Recording Artists) here show in the top left-hand corner of the diagram. AURA looks after featured performers (broadly speaking, the main ones used on the recordings) and producers, while PAMRA is more general and represents all performers. For example, a busy session singer may join one or other organisations who will then gather royalties on their behalf from all of the sessions they have worked on. Once again, these organisations are not so relevant if you are performing all your own material, and in such cases, it is possible to gather the performance revenue directly from PPL.

PPL also allocate ISRCs — unique track codes which identify each and every recorded track — to make it easier for them to keep tabs on record broadcast. ISRCs are electronic markers and need to be added to the master recording file.

Over and above this structure there may be managers, sub-licensing deals, and all manner of other interested parties that complicate matters further — but this diagram represents the industry from the small, 'DIY' record-label perspective.

Moving On

Having now carefully considered this structure, with any luck you will be able to see clearly how you and your brand-new label will fit into the scheme of things. After joining the collection agencies, you will have to find a distributor if you are not selling your records solely on your web site. For reference, part 5 of this series discussed distributors in general, whereas part 6 focused on niche music distribution for different musical genres.

Barcodes are ubiquitous, and they're essential for a small 'DIY' label like David Gedge's Scopitones.Barcodes are ubiquitous, and they're essential for a small 'DIY' label like David Gedge's Scopitones.You will need barcodes on your records if you want to interest a third-party distributor. If you are simply selling from a web site, you can probably save yourself the time and expense, although barcodes are also necessary for UK music chart registration. Barcodes in the UK can be obtained from the e-Centre, as explained in part 3 of this series.

Once you have done everything mentioned so far, you are ready to start contacting manufacturers, who can take your master recordings and turn them into a production run of records. However, first you must obtain an AP2 or AP2A licence from the aforementioned MCPS, as explained in part 3. From this point on until your record is released, you will be relying on a number of processes which, together, will take some time.

Own-label owner Toby Marks of Banco De Gaia tells of his experiences in this part of the process, and passes on some advice on timing. "If you have the old-style AP2 application, then in theory the MCPS will send out an invoice within about a week of receiving the application. You should get your licence a week after your payment reaches the MCPS, allowing for a few days in the post each way. In practice, you should allow a month from first sending off your application to receiving the licence. This should get quicker once the new CatCo computer-based system takes over, but it's still in the set-up stage at the moment, so it will be a while before they phase out the old paper forms.

Toby Marks of Banco De Gaia.Toby Marks of Banco De Gaia."If, unlike me, you have an AP2A agreement with MCPS, they will send the licence straight away and you pay later, so in that situation I guess you should allow two weeks, including postage time."

Once your licence has been bought and paid for, you are free to begin manufacturing your CDs. However, the manufacturer not only has to fit your job into their schedule, they also have to create the printing parts necessary to complete the process. Obviously, this can all add up to more delays. Toby provides the low-down. "In theory, the manufacturing plant won't start the process until they have seen the MCPS licence, but I know not everyone bothers. Having said that, the people I use have tightened up recently, so I guess you should assume nothing will happen until they get the licence. Then it depends on what you are doing about artwork. I send them my artwork on disc and leave it to them to sort out the insert printing, but I suppose that if you know a printer who can do the job quickly, you might be able to speed things up by getting the artwork printed yourself and then sending the paper parts to the manufacturer. The way I do it, it seems to take a couple of weeks. Sometimes it is a bit slower or quicker depending on how busy they are. Approaching Christmas, for example, they're always busy, so you have to allow a bit longer. A re-press should be a few days quicker, as they already have a glass master and parts to print from."

You may decide to start off with a small print run, later followed by a re-release if early sales are promising. For the follow-up, you will still need to apply for a licence from the MCPS, so your plans should also account for the time it takes to obtain that further licence. Toby: "When they send the licence the first time, they also send a re-pressing form so that you don't have to do all the paperwork again, but it takes about the same length of time nonetheless, because the MCPS still have to send you the invoice, and you still have to send payment before the licence is issued."

To promote your product effectively, it will be necessary to send your releases to various magazines for review. You might also decide to produce some adverts telling the public about your release, and in both situations, you will need to give your correct release date. To complicate matters, you must first take into account your distributor's schedules and the print schedules of the magazines that you want to run your reviews and adverts! Toby continues: "My distributor, Pinnacle, send out a list of dates for the coming year showing what they need to have by when for any given release date. So, for example, if you want an album to go on sale in the shops on June 30th, then Pinnacle need to receive sales notes and some promos by May 5th.

"If they are handling international export, they need further promos for that by June 2nd, and they need the sales stock for initial orders by June 20th. If you are putting ads in magazines, you need to know copy deadlines for advertising. In monthly mags it can be quite a long time ahead of actual street date — three weeks at the very least [it's much more than this for Sound On Sound! — Ed]. Also, you need to think about which issue will be the most appropriate for your release date, as some magazines are on sale in advance of their published month. To qualify for chart registration, Millward Brown [see part 3] need info and a copy of the release at least two weeks before the release date."

So how do these various delays and time considerations add up in the real world? Toby does the maths. "Let's use the example of a June 30th release. Stock needs to be at Pinnacle by June 20th, so your master and artwork will need to be at the manufacturer at around the start of June, if not before. Bear in mind you will need to know all the details of your master (track order and titles, durations and ISRC codes) before you can apply for the MCPS licence, so in this example you will need all that info by at least the start of May. It doesn't usually make sense to pay the MCPS licence and the manufacturer months ahead just to get some promos, because you have a big expense and no income from sales. It may be worth doing a large run, though, including the copies to sell, because it works out a lot cheaper per unit than a short run of a few hundred. I do it differently each time depending on timescale, quantities and so on.

"The options are to do a full production run, including making the glass master, early and take your promos from that batch. Alternatively you can get a short run done from somewhere that specialises in short runs rather than your usual manufacturer, and use a CD-R master rather than glass master. The last option is to burn the CDs yourself. This is not a bad option if you don't need too many and want to keep costs down. Don't forget that if your promos are free of MCPS charges then they must carry the wording 'Promotional Copy — Not For Resale.' Either way, you will need your promos by the start of May for the distributor, and maybe two months earlier if you are sending them out to the press for reviews and news items. Ideally, you should try to have promos three months ahead of the release date if you want to get reviews in the monthly press at around the time of release, so for a release at the start of July, you need your master, or something very close to it, at the start of April."

And Finally

The record industry in the UK alone is a vast and complex machine which employs an huge number of people in a variety of jobs, ranging from the chaps who run the machines at the manufacturing factories, right through to the accountants who keep tabs on all the cash.

In this series we've focused just on the aspects of the industry most relevant to someone trying to release their own records, so there are many other facets of the industry which you may also have to deal with. On the other hand, for a non-gigging, solo artist recording their own songs at home, the process can be kept relatively simple. Label owner David Gedge of the Wedding Present and Cinerama sums up what he thinks is the key to success. "I know it sounds stupid, but the main thing is to make a really great record. You do have to know about the MCPS and the PRS, but other than stuff like that, it is fairly straightforward. A lot of people spend so much time worrying about the details that they don't take the time to make their records as good as they could be. If you make a great record the rest will fall into place, because DJs will want to play it, and the public will want to buy it and come to your gigs. I think both the Wedding Present and Cinerama have always been seen as bands who run their own affairs, but I don't think we'd have a chance to do this at all if we hadn't made good records."

 Music On The Web 
 Compared to radio broadcast, record shops and sheet-music retailers, the concept of music on the Internet is very new indeed, so the situation regarding the licensing of on-line music providers is still changing rapidly. In part 3 of this series, we explained that the major labels had not given PPL a mandate to represent them in terms of licensing their products (recordings) for use on the web. This situation is fine for big organisations, who have the administrative capabilities to license their own records to a variety of businesses, but for small labels with limited time and staff, it could present a real problem.

A diagrammatic representation of Internet royalty distribution within the record business.A diagrammatic representation of Internet royalty distribution within the record business.Fortunately, the UK independent label organisation AIM has formed its Musicindie division specifically to create a set of licensing schemes to cover as much of the so-called 'new media' as possible — thereby representing the interests of the small label on the Internet.

The portion of this 'mechanical' revenue which should be distributed to performers is currently not being collected by the performer rights bodies AURA or PAMRA. Apparently there are many millions of pounds ofperformance royalties still to be collected from overseas countries like Spain, Germany, France and Japan, and AURA, for one, are currently working to win the rights to collect and distribute that traditional revenue before they turn their attention to the relatively new and small Internet-generated funds.

The MCPS and PRS have now founded a joint venture to enforce the UK copyrights of songwriters and publishers.The MCPS and PRS have now founded a joint venture to enforce the UK copyrights of songwriters and publishers.In the meantime, the MCPS and PRS, under their MCPS-PRS alliance, have been working hard to come up with a licensing scheme to enforce the copyrights of songwriters and publishers. Their scheme, which is set out in a jointly-published annex to their standard publishing schemes, will provide dual licences, each covering the mechanical and performing rights for most on-line uses.

According to the web site of the MCPS-PRS alliance, these licences cover permanent and temporary downloads, live and archived webcasts, individual streaming of works, subscription services, and some audio-visual usage.


Useful Contacts

infot.gif +44 (0)1773 850000.

infot.gif +44 (0)20 8994 5599.

infot.gif +44 (0)20 8960 4777.

infot.gif +44 (0)20 7602 5985.

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infot.gif +44 (0)20 7851 4000.

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infot.gif +44 (0)20 7655 9001.

infot.gif +44 (0)20 7878 7900.

infot.gif +44 (0)20 7371 8888.

infot.gif +44 (0)20 7751 1894.

infot.gif +44 (0)1926 452233.

infot.gif +44 (0)20 7582 5566.

infot.gif +44 (0)20 7579 4423.


infot.gif +44 (0)20 7940 0400.

infot.gif +44 (0)20 7534 1000.

infot.gif +44 (0)20 8800 8110.

 Further Reading: Other Parts Of This Series 
 If you want to refer back to the previous parts of the series, here they are, with a brief summary of the subject areas they covered.

The first part discussed how to set up the legal structure for a label and detailed the basic things to consider, including the workings of UK VAT and income tax.

This part was largely concerned with publishing and its related collection agencies, including the MCPS, PRS and PPL.

This instalment looked at the royalty-collection agencies and industry bodies relating to labels, such as PPL, AIM, and the BPI.

Part 4 talked about the personnel needed to run a label on a day-to-day basis, such as accountants, label managers, and PR people.

This part considered the subjects of promotion and web sites, and record distribution, and presented a breakdown of the pricing structure of a CD from the perspective of a small, self-started record label.

Last month's instalment tackled the subject of niche distribution for your records — what distribution is for and how you can go about choosing a distributor for your label.