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Why Top Artists Stick with Major Record Labels

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This week’s Trapital episode and memo explore why the biggest artists in the world stick with major record labels even after their first deal is up. Sure, they could easily set up a DistroKid account, pay $23 per year to get their music on streaming, and capture all the upside… but many of them choose not to.

To break it all down, I was joined by friend of the pod, Audiomack co-founder BrianZZisook. You can listen to us here or read below for a few takeaways.


 

the superstar licensing agreements

One of the running jokes about the Drake and Kendrick Lamar drama is that the real winner was Universal Music Group. Sure, there’s some truth to that. But most of these stars have artist-friendly licensing agreements in place, so they benefitted as well.

Kendrick and J. Cole both ended their deals with TDE and Roc Nation Records, respectively. Both artists now license their music to Interscope. Drake has had an exclusive license with Republic Records ever since his Cash Money deal ended in 2018*.* Future has one with Epic, Rick Ross, and Gamma, the list goes on.

The terms may differ, but the concept is the same: these artists maintain ownership of the underlying rights, but they are licensing the music for a set term. The two most common types are distribution deals and label services deals.

At the far end of the spectrum, there’s Taylor Swift’s deal, which I’ve heard has a royalty split in the range of 80% – 20% in the artist’s favor. It’s a far cry from the superstar deals of the CD and cassette era, where acts like The Rolling Stones had closer to a 33% split, which was better than most.

The value increase for superstar contracts says less about the relative negotiating power of Taylor Swift or Mick Jagger, but more about the landscape.

Today’s era has fewer gatekeepers, a flipped economic model due to streaming, an increase in live performance revenue (and other revenue derived from non-royalty sources), an increase in music distribution options, social media, and more knowledge-sharing.

This benefits the established stars mentioned above, but it also benefits newer artists who also have leverage. Olivia Rodrigo and Armani White licensed their music to Geffen and Def Jam, respectively. There are plenty more examples like that.

You can listen to the full episode here or read below for more highlights.

money and relationships

For a proven artist with a licensing agreement, who generates millions of dollars per month from their music, giving up 20%, 33%, or 50% of their royalties to the label under license is still a lot of money.

In theory, they could start an account on DistroKid, pay less than $30 per year, and capture all the upside. But there are a few reasons why the above-mentioned artists likely didn’t do that.

The first is money. The labels still offer massive advances to artists on these agreements. Remember Drake’sLeBron-sizeddeal? It’s hard for non-major label entities to pay up at that level (although those lines are blurring, more on this later).

The next is relationships and the switching costs related to that. Z had a great quote about this in our episode:

“Kendrick Lamar and his team have worked with inside of the Interscope and UMG system for the last 15 years.

These are people who understand his backstory. They understand his catalog. They understand how to work with him, and how to communicate with him. It takes a lot, long time, like any relationship, whether you’re in music or otherwise. To build up a rapport and a level of trust, no one wants to work to that point and then start from scratch, meaning all brand new people that you’re now entrusting to do this work on your behalf.

So it distracts from the ability to just solely focus on the music making.”

The next reason is the cost and resources required to be in the business of a megastar. Labels can manage urgent requests, media relationships, distribution connections, and product shipments. And when someone tries to sue one of these artists because a sample, or DMCA notices, the labels have the resources to manage.

Even though these artists have their own teams, like Beyonce at Parkwood, Kendrick at pgLang, or Drake with OVO, they work with the majors on all their releases.

blurred lines between label and distributor

The most fascinating thing about today’s era is that the lines are starting to blur. Major labels are offering more artist-friendly deals to compete with the growing market share of independent artists and the labels and distributors that they choose. Meanwhile, distributors are adding more label services to provide more established stars with a strong alternative.

Russ has experienced both worlds. He was independent, then signed a 50-50 agreement with Columbia that came with an advance, and now he’s back on TuneCore making millions from his music.

Brent Faiyaz chose to work with music distributor UnitedMasters instead of the major labels that offered him competitive terms.

In the past 15 years, companies like EMPIRE have grown to serve a client base of artists who wanted more flexibility than a major, yet more services than a standard distribution deal. Here’s another quote from Z:

“What [EMPIRE] saw was a segment of the artist ecosystem wherein they had been in a major label deal and either they completed the deal meaning they turned in their three to five albums, they did or didn’t recoup and either they were dropped or they chose not to renew.  This caliber of artist was really used to having the resources in the infrastructure of a label.

But the idea of ever going back to a deal type that would require them to turn over that much ownership would simply be a non-starter.“

As distributors and non-label service companies raise more money to offer bigger advances, I expect we’ll see a wider range of companies that sign artists with leverage to similar licensing agreements.

Listen to the rest of the episode for more on:

Kanye West’s experience as an indie artist
– Beyonce’s relationship with Columbia
– the success of Teddy Swims

Chartmetric stats of the week – The Weeknd

TheBlinding Lightssinger is one of the artists mentioned who has a more favorable deal with the majors. As of May 26, he’s the #1 artist based on radio spins, #1 for Spotify Monthly Listeners, #11 for YouTube Monthly Video Views, and the #3 most Shazamed artist.

Dan Runcie

Dan Runcie

Founder of Trapital

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