#cooperative release

[sonsofsound]

Making a "cooperative release" of a sound recording

While many major and independent record labels (like this one) still produce recordings to build their catalogs, production costs increase the label's financial risk. With a decline in sales revenue, labels (like this one) are far more selective about the recordings they produce. Provided the recording meets the right technical standards, labels now build catalog by licensing and releasing recordings produced by others willing to take the financial risk, including the artists themselves.

The expense, time, and effort required to produce a sound recording is only part way to a full commercial release. The process of producing the finished recording for release, including mastering, artwork, mechanical licensing, manufacture, distribution, marketing and promotion, also requires considerable investment.

Approaching a label with a competed recording has to be seen as a new and separate venture requiring additional, fresh investment. The venture should be designed to make the product available, not to recover recording costs in one stroke. Hence the topic of the "advance."

For the owner of the sound recording, an advance can offset the cost of having made the record. The label may have already decided not to produce the record in the first instance, so financing it after the fact with an advance against sales and with no copyright to the recording is not an ideal business decision. As far as the release budget is concerned, expected sales need to cover any initial investment, and the amount invested must cover the fixed costs of launching the release. Any pure advance against sales takes away from the money available for packaging, set-up, and promotion. For creative music with limited sales history, an advance would consume too much of the release budget.

The relationship between artist and label should still be based on a shared creative vision and commitment, even in a distribution-only arrangement. As partners in the release, the label and the artist/producer that owns the recording should find a transparent and fair arrangement to share in responsibilities and sales proceeds. 

A cooperative release, as we call it, is one attempt to create a partnership between the artist and the label for the release of a completed recording, with the interests of both parties fully aligned and the budget reasonable and clear. More on this in subsequent posts.

[sonsofsound]

An indie alternative to major label business models

The traditional record label business is a research and development ("R&D") model that relies on the "portfolio effect" of a large catalog. The label's financial risk is spread out over a large number of artists that hopefully produce an acceptable average return. In theory, with enough artists and projects in the market, statistics eventually produce a star with a hit that covers the cost of many stiffs and failed experiments. 

The problem is that no artist wants to be average or below, or held back by the rest of the pack. Assuming for a minute that royalty accounting is accurate and transparent (more on this later), we believe that the R&D/portfolio approach to artists and repertoire is the cause of the traditional tension between artists and labels. Successful artists feel under-compensated as the revenue created from their projects is used to finance other artists. Smaller artists feel under-appreciated and under-supported as the successful artists receive the label attention and resources. The model is built to create discord between the company and its entire roster, and labels must continually overcome this bias.

We believe the right way to run a label does not involve spreading investments across a portfolio of projects in the hope that one will hit. One hit does not make the rest of the catalog more valuable, and instead leads to loss-cutting on the records that don't hit. 

Indie labels do not have the same financial resources as the majors and cannot create a sufficiently large catalog to reduce risk with a portfolio effect. It is impossible to predict a "hit" ratio -- will 1 in 10 or 1 in 1000 break out? The label's resources might not last, and this accounts for the large number of failed labels. A different approach is needed.

We believe that each project should be sized based on its expected sales performance, with neither the label or the artist taking excessive risk and hoping for a speculative windfall. By keeping each release budget under control, the label and the artist can benefit from the hit when it occurs. Sales revenues that surpass the costs of the release, if and when they come in, can be shared more equitably, in contrast to the traditional royalty model that is skewed in favor of the label to reward the label's financial risk.

We are leading up to what we call a cooperative release, a model that may not be original but has rarely been discussed openly because both labels and artists seek to preserve the mystique around what they do and how they benefit from their relationship. The cooperative release will be described in greater detail in subsequent posts.