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Music Industry Secrets: Every Record label is broke, here’s why!




If you ever want to become a big label, you need to know why major labels are broke. This may sound perplexing, but understanding it is crucial to getting to the money. The bigger picture may feel extremely intimidating, but it’s possible. Every artist should understand why the labels have their positioning in this manner that I’m going to explain.


How Record Labels Get into Debt

All record labels need the audio products created by recording artists to survive. However, if they are smart, they will use the money of a financial provider, ironically, the same financial provider you’re trying to get to—the bank. This action immediately puts the record label in debt.


Assets Never Outweigh the Liabilities

Assets including real estate, intellectual property, receivables, packaged goods, and cash will never outweigh the liabilities. This is because the record label rides a fine line between debt borrowed (principal and interest), accounts payable, accounts receivable, and deferred revenue that has yet to be paid out.


Record Labels Live to Increase Cashflow

All record companies want to do is increase cash flow and assets. The debt they accumulate is designed to float the business to receive the cash flow.


How Is the Record Label in Debt? Pt 1

Because the record label can borrow cash due to its track record on paper, it can get it quicker and cheaper than you can. The label can afford the principal and premium payments on that debt. This money is used carefully to fund operations and product production.


How Is the Record Label in Debt? Pt 2

It takes 90 days for the distributor to pay the label (accounts receivable). The label has to pay the debt every month. The record label has to have the cash flow to cover operations, pull profits for research and development, and pay artists their royalties, among other things that should not be done with borrowed capital (accounts payable). To avoid bankruptcy, the label defers artist payments for 3 months, meaning artists get paid every 6 months or semi-annually. If the record label’s profits drop unexpectedly, the label has to borrow more money or defer more payments.


How Is the Record Label in Debt? Pt 3

Record labels allot capital to the artist accounts in business affairs. Whether spent or not, they know how much money was allotted. Many artists never recoup, including the label’s share as well. This is called a loss. The labels are playing a roulette game to see which artist will hit and cover the losses from the other artists that missed. If they don’t hit in time, the game is over, and they default or won’t be allowed to borrow more capital at a low interest rate.


Bonus: Record Label Secrets

Record labels know how many artists they can sign based on how much capital they have on deck for the next 12 months every June.


Here’s Why You Sign Anyway

Record labels are the only bank in town that will allow you to walk in the front door and get a loan based on human collateral or intellectual property without having a prior record of cash flow or business.


See… This Is Why I Want to Be My Own Label!

Remember, you’re in the same position, but you can’t get cheap capital—they can. That’s the difference. This is why, at a certain point, indie artists bow out or level up to a label.


Do Record Labels Ever Profit?

Independently, yes. Majors hardly. They have to keep borrowing more money to keep the cash flow going as long as they can afford the premiums on the debt. This doesn’t mean they aren’t getting rich.


So What’s the Goal?

Get to the money cheaper and faster than the label! This is not easy and takes strategy! Everybody will not make it.



Check This Out!

If you're a music creative or executive looking to build your label or publishing company in 60 days or less, with a step-by-step foolproof process, grab the 60-Day Record Label Course and get it done today! You’ll gain the ability to get real funding, avoid contractual pitfalls, and keep the middleman out of your pockets. Click the link below to get started now! If you’re skeptical, grab the free guide, "10 Ways to Increase Your Record Label Profits," which comes with a free split sheet download.


Getting to the Money Before You Need the Label

Allows you to have way more freedom in your career.


If You Sign to the Label

Here come the restrictions.


Conclusion

If you were wondering how you’d survive as a huge label, stay lean and get the green. By understanding the financial mechanics of record labels, you can make informed decisions about your career. Whether you decide to stay independent or sign with a label, knowing these secrets gives you the upper hand in navigating the music industry.

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