Working in a record store, I get a lot of people that are astonished at the prices of cd's these days. I'm always quick to point out to the customers that the cd's they're looking at are on major labels, and that we have a wide selection of cd's on independent labels that are much cheaper. Customers are suspicious that a cd that's cheaper can be of the same quality. On the contrary, while musical taste is subjective, on the whole, an independent label's catalog is usually much better than a major's. So, is price the main reason to buy music from an independent label? Not necessarily. What the confused customer above is eventually getting at is the question, "how can an independent label offer better music, at a better price, than a major label?" The answer to this question lies in the differences between the two types of labels, including ground-level goals, the relationships with bands, the business models/strategies they employ, and the consequences of those strategies. Most independent labels (or "indies") are born when a person or group has some music they think the world should hear. Frequently these are people that are in a band, and they start a label to put out their own music. If they are successful, they put out more music by their band, or friends' bands, and later, just any band they think should be heard. Levels of success vary, but usually a label is considered successful if they make enough money to pay for costs, and continue to put out new releases every once in a while. While the amount of profit varies, it usually isn't a large sum; most of the time the majority of the revenue is re-invested so that more releases can be put out. The company is smaller, and the owner is frequenlty tied-in to the profit system so that if the label loses money, the owner loses money. Because of this, many decisions are based on a "level of risk" equation, and there is not an excess of capital for things like promotion, advances, or advertising. Without much promotion, an album will only sell by the music's own merit; that is, it has to be a good band/album. So an independent label can only afford to put out music that is good. An additional benefit is, because the number of releases from indies are so small, they usually specialize in a type of music, so you can frequently guess if you'll like a band because it is most likely similar to other bands on the label. A major label, on the other hand, is a corporation. Corporations are created to make money, and this is the main goal in running a major label. The people running the label are not specifically tied to the money making system; rather, they act as employees, while the corporation is owned mostly by stock shareholders, who each take a small percentage of the losses or gains, but are at little risk themselves. If the label makes more money, the president/chairperson may elect to give bonuses, but losses don't really occur on a personal level. Because most decisions are made to increase profit, there is more capital available for advances, promotion, and advertising. With less risk in losing money, they can spend more money initially in order to make more in the end than they could have otherwise. In this way, a major label can continue to get increasing amounts of profit. We've all heard amazing stories about "getting signed." It's often used as the benchmark for professionalism for a band. Contracts with independent labels aren't especially lucrative, however. The way it works most of the time, if a label feels that a band is good enough that the albums will sell without much promotion, they will put up some money to help the band pay for manufacture of their album (meaning physical creation of the cd's and packaging). If it's a new band, the band usually has to pay for recording costs and studio time themselves, or else just record it themselves. Once the albums are manufactured and released, the money from sales goes to paying back the label for manufacture. After the manufacturing is paid for, the money is split between the band and the label. Frequently, the label will use the money to help pay for other albums, and the band will use their money for equipment, tour funds, etc, to keep playing music and making more albums. However, it's usually not enough for the band, and sometimes not enough for the label owner, to make a living, so they have to have a day job as well. Getting signed to a major label is a different thing. First, if a representative of a label thinks a band has promise, they will sign them into a preliminary contract, which means that they agree to come up with a real contract in the future. In the meantime, however, the contract is binding in that the band can not sign to another label, they are required to sign a contract with the first label. Usually a major label will not accept an independently recorded album; instead, they give the band an "advance," which means money that must be paid back, like a loan. The advance is intended to pay for professional equipment, and a prefessional recording in a professional studio. Major labels often have kickback relationships or partial ownership in recording studios, so they get some of the money spent on studio time. Since the money to pay for the recording was an advance, and they get it back from the band later, they actually make money by having the band record at their studio. "Professional" studios are notorious for inflating costs, and this gives the label that much more money. Then comes manufacturing; again, major labels own their own manufacturing plants, and so the pressing of compact discs costs them very little compared to what an independent label pays. When the albums are released for sale, the label makes their percentage from the beginning, while the band's percentage alone (typically much lower than at an indie label, often 12 percent or less of the list price) goes toward paying not only for manufacture (at the label's manufacturing plant, so they make money there too), but for the advance (for the label's studio) as well. While the money earned from sales on an indie label is consistently small, many bands on major labels make no money, but actually go into debt to the label. The money looks big at first because they're given a huge loan at the start of the contract, but they have to pay it back, as well as numerous other expenses, and usually the band can't keep up. Even mid-popularity bands have trouble making money on major labels, and only really big acts, like U2 for instance, can actually make a living from being professional musicians. That's one of the reasons why you don't see bands on major labels with much longevity; after about two or three albums, most bands realize they are getting further in debt to their label, and call it quits. Marketing is one of the most obvious differences between major and independent labels, because it's so visually oriented. Indie labels will sometimes take out ads in indie magazines, almost always music magazines, or send a few posters of a new band to independent record stores. Indie labels more frequently have very in-depth websites, where you can hear new bands, buy music and merchandise, ask questions, and get information on your favorite bands. The reason for this set-up is that advertising is expensive, and websites are reletively cheap. Mail-order and internet sales eliminate the middle-men of distributors and stores and keep prices low, and more of the money goes to the actual band. While indies spend only a minimum amount of money on advertising, for majors, it is frequently a bigger effort than supporting the band. Majors employ teams of representatives to create displays of posters and glossy cardboard "flats" at every record store in town. These posters are included in the money the band has to pay back to the label; essentially, the bands are forced to pay for large-scale national advertising. The sad thing is, most of the posters and flats are thrown away: reps get about twenty flats per display (per store), and on average use about six, and throw out the rest. When the display has been up for a while, it is taken down and thrown away. It gets very expensive for such a temporary advertisement, considering how many displays are put up in each store, times the number of record stores. Aside from store displays, majors also advertise in non-music magazines, in newspapers, on the radio, on television, in movie soundtracks, and more. Basically, they flood the market and overwhelm the consumer. Most of these mediums are also partially owned by or affiliated with the label, so they make money on both ends. Sales of a movie help advertise for a soundtrack, and the soundtrack advertises for the movie, as well as the individual artists on the soundtrack. The label gets profits from all of it. Another common way to increase sales is the "value added" approach: a customer is more likely to buy a cd if it appears to be a better value. So rather than decreasing prices, they include things like label samplers, dvd videos, stickers, t-shirts, or coupons with the cd's so the seem like they are worth more. The labels aren't really making money off the cd, because the price of giving away a free t-shirt negates any profit from the cd sale, but it's a gamble: see, if customers buy a lot of the cd's all at once (during the t-shirt promotion, for example), the sales show up on a national sales chart. Bands that make it onto charts are worth more, and might make more money in the long run, though initially they make nothing. The problem is, major labels apply these strategies to nearly every band, and they only sell during the promotion. Another major difference is the reluctance of majors to embrace the internet. While indies use the opportunity to let customers sample music before they buy, most majors give little or no useful information on their websites, and fight hard to stifle the listening of music on the internet. These factors all come together at the point of purchase. Because of their selective nature, indie labels consistently have better bands. Any band that's done their homework knows to stay away from major labels because of their shady payment schemes, and so every band that I want to hear is on an indie label. And because they don't lose money on advertising, or have to support bands that are so bad they don't sell, their prices are consistently low, with common list prices between $10.99 and $14.99, but sometimes lower. However, since majors lose so much money on their high proportion of awful bands that never sell, and expensive advertising and promotions, most labels have a flat list price of $18.99 and very rarely lower. (Some electronics chain stores sell cd's for much less, sometimes less than what indie record stores pay for them. They actually lose money with each sale, but they actually treat music sales as advertising to get people into the stores to sell them electronics. For example, it's worth it to them to sell Sony cd's for less than cost, as long as you spend too much money on a Sony home stereo system to play them in. Unfortunately, stores that only make money off of cd sales can't compete and are driven out of business.) So while major labels are busy trying to think of better ways to make money off you, indie labels are doing all they can to release good music. If you're buying a cd, who would you rather support?
