What Is the Record Label's Role in the Music Industry?

Why Record Labels Have Such Tremendous Influence

Record label execs Lucian Grainge (CEO, Universal Music Group) and Russell Simmons (Def Jam Records)
Record label execs Lucian Grainge (CEO, Universal Music Group) and Russell Simmons (Def Jam Records). Getty Images/Lester Cohen

Record labels are the companies that market recorded music and music videos. Record labels engage in a wide range of functions in the music industry including new artist recruitment and development (known as A&R), music publishing and copyright enforcement. Marketing is one of a record label’s most important functions, as public awareness of the brand is the way that they make their money. Record label logos and their contact information once figured prominently in the center of vinyl records, which is how labels such as Arista, Capitol and Epic became household names.

Major Versus Independent "Indie" Record Labels

Major record labels offer deals to the world’s most successful music artists. These record labels, such as Sony and Universal Music Group, own their distribution networks that put the music of the artists they sign to exclusive contracts in the hands of the millions of consumers sometimes in a matter of hours or days. They sign a range of agreements with their artists, including licensing and distribution agreements, which give them significant cuts of the artist's earnings worldwide. Major record labels may also own sub-labels that specialize in publishing, recording and promoting various music genres such as country, Latin, jazz and hip hop.

Often with barely enough money to keep their office lights on, independent, or “indie,” record labels sit on the cutting edge of the music scene, giving low-paying deals to up-and-coming artists, which help them become known.

These indie record labels are known as such because they are independent companies that do not have a corporate backer. True indie labels have smaller distribution networks than their big label counterparts and typically reach consumers one at a time. However, indie labels have a strong reputation for having their fingers on the pulse of upcoming music trends and for giving chances to unknown artists who eventually become international sensations.

A&M records, founded in the 1960s by Herb Alpert and Jerry Moss, stands as one of the most successful indie labels of all time, having signed artists such as Sting, Sheryl Crow, and Joe Cocker during its four-decade run.

Record Label Control Over Its Artists

Record labels typically set the terms and conditions of ​artist contracts in their favor. In the case of newly signed artists, record labels can control the type of music they record which can include everything from the way the music sounds to the song lyrics. They may also control album cover art. Depending on the structure of the contract, record labels may also have the ability to set the amount of money their artists earn. While the relationship between an artist and their record label is generally mutually beneficial, there is always the possibility of that relationship becoming a contentious one. The more successful an artist, the greater his ability to re-negotiate his contract to include more favorable terms.

New Millennium Realities

Throughout the 20th century, record labels were the dominant force behind the most successful artists. Record labels had the power to make or break artists, depending on the amount of money they invested in promoting their music.

The Internet has freed artists from dependence on record labels, and through social media, many artists market and distribute their music independently at a much lower cost. To stay in business given the reality of the digital age, record labels now offer so-called "360 deals" to artists that give them a cut of all the artist's work, including album sales, media appearances, and product endorsements.

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