How to Start a Record Label in 13 Steps & Best Practices 

So you have a good ear, a sound you want to promote in mind, you know a couple of artists (or you are one yourself), and have dabbled in the music industry for a few years. Now you’re wondering: how do I start a record label? 

In the US, setting up a record label is actually very accessible — though there are still a ton of logistical difficulties to work through before you’re churning out music and generating revenue. Contracts need to be drawn up, royalties allocated, sync opportunities pursued, collaborations with other artists set up, and much more. 

At the same time, the potential benefits are numerous: you’ll own the master rights, and gain a firmer grasp on profits and distribution. We've created that step-by-step guide to setting up a record label to help you get all the details and make sure that none of it slips through the cracks.

Why should you start a record label?

There are basically two reasons that you might want to start a record label: 

Represent yourself

The first reason is if you are an independent artist and want to set up a record company to self-release your recordings. Those types of labels are essentially micro-companies or fronts for the artists themselves, handling the cash flows and rights administration. The independent artist in need of more control will often open a company in their name and transfer the master rights to that “record label” — while the actual label’s functions will be handled by the artists themselves (or their management).

Starting your own small business might seem excessive, but having a business structure as a legal entity opens up quite a few doors that wouldn’t otherwise be available. Notoriously “anti-label” Radiohead, for example, set up more than 20 separate companies over the years to manage all of the band’s cash flows 

Represent other artists

The second option is more conventional. You want to start a record label as a music professional to represent artists on the recording industry side: scouting for talents, funding the recording process (maybe) and taking care of marketing and distribution of the release. 

Both options will require the same legal actions, but not the same practical steps — so we will focus on the second “complete” label set up scenario.

Before we begin: are you ready to start a record label?

Alright, so no one who’s never previously run a record label is ready to run a record label: it’s a challenging, complicated endeavor. But even a bit of experience in the music industry can give you the knowledge and tools to get started and ultimately succeed. Here are some of the questions you might want to ask yourself:

1. Have you worked with a label before?

If you are a musician, then previous experience with a label or brand distributing your music can be valuable. This experience gives you insight into the various back-end duties of a label and a template for how to run (or how NOT to run) your own record label. The higher up you were at a label, the more valuable and relevant your experience is! 

2. Do you have experience with distribution?

Digital and physical distribution each require a different approach, so experience working with both gives you crucial insight on what it takes to get your music out there. Digital distribution involves placement on editorial playlists by the DSPs and digital storefronts, while physical distribution ensures listeners can buy your physical albums on platforms like Amazon. 

3. Do you have experience with advertising or marketing?

One of the main functions of a record label is handling advertising and marketing for its artists. This is a critical area that many passionate musicians overlook, but your music won’t go anywhere if you can’t generate buzz. Do you have the expertise and wherewithal to create marketing campaigns and deal with advertisers? 

4. Do you have artists who will sign with you?

There is strength in numbers: many indie labels can turn a profit because of the domino effect. Once you’ve proved yourself as a solid partner, other indie artists might join the label through mutual connections. You have to start somewhere, however — and being the first signee of an independent label with no reputation is not something that artists are excited about. That is unless you have connections with them already. So, do you have producers/musicians around to get on board? 

How is it different from country to country? 

In short: registering a record label is quite easy in the US, pretty much anyone can do it. But starting a record label in most other countries is much more difficult, with more bureaucratic red tape and regulations. 

How to register record label in 13 steps

However, even in the United States, registering a label is no walk in the park. There’s the big-picture strategy to consider, choosing a genre and sound and figuring out your brand. Then the nitty-gritty details of music licensing, royalties, metadata, and more, that end up equally important. Here’s how you get your label off the ground without missing anything important. 

1. Choose your genre/sound/audience

Dr. Dre founded Death Row to pump out gangsta rap without the labels telling him what he could and couldn’t rap about. While the genre borders are becoming more and more blurry these days, most labels still work within a set sound, niche, or market that caters to a specific audience. First things first, decide what type of music your record label focuses on, and what is your label’s project — it will help you solidify your brand. 

2. Get your brand in order

On the topic of your brand — it all starts with the name, so make sure that it’s available. Crucial first branding steps include: 

• Coming up with a business name that reflects your values
• Acquiring a website domain
• Filing a trademark application

3. File your business

As we mentioned, the process of actually setting up a legal entity will differ a lot depending on the local legislation in your country. We can’t really go through all of it, so we’ll focus on the US instead. If you are planning to set up a label in another country — check in with local procedures for setting up an enterprise. 

In the US you can file as an LLC, Corporation, or a sole-proprietorship. This can be done through your lawyer or a service like LegalZoom. Each of these options offers different advantages.

A sole proprietorship is basically a solo venture that’s easy to set up and provides you with the most personal control over the label but also leaves you personally liable for the label’s financial obligations. An LLC is a group venture that limits the liability of investors (i.e.. you) — which means that, while it’s a bit trickier to set up compared to a sole proprietorship, if your LLC label goes broke and can’t pay out the debts, you personally wouldn’t be liable for it. 

A corporation is the largest and most complex venture of all, perfect for, well, corporations — with dozens and hundreds of stakeholders and investors. Corporations can have some tax advantages over the LLCs, but the structure itself might be a bit too costly and complicated to maintain if you’re starting out in the recording business. 

4. Get an ISRC “stem” from the National ISRC agency in your country

The ISRC is the primary UPC (Universal Product Code) of the recording business. While far from perfect, ISRC is a must if you want to distribute and monetize music. As an alternative, you could get the ISRCs from your future distributor, but beware — some of them can charge up to 20$ per album UPC. By going directly to the source, you can save quite a bit of money — in the US, the registrant code would cost you mere $95, getting you 100,000 ISRC codes to allocate to every single and album that you put out. That’s less than a 1/100 of a cent per ISRC. 

5. Consider registering with SoundExchange and Neighboring Rights Collection Societies 

Brace yourself as we’re entering into the complex world of “non-primary” royalties. Without getting into too much detail, the master rights you own generate royalties apart from the primary streaming payouts. However, you’ll have to go through a couple of hoops to unlock those cash flows. Here’s a quick summary:

• Terrestrial Radio in the US doesn’t generate public performance royalties for master rights owners, compensating only composition owners (songwriters and their publishers) 
• Digital and Satellite Radio (including Pandora, SiriusXM, and so on) do generate performance royalties to master rights owners. Register your music with SoundExchange to collect them 
• AM/FM radio outside of the US also generate performance royalties — those are known as Neighbouring Rights. To collect them, register with PROs collecting neighboring rights royalties in the markets where your music is getting airplay: PPL in the UK; GVL in Germany; AIE in Spain, etc. 

Bonus Tip: Use Soundcharts radio monitoring to keep an eye on the airplay across the globe and see where your music earns neighboring royalties. Right now, we track more than 1,700 AM/FM radio stations in 68 markets.

6. Set up a process to pay out mechanical royalties 

Even though the labels own the rights to the (or license) master recording, they still have to secure the rights to mechanically reproduce the composition by paying out mechanical royalties to songwriters. 

When it comes to streaming, DSPs take care of mechanical royalties themselves — but all other distribution channels channel the mechanical royalties back to record labels. So, when it comes to digital (iTunes, Beatport, etc.) or physical (vinyl, CDs, cassettes, etc.) sales, it’s the label’s responsibility to allocate the mechanical royalties due. Every country has a mechanical royalties licensing agency (HFA in the US, MCPS in the UK, SDRM in France, etc.) 

7. Establish sample contracts

There are a number of different agreements you’ll need in place to create a payment, royalty, and rights structure for any/all artists on your label. These contracts stipulate things like the period of rights ownership, splits, production commitment, sync and merchandising rights, sub-licensing rights, exclusivity, and more. It’s best to bring an entertainment lawyer on board for drafting up the contracts. 

8. Get artists on board

Do you have a lot of clout to your name in the music industry? Capitalize on it and bring in some of the best and brightest artists you know for your label. Make sure that your choices align with the niche/genre that you’ve chosen for your brand. 

9. Look for investors

Running a label is expensive: it requires investing a significant amount into recording, promotion, touring, and more. Acquiring investors is easier if you have music artists with a proven track record of success.

10. Set up distribution channels

Playlists on the DSPs have largely replaced albums as the primary way that listeners discover new music, so robust digital distribution is the key to growing your audience. To get your music on streaming platforms and DSPs, from Spotify, TIDAL and Apple Music to iTunes, Beatport and even Instagram Stories, you'll need to go through a distributor/aggregator. 

Distributors come in different shapes and forms, from open flat-fee platforms like TuneCore to distribution partners that can take up to 50% stake in you digital cash-flows in exchange for their hands-on in-store promotion services. We’ve covered digital distribution in complete detail over in our Mechanics of Distribution — so check it out if you want to know more about the options you have. 

For the physical medium, it’s a bit different since you’ll need a manufacturer. Most digital distributors will offer some solutions for physical manufacturing and distribution, but you’re free to go with the manufacturer of your choice. Physical distribution can be a bit riskier compared to digital one: while it’s cool to have artist’s music out on vinyl, nobody wants to sit on $1,000 worth of unsold records. Services like QRATES might help you streamline the manufacturing and alleviate some of the costs.

11. Keep an eye on potential sync opportunities

Sync deals aren’t just an opportunity to generate royalties; they’re also an excellent avenue of promotion for independent artists. Many music careers have been minted on brief TV, movie, or advertisement appearances. 

If you don’t have the resources to manage and promote sync deals, consider looking into the services of independent licensing agencies, like TAXI or Audiosocket. If you are curious about the ins and outs of the music sync industry, check out our Mechanics of Sync Licensing.

12. Set up a release cycle and promote

A label’s work is based around the release cycle — everything ties back to it. You’ll need to plan out release cycles with your artists, set up deadlines, and define promotional activities. It’s also the label’s job to help artists with artistic directions, find collaboration opportunities, release music videos, manage social media, get the press talking, define tour schedules and more — there are 1000 and one things to get to. 

13. Divvy up royalties

When album sales come in, look back to your handy payment structure contract to see how much you owe your artists and how much goes back to the business. Try not to have a Suge Knight type label! 

Best practices for starting your record label

The music industry is notoriously competitive, so just following the steps above isn’t enough to find success. You’ll need a cohesive strategy for building an audience and managing your artists. Here’s how you do it. 

Get a team together

As you can see, running a label takes a lot of work across the different areas of the music industry, from distribution and PR to marketing, sync licensing, and royalties administration. Get people on board who have the expertise and experience to help manage the workload and navigate unfamiliar terrain!

Keep your brand consistent and tell your story

Your brand is essential: both to your potential partners in the music business and the audiences. So, you need to tell your story, develop your brand project, and keep all brand communication consistent across the board. Stay on-brand and work on building a niche audience. 

Don’t get eager about royalties

Let’s say a song by one of your artists is featured on TV: you might be clamoring to get your hands on those public performance royalties. However, the world is not perfect. Some of the royalties tend to arrive with a BIG delay — you can expect six months of lag in most cases. Be patient and wait for them!

On the bright side, though, your bread and butter of streaming payments will arrive much faster. 

Always (!) sign contracts

Yes, young music companies are often built on informal relationships. Your artists are going to trust you with their life’s work — so being on good terms with them is a must. However, never agree to have an artist record for you when you don’t have a royalty and distribution contract in hand! Life is a bumpy road — and the music industry life is an extreme off-road track. Be professional and cover yourself! 

Stay data-driven

The music industry is a constellation of digital platforms, mediums and promotion channels, continually producing data. Social media demographics, your latest Instagram post engagement, airplay exposure data, streaming consumption metrics, countless charts, and playlists — it can be hard to keep a firm grasp across all that fragmented data. However, if you get ahold of it, music data can be your greatest ally — showing you what works best and creating a solid foundation for your business decisions. 

Music data analytics solutions like Soundcharts (hey, that’s us!) aggregate real-time data across all the different mediums of the music industry to help you get a complete view of the artist’s career, measure the impact of your decisions and highlight latent opportunities. Besides, it’s not only about your artist’s data — Soundcharts tracks over 2 million artists to help A&Rs confirm their hunches, keep an eye on the growing talent and spot up-and-comers right as they’re getting big.

Conclusion 

Starting a record label (and keeping one afloat) isn’t for the faint of heart: you’ll need to dive headlong into the rough-and-tumble world of the music industry, equipped only with whatever experience and expertise you already have. The more knowledgeable you are about the ins and outs of the industry, the easier time you’ll have setting up a label — and succeeding. 

The toughest part is balancing the overarching vision of your label’s brand with the more tedious details of the business end. Even if you’ve got the vision and connections, if you can’t work out the logistics of promotion, royalty allocation, or sync management, then your label is doomed to fail. Wherever possible, bring experienced people on board to fill in any gaps in expertise that you may have.