For those of you who read are reading all of these articles, you may find the beginning of this article a bit redundant, but it's discussing a mistake I see being made over and over in today's marketplace. So it bears repeating: whether you are putting out your record to get a deal from a larger or major label (what most artists are looking for because they prefer the fame over the money), or putting out your record to build your own record company (Hooray for Esham, Lil Keke, and South Park Mexican...), be careful to not choose too large an area. This is of extreme importance. First of all, it is next to impossible for a small label without connections, relationships, and experience, to reach many markets at once cost effectively. Most small labels can't afford the cost of radio, retail, and street promotions in many markets simultaneously, nor do they have the staff or manpower to chase a large area. The artist can not be in every market at once to do "radio and retail" or perform, which are key components of selling records, nor can most small labels afford the excess product it takes to completely saturate multi-markets. Bear in mind, that every retail store in each area needs to have product (and more than one or two) and if you're lucky enough to have those re-orders start coming in, you have about 2 weeks to fill those orders to avoid bootlegging and to avoid unhappy retailers.

One of my friends just released a compilation album in the mid west, and before the project really got cracking at home base, they did a deal with Southwest to reach the entire South. Aside from not being able to chase all of those markets in addition to the mid west because they aren't funded properly, there's no way they can cost effectively offer the artists to all of those markets at once. They can't possibly afford all the street teams and tools (posters, flats, stickers, etc) at once, which means some product is going to sit on retailer's shelves without moving. Guess what will happen when there's another release? Retailers remember what product sells well and what product doesn't. You only get one chance to impress a retailer. The reason I'm sharing my friend's situation isn't to blow him up and embarrass him, but to illustrate the importance of having a goal and making logical steps to achieve that goal. The goal of his release is to do a deal with a larger label, preferably a major label for the artists coming up with him, all of whom are featured on the album. Unfortunately, even with a ton of sales, there's no way a major can step in and profit off of this release because so many markets have already been blitzed, even though each market has not been maximized. Originally, they planned to release the project in a few markets to prove its viability and then to sell the project to a major so they could put their machine behind it and really blow up the project and the artists. Now all the key markets are being penetrated half assed, and there's no profitability for a major to step in and run with the ball. Since the album is a compilation featuring a bunch of artists, it will be impossible to gage which artists drove the sales of the record, which means a label would have to sign the whole roster (8 artists), a feat very doubtful in today's marketplace. The risk just became VERY high for a larger record label. Why sign an entire indie label's roster when that major label can step into another area with one artist selling the same amount of units and be guaranteed to get a proven successful act. Lil Keke is at 79,000 units SoundScan (although 140,000 really sold) this week and that's with a large amount of untapped markets for a major to step in and exploit. A major could easily re-release Keke's album and still sell another 350,000 units with minimal effort. It's a proven commodity. But when an independent label releases a record, with no one proven act, and minimal sales left for a larger label to step in and maximize, it just doesn't accomplish the goal of getting a deal. It also makes the smaller label appear to not know what they are doing, which kills any chance of a label deal where they have any control or say-so in how future projects are run. The opinion of another one of my friends, Twista, was that a smaller label not heeding my advice when putting out a record is like having Michael Jordan for a friend and never going to a game. Although I loved the compliment, I'm not convinced the analogy is correct, but not following the plan just doesn't make good business sense. It's very short term and a great way to lose a record or spend too much money with limited return. Released correctly, it's too easy to expand when the need arises (customer demand is the best reason to expand your market), that to do so in the project's third week is a sure sign that someone is a novice or anxious to lose money, effort, and time! I hope I'm wrong, because it's a great project and they are my friends, but I've been doing this for five years now and can think of hundreds of examples where this did not achieve the desired goals, and none where it did. Hope my friends are the ones to beat the odds!!! I love them!

What spurred them to do something like this? A phone call out of curiosity to Southwest Wholesale, which led to an order of 20,000 units and the promise of money. Of course getting the back end will be next to impossible because the money will need to be held in reserves in case of returns, and without a proper budget to blitz the market Southwest sells in (the South), returns could run high. As a label, it is your job to create demand and get the customer to come into the retail store and buy the product. You create demand by getting the project in the face of the consumer, preferably at a time of year when all the heavyweights like Jay-Z, Ice Cube, Dr Dre, DMX, Method Man, etc are not dropping at the same time. Aside from not wanting the consumer to have to choose between an artist with limited promotion, and a major artist with a million dollar marketing campaign behind him, you also want to approach retail at a period when they have room and time to help sell your project. You want to reach the consumer (who view buying your record a risk as compared to Jay-Z or DMX) when they aren't already deciding which album to spend their little $20 a week on. Bear in mind that the bulk of record buyers in rap music (until you get to that all elusive gold level where the project then crosses over into the mainstream suburbs) are inner city youth between 11 and 23 years old. Think about the amount of money a teenager has to spend on music--and now factor in that those limited funds also have to support video games, food, clothing allowances, and hang out money. Doesn't leave much opportunity for selling records, huh?!

I've been getting a lot of positive feedback over the past few months but many people are asking why an artist would want to put out his or her own record...so I would like to address the economics of the music industry. When an artist gets signed to a label (like Jive, Atlantic, Loud, Priority, etc) he or she gets an advance/budget, which must be paid back before the artist makes any money on the back end. A budget can be anywhere from $100,000 to $300,000 for the album (depending on the level of buzz and demand for the artist). The contract usually stipulates that the artist will receive a percentage of sales after most of the costs associated with making and promoting the album are paid back (this is called "recouping"). This percentage, for a new artist, usually runs between 11% and 15%. The producer's percentage usually comes out of that share, which in most cases is 3%. Again, the studio costs, production costs, mastering, mixing, travel expense, advances, clothing costs, etc have to be repaid before there is any money split on the back end. Videos are 50% recoupable, as is independent radio promotion in most cases. Trips to conventions are often recoupable. The bottom line is that very few artists ever receive a royalty statement or a royalty check. The fact that the artist creates the music and receives such a small share of the proceeds tells me the imbalance is all wrong. An artist can make a tape at home and sell it for $10, but a record label can't make a tape and sell it without the talent. I do think a label should be rewarded for spending money and taking the risk, but if they chose better artists, and worked projects more efficiently they'd be more profitable and the splits could be more fair.

Tom Silverman, who owns Tommy Boy Records did a brave and courageous thing. In October, he opened his record company to me for three months, three days a week, so I could completely infiltrate his company and learn how Tommy Boy works records. I learned a lot. I learned both what to do and what not to do. But the most important thing I learned from this successful independent label with a strong focus on marketing within its niche, is that if we don't change the economics in rap music, it's going to kill rap. There is a need for large labels in rap music. Not every artist is qualified, or wants, to put out their own record. The major labels allow for rap music to grow and expand and become more mainstream and commercial, allowing for popularity to demand artists as film makers, actors, and endorsement opportunities for products and services. All of these things create alternative means of income for rap artists. They offer entrepreneurial opportunities for the artists who are poised to take advantage of them, allowing Busta Rhymes to appear in a Mountain Dew commercial, Wu-Tang to have their own video game, and rap music to be featured in Fruity Pebbles, McDonald's, and Coke commercials. We can also claim the incredible sales boost Moet & Chandon champagne is experiencing since so many rap lyrics boast about drinking Moet. But in order for large labels to continue to involve themselves in rap, it must be profitable for them (not at the cost of the rapper's livlihood). Spending $750,000 to make a video just doesn't make sense. For example, for Noreaga to have such an expensive Hype Williams' video tells me that he did not realize that half of that cost is paid from his royalties. I blame his label for that (fortunately Penalty is not around any longer to shoulder that blame). For the money spent on that video, which did not increase record sales exponentially, he could have pressed up 300,000 Thugged Out Family CDs, which if they all sold for $10 each at his concerts would have made him $3 million. Three million dollars!

If rap is to continue growing and expanding, everyone from the artists to the labels, to the magazines, to the radio stations, etc, must all profit from the art form. If it becomes no longer profitable to market and sell rap records it will force all of the sales underground and independent, reducing the size of the pie for all of us to share. Meanwhile, I believe wholeheartedly for those of you with the ability, put out your own records and be the master of your own universe.

 
Q. Labels are stepping to me now. How do I know who's the best for me?--Marlon L.Williams at Caledonia Records in Tillery, NC
A. There's no easy answer to this question. When I do deals for artists I don't look at the money (yeah, I know Cash Money got $30 Million, but honestly, that deal was not done based on money. That's why it's so successful). Focus on your goals and which offer helps you best achieve those goals. For DJ DMD it was the money because he wanted to build a studio and continue putting out records on his own separate from the Elektra deal. So we knew when doing that deal that he needed at least $500,000 to achieve his goals financially and we knew he needed to have the right to continue releasing his own records independently (very tricky right to get). We finally agreed for Elektra to have 45 days to accept a group upon submission of their album and if they refused, it could be released independently. If they accepted the album, the artist (for a maximum of 3 in two years) would still be Inner Soul recording artists, but through Elektra.

With Jam Down it's a bit more difficult to find the perfect match because they want to continue working their own artists, but with major distribution. It's hard to find a label willing to give up control to a smaller relatively new company. When we did the Creator's Way deal at Atlantic we did get complete control, and even got separate budgets to help out in the areas where I felt Atlantic Records was weak back in 1996 (like on the streets). But what I didn't take into consideration was the political climate within the label like marketing and radio employees who hated members of the A&R staff refusing to work certain projects properly, and a radio person on the west coast (now employed at Motown and, in my opinion, just as ineffective and mediocre there as she was at Atlantic) refusing to work the project not because she couldn't or because the artist was wack, but because of her own insecurities and intimidation towards me. She and I have never spoken--all of her pettiness was based on hearsay and perception. By the way, Atlantic Records today is a better place for rap than it was in 1996.

With Cash Money we got complete control of the project (except for complete lyrical content--all Universal Records must pass through a "lyric committee" for approval) and Cash Money pays a fee to Universal for whichever departments they choose to use. They can utilize all, some, or none at their own discretion. They pay for what they use. The ideal situation is one where you've sold so many units on your own, and have such a great reputation for handling business that there is more than one label bidding on signing your independent label. You don't get what you deserve, you get what you negotiate.

Q. What is the difference between independent distribution and major distribution when it comes to national distribution?--Fiend at Fiend Entertainment in Baton Rouge, LA
A. Independent distribution is exactly what the words imply. Distribution that is independent, meaning not part of the big 5 distributors in music. Tommy Boy is by far the most successful independent label in rap music and they have their own independent distribution pipeline. It used to be Priority Records (which encompasses Master P's No Limit Records) until EMI purchased the company a few Septembers ago. Independent labels have a trade organization called AFIM (606.633.0946 or www.afim.org) to look after their needs. The organization is for all types of music as long as the label or distributor is independent. They also coordinate my favorite convention every year, and the place where I first learned how to run a record label (every May in a different city--in 2000, it's in Cleveland: which is a strong market for rap record sales).

Major distribution is that which is generated by the big five distribution companies: UMD (Universal Music Group which includes Universal, Island, Def Jam, Polygram, Interscope, Motown, MCA, etc), EMD (EMI Music Distribution which includes Virgin, Capitol, EMI, Priority, etc), WEA (Warner Elektra Atlantic which includes those three and their offshoots), BMG (Bertlesman Music Group which includes RCA, Arista, Jive, etc), and SONY (Sony includes Columbia, So So Def, 550, Epic, and now Loud--which absorbed Relativity). These are the first bills to get paid at a retail store because it guarantees a continuation of influx of product.

And just to confuse you a little bit, there are two independent companies that are owned by the majors: RED (which is owned by Sony), and ADA (which is owned by Warner Bros). The plus to working with ADA and RED is that you always own the masters (which is the ownership and value in your company). The downside is that they usually don't advance funds.

Editor’s Note added 10/02—Fiend chose to go with Southwest Wholesale in Houston, TX and got FUCKED!!   Beware of Southwest Wholesale—do the proper research.  Ask around.  Ask their former client labels if they were paid properly.