Artists want to be heard.

Whether it's Spotify or TikTok - strategic partners share one goal: more fans.

When it comes to music, record labels are the strategic partner that every aspiring artist strives to work with. 

There are three major labels in the music industry today: Universal Music Group (UMG), Sony Music Group (SMG) and Warner Music Group (WMG).

In this post, we’ll explore the role of labels today, and how web3 labels are working their way into the picture.

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The Role of a Label

Labels exist to develop artists. 

The mission is to grow an artist’s career by providing them with the resources they need to scale. 

Their services can be summarized into three categories:

• Capital - Money to make records. 
• Distribution - Humans to handle administrative work and get more plays.
• A&R - Connections to platforms and mentors to develop the artist.

Typically, an artist will “sign” - or partner with - a label through a record deal.

Once signed, the artist is added to a roster of other artists working with the label, starting their official working relationship.

A Typical Record Deal in 2022

Let’s explore a developing act that has over 1,000,000 monthly listeners on Spotify and a TikTok song with some buzz.

When creating an album, the artist (and their team) will either pitch (or be approached by) a label with:

• $500,000 budget + advance
• 80/20 master royalty split (in favor of the label) 
• 3 project (or 30 song) option
• 10-15 year reversion clause

In layman’s terms, the artist will receive $500,000 for 80% of the master royalties on their next 3 albums (or 30 songs) over a 10-15 year period before they can request ownership back.

The $500,000 is an advance, meaning that it must be fully recouped (or repaid) before the artist starts to earn their 20% of royalties.

The advance is usually split 50% as an up front payment and 50% upon the delivery of the album - subject to label approval. This means they get $250k today, and the other $250k once the label agrees upon the project they want to put out.

In exchange, the artist receives a:

• $500,000 budget.
• Label representative(s) responsible for handling their requests and needs.
• Personalized marketing plan, an exclusive network of playlist opportunities and potential partners.

All sounds great right?

Let’s unpack.

How Deals Unfold

Not all artists are treated equally. 

Every label has “priority” artists, or those who are expected to make the most money.

Priority artists receive the most capital, time and resources.

If you’re a priority artist at a major label - life is good.

You’ve got a fantastic credit line, a team fully dedicated to your success and a network of ever expanding connections.

Unfortunately, most signed artists are not priority artists.

Oftentimes, the A&R who signed the artist has left to another company, moved up the chain or got canned.

More times than not, the artist is unable to recoup their initial advance, leaving them in debt and in a tight spot with their label.

This leaves the relationship in a weird place where the artist has no trusted connection at their label and little to no leverage until their tracks perform well financially.

This is why you tend to hear about more artists wanting out of their deal than being stoked to be in one.

Let me be clear: labels are not intentionally malicious. They are a business looking to make a profit.

If a signed artist does not perform well or changes the direction from what was originally promised, it makes sense that tensions arise as both parties look to find a middle ground.

So - where do artists turn when the existing system is not working in their favor?

Community ownership.

Enter web3.

Quality over Quantity

Web3 has worked best for creators who focus on the quality of individual fans over the quantity of total fans.

Instead of optimizing for play count, web3 encourages artists to optimize for superfans.

This model is best exemplified by the concept of 100 True Fans - or the thesis that a creator only needs 100 fans willing to pay $1000 per year to make six figures.

With the rise of platforms like Sound, Catalog and Decent - Music NFTs are creating a new mechanism to identify superfans.

The thesis is simple - find 25 fans willing to buy a collectible version of your song.

In the case of Royal - you can even sell royalties of your song directly to fans!

Seems easy enough?

Not quite.

It’s not only about web3. Artists also need to leverage platforms like Spotify for distribution and discovery.

The winning formula is somewhere in the middle - balancing web3 superfans with a strong distribution funnel in web2.

This is where web3 labels come in.

Web3 Labels

The existing market of Music NFT collectors is tiny in comparison to those with a Spotify account.

I’d guess there are ~10,000 unique Music NFT collectors in the world, compared to more than 182 million premium subscribers worldwide on Spotify.

While the number may seem laughable, here’s where web3 labels start to develop their edge.

On top of growing an artist’s career, web3 labels zoom in to find and build relationships with superfans.

This can broadly be categorized into three areas:

• Community - Deeper social engagement among fans
• Treasury -  New on-chain revenue streams and strategic fund allocation.
• Governance - Transparent decision making to incentivize contributions.

Realistically, web3 labels (today) do not have endless capital. In fact, they are very capital constrained.

Instead, their value-add comes by offering grassroots operational services to find and retain those 100 True Fans.

Areas where web3 labels shine include but are not limited to:

• Setting up and managing a Discord.
• Creating relationships with Music NFT platforms.
• Structuring the total supply, pricing and rarity for releases.
• Handling on-chain splits (using 0xSplits) and royalty allocations.
• Coordinating Twitter Spaces to create awareness.
• Writing governance proposals for Snapshot votes.
• Booking live performances at web3 events.

Instead of offering a huge cash advance, many web3 labels will work in exchange for a percentage of future profits - leveling the playing field and creating equal incentives for both parties to benefit from one another’s success.

Seeing as this might lead to web3 labels also prioritizing artists that are performing the best financially, new ownership structures can create more autonomy and less reliance on a label to succeed. More on this in a later post.

Web3 Labels

While still early, there are a couple web3 labels leading the charge.

Hume Collective

As the creators of Angelbaby, the Hume Collective is creating a playbook for the rise of Metastars - or digital artists who are born out of web3.

Aside from recurring Twitter Spaces, the Hume Discord serves as the homebase for community discussions, votes and exclusive alpha.

Dreams Never Die

As long-time curators who discovered acts like Billie Eilish, Dreams Never Die is helping artists tackle web3 through relationships with platforms like Sound and Catalog.

The early-stage DAO was recently backed by Polychain, giving the rising label runway to hire full-time contributors and expand their ability to fuel artists careers, both in web2 and in web3.

Venice

The rising web3 music collective Venice acts as both a distributor and a community hub - offering membership passes which grant holders access to a growing network of artists, collectors and operators.

Spearheaded by Troy Carter, the Venice team brings decades of industry experience paired with a deep understanding of the Music NFT landscape to help artists take their first steps in the space.

Good Karma Records

As one of the earliest web3 labels, Good Karma Records was funded through Mirror, and has since gone on to host a number of events in LA along with signing their first artist - Daz Merchant.

Web3 Collectives

This goes in tandem with a growing wave of collectives, or communities which offer label-like services in a more grassroots fashion.

SongCamp

The collective behind Headless Chaos holds weekly Heartbeat calls every Monday at 1 PST.

If you’re an artist looking to make waves in web3, SongCamp is your home.

The Park

Started long before web3, The Park consists of leading minds in Friends with Benefits - spotlighting up and coming talent and curating spaces to bring new artists into the space.

LNRZ

Incubated by Reo Cragun, LNRZ DAO (pronounced “Loners”) recently announced their Freshman Class of artists set to debut the collective's first mixtape.

Key Takeaways

If you’re an artist new to web3, familiarize yourself with these key players.

If you’re a collector or operator looking to add leverage to your brand, web3 labels are a fantastic place to chip in.

Almost every web3 label is in search of additional talent, and the experience you’ll gain from working closely with artists on their rollouts is invaluable.

While web3 labels are nowhere near the size of the major labels of today - these projects should shine light on the role labels can play when it comes to artists taking advantage of new monetization models for music.

Web3 Challenges

It’s not all sunshine and rainbows.

As web3 labels mature, it’s important to recognize some of their current shortcomings.

• Scaling - Newer labels will need to scale to meet growing demand. 
• Experience - Very few operators have ever broken an act or worked with A-list talent.
• Copyrights - Songs have many contributors. Ensuring everyone is properly accounted for while copyrights are enforced is a huge challenge for Music NFTs.

However - challenges create opportunities.

While we’re far from any web3 label remotely rivaling a major, many of these challenges are a completely unique design space.

These are the edges worth zooming in on.

Closing Thoughts

There’s a generation of artists eager to fully own their music and to explore new mediums for distribution.

Web3 is purely one of those verticals, and one that seems to be working well for those who are consistent.

While we’re still a long way away from finding the perfect model for web3 music, the above projects offer a strong complement to the existing label system we’ve all come to know so well.

If you’re an artist, manager, collector, builder or investor looking to expand your roots in web3, look no further. 

To keep up with the day to day movements of the sector subscribe to my newsletter - This Week in Music NFTs.

Until then, keep a close eye on web3 labels.

A new path is closer than you may think.

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Special thanks to Andre Benz, Reo Cragun, Li Jin, Justin Blau, David Greenstein, David Edmondz, Braedon Alexander, Brett Shear and Chad Hillard for their feedback on this post.