The rise of independent music: indie labels maximize control.

FOR THE FIRST 12 years of her career, six-time Grammy Award-nominated R&B singer Tamia enjoyed the success of three chart-topping albums. Her 2001 solo hit, "Stranger in My House," and "Into You," her 2003 duet with rapper Fabolous, were both produced under Atlantic/Elektra Records. Despite that success, she says she had little control over the direction of her music, the money she earned, or the release dates of her albums.

Now, Tamia is in control of everything that's generally beyond reach for artists signed with major record labels. In November 2005, she started Plus 1 Music Group, and a year later recorded her first independent CD, Between Friends, which has sold 160,000 copies in the U.S. and about 375,000 worldwide to date.

"It was important to me that I start taking control of my own life. Whenever you get into a position when you can't own your life, it's important" to re-evaluate, she says. "It was a natural progression as a woman to want to take control."

Tamia is one of an increasing number of artists who have gone the way of the indie--either partially or completely--to take charge of their own music careers. She's in good company. Other artists who have left major record labels include rapper Lil Jon, who started BME Records; R&B singer Usher, who has US Records; rapper Talib Kweli, who started Blacksmith Records; and rapper Kanye West, founder of GOOD Music; as well as many lesser-known artists. In the United States, the world's largest music market, album sales are down 14% this year, while sales of digitally downloaded tracks are up 14%, according to the industry market research firm Nielsen SoundScan. But digital music sales of independents surged 61% according to Nielsen SoundScan. Independents saw sales reach $26.2 million this year, up from $16.2 million in 2006.

In running her own label, Tamia controls the purse strings. Since she transitioned from Atlantic, Tamia maintained relationships with people in the music business, which helped her keep costs down.

Although Tamia wouldn't divulge exactly how much money she spent to get Between Friends made, she says it cost only a fraction of the $400,000 it could normally cost to make such an album, including studio time, producers fees, travel, hotel rooms, rental cars, photo shoots, packaging, videos, tour support, retail programs, and marketing and promotion.

Tamia, who is married to Phoenix Sun's forward Grant Hill, with whom she has two daughters, says she doesn't have an in-home studio, so she rented studio time. She says an artist can spend between $10,000 and $100,000 per track for a producer; moreover, renting time in a studio can run $1,000 a day.

OUT OF POCKET

Indeed, the costs for producing a purely independent album can soar from a few hundred thousand dollars to a seven figure sum, says Lisa E. Davis, a partner at Frankfurt Kurnit Klein & Selz PC, a leading New York-based media, entertainment, and advertising law firm. "Much of it is done electronically; most people are not bringing live musicians into the studio. But, a superstar producer demanding a per-track fee could get $100,000 per track. That's not an insubstantial amount of money and can significantly increase the production costs."

Lawyer Ryan Smith, partner at J Ryan Smith & Associates P.L.L.C., a New York-based entertainment, corporate, and intellectual property law firm, and co-host of BETJ's My Two Cents, adds, "For pure independents, the costs weigh a lot more significantly into marketing and promotion. If we're talking about promotion on the Internet, then it could be in the thousands or more depending on the promotional effort launched. For something more than that, it can be tens of thousands or even hundreds of thousands." But indies face other significant costs as well. "Also, packaging and distribution of CDs isn't cheap. There's often a 20% to 25% packaging fee for CDs that comes off the top of the royalty computation price from independent distributors."

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According to Davis, however, there are several benefits to going independent that add to an artist's bottom line. Copyrights are a significant deciding factor. Though indie artists won't get a six-figure up-front advance like major label artists do, they own the copyrights in the recordings of their music, unlike most major label artists.

"In a traditional recording deal, the record company owns the intellectual property which is tremendously valuable because if somebody wants to sample it or use it for a commercial, [the artist misses] out on the synchronization license fee and the master license fee," explains Davis. Indies can build up a catalog of intellectual property and use it to acquire other capital down the road, she adds.

Royalties are another good reason to become an independent artist. Davis explains that, apart from the up-front advance, artists are paid in royalties. According to PerformerMag.com, an online resource for musicians, most major label artists earn a 10% to 15% royalty rate. The problem is that royalties are paid only after recoupment of recording costs and are not generated by the majority of major label releases. Every expense delays the point at which royalties are payable, such as costly sample clearance, producer fees, recording studio crew, promotion, music videos, etc. Before an artist can receive royalties, he must pay back all debts, including advances, which range from $150,000 to $300,000.

Daylle Deanna Schwartz, a music consultant to indie artists and author of I Don't Need A Record Deal. Your Survival Guide for the Indie Music Revolution, agrees that most new artists signed to major labels don't earn enough royalties to payback recoupable expenses after they make their first CD. "The label recoups all of the recording expenses, advances, fees to producers, engineers, tour support expenses, and other things agreed to in the contract," she says. "It all comes out of the small royalty the artist earns per sale which ranges from 65 cents to maybe $1.75 per CD. Everything else from the sale goes to the label."

IN YOUR POCKET

"This has, of course, been completely upended with the digital distribution and the digital promotion of music," explains Davis. "I think that's why you have a greater trend toward indies now because people realize, 'Hey, I can put up a MySpace page and get 500,000 friends, and if I can get my songs on iTunes and get downloads, then somebody will pay me 99 cents for my music Many artists are signing deals with iTunes, which greatly reduces costs. There are no warehousing or shipping costs because there is no physical product.

There's more than one way to be independent (see sidebar, "What's the Deal?"), and how much an idle artist makes depends on his or her arrangement. In general, an indie performer can earn as much as 40% to 75% of net profits, through profit-sharing deals, according to PerformerMag.com. After all expenses have been paid, the profits are split between the label and the artist.

Chris Hicks, senior vice president, head of Urban Music for Warner Chapel Music and senior vice president of A&R Urban Music for Atlantic Records, says, in addition to the money earned, there's a big difference in the contract's duration. An indies contract could be for one year, while an artist working with a major label could be working for three to five years, he says. When Tamia was with Atlantic, she had a multi-album deal with options. Now, she has a one-album deal with Image Entertainment, a distribution company that she hired to package and distribute her album. It's too early to tell how much money she's made from record sales, Tamia says, but she believes the profits will be greater now that she has her own label. "I don't need to sell as many albums to make as much," she says.

Ironically, Tamia said it was her success with Electra that made it easier for her to become an indie artist: "It's not an option for everyone, but because I had an established name and have cultivated relationships, it was a bit easier."

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INDIE PRODUCER?

The indie game isn't just for performers. Producer Bosko, who's worked with Kanye West, E-40, Tupac, Lil Jon, Tyrese, and the Hot Boyz, fell into the independent game because growing up in Portland, Oregon, he had no access to major record labels. "I would send stuff out and it would be sent back," he says.

Bosko came from a musical family but didn't seriously think of getting into the business until he won a set of turntables in a break-dancing contest at age 11. He soon started earning money working as a deejay and eventually bought a drum machine and microphone. He moved to California when he was 17 to attend the University of Southern California and to be closer to the music business. He started sending out tapes; formed a rap group called 3 Way; and met E-40, who asked Bosko to produce the remix of "Sprinkle Me." "It took off after that," says Bosko of his career In 2000, Bosko and his partner, rapper Cool Nutz, launched Jus Family Records, his independent production company. He produced Harsh Game with Cool Nutz, which sold 10,000 copies.

"It was great to crack into the business and get the product out and not go through the label," Bosko says. He sold those CDs at shows and to local record stores that supported indie artists. Jus Family also used the Northwest Alliance of Independent Labels, a Portland-based company known today as Pampelmoose, which provides services to indies such as online store development, Web design, and event planning.

Starting out, Bosko says he and Cool Nutz looked for the least expensive services--the studio was in his dorm room, and a friend at Kinko's who knew his way around a computer designed the fliers. Bosko says with advances in technology, all an independent producer needs today is a decent laptop, which could run $700; start-up audio software; a decent mic; and speakers, which each cost about $500. "That would be powerful enough to record an entire album," he says.

But now that Bosko is an in-demand producer, his monthly expenses, which include an assistant's salary, the mortgage on his home--where his studio is located--studio upkeep, and travel, average about $20,000, he says. His annual salary, which depends on how well the records sell, ranges between $200,000 and $500,000. "I feel like I do pretty well. It's competitive, and most producers aren't doing as well as I am," he says.

Bosko is also a singer-songwriter looking for a major record deal to promote his next CD, The Good Life Movement. He feels that his success as a producer will make it easier for him to sign with a record label. "It takes too much money to compete with the major artists. It makes more sense to let someone else invest in me," he says.

DIGITAL OWNERSHIP

Tamia, who owns the masters to her latest album, says she likes the freedom of making deals without the middle man. She's worked with companies in Canada, South Africa, and Japan to sell her album. In addition to striking their own deals, indie artists also have a greater chance of success today because of the Internet.

eMusic.com is the world's largest retailer of indie music and the second largest seller of digital music, after iTunes.com, according to Michael Azerrad, the site's editor-in-chief. The company has relationships with nearly 20,000 indie record labels, Azerrad says. "We're doing something right. We're the foremost booster of independent music on the Web," he says. "We support the labels, and the labels support the artists." With limited shelf space in stores and the recent closing of Tower Records, independent artists rely on the Internet to sell their music, Azerrad says.

Tower Records was the company that really fostered independent music. But the problem with selling independent music at major retailers is that it is very niche. Few stores out there, except smaller mom-and-pop-stores, distribute hard-core independent music.

Azerrad says sites like his are picking up the slack. "We're exposing artists who don't have the financial backing to put out music. It levels the playing field [for] everybody."

What's the Deal

The world of music is as varied as the artists that inhabit it, explains entertainment lawyer Lisa E. Davis, partner at Frankfurt Kurnit Klein & Selz PC. Some artists sign deals with major labels such as Sony BMG, IDJ, Warner Music Group, and EMI. However, more artists are opting for independent deals.

MAJOR LABEL DEAL

* Artist becomes part of label's roster and must share attention and support

* Artist generally signs a multi-year, multi-album contract

* Label pays all charges, including marketing and promotion of recording, manufacturing, and distribution costs 

* Artist typically receives a significant up-front advance and a royalty rate of 10% to 15%

* Artist can't receive royalties until all costs are recouped by the label, including advances

* In most cases, unless the artist scores a hit record, the artist won't see any more money after the advance

* Generally, label owns copyrights to all recordings

INDIE DEALS

True Indies

* Indie has own source of capital

* Indie pays for the recording costs and some promotion

* Indie may rent distribution system from the major labels, which will charge for manufacturing the CDs, converting the files digitally to make them available for download, shipping, and storage; in some cases, the label will also create cover art for an additional fee

* Indie owns copyrights to all recordings

Joint Ventures (between an indie label and a major label)

* Indie and major label enter an agreement where both parties share costs and profits

* Indie generally performs the artists and repertoire (A&R) function, selecting the artist and paying for the recording and production

* Label pays manufacturing and distribution costs and may pay some promotion costs

* Ideally, indie pays 50% of the cost and receives 50% of the profit

Production Deals (including most vanity labels)

* Deal between major artist and his or her major label

* Label allows that artist to act as a producer, identifying and mentoring new talent under a separate indie label

* Major artist receives overhead, branding, and an increased royalty rate on the new talent--generally as much as 20%

* Major label pays all charges but the indie label doesn't get paid until those costs are recouped

* New talent will most likely receive an advance; in some cases, that artist won't see any more money

Don't get Burned

A bad production deal starts with a subpar royalty rate--around 4% to 5%, explains lawyer Ryan Smith, partner at J Smith & Associates P.L.L.C. "Generally speaking, a new artist may get a royalty rate of 10% to 14% on the suggested retail list price from independent labels, 12% to 14% from major or mini-major labels." It doesn't stop there. "The costs for independent promoters, those paid to get the album played at radio stations, are sometimes 100% recoupable from the artist's royalties. Since these fees can be tens of thousands of dollars, this is problematic insofar as artist revenues are concerned. Artists should ask for a cap on how much they can be charged for these promoters and get the recoupable percentage to 50% or lower. In addition, in normal record deals, 50% of music video costs should be recoupable against your audio record royalties. They can really nickel-and-dime you on the percentages. For any artist, you need to watch your percentages and make sure they are within industry standards."

The best advice for any artist, in addition to hiring an experienced entertainment lawyer, is to retain the services of a knowledgeable accountant with experience in the music industry, stresses Smith.

Smith's next tip: Protect your intellectual property. Do this by registering the words, sheet music if you have it, and master, with the United States Copyright Office. Smith surmises that more than half the music copyrights in the U.S. have not been registered. "Also, if someone is producing your music, writing a track for you, or even playing a keyboard on one of your songs, sign an agreement with any of these persons to have their rights granted to you. Without this, they may have a claim for partial ownership of your work. [And] if that is the case, it may be difficult to secure a record deal without their permission," warns Smith.