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From Record Labels To Fan-Powered Platforms: The Transformation Of The Music Business

The music industry is undergoing a profound transformation, and with it, the role of record labels is being redefined.

By Mars Team

From Record Labels to Fan-Powered Platforms: The Transformation of the Music Business

Reading time - 8 min

The music industry is undergoing a profound transformation, and with it, the role of record labels is being redefined. Once the gatekeepers, record labels played a crucial role in the success of artists by handling development, distribution, and marketing—tasks that were nearly impossible for artists to manage on their own.

In today’s landscape, where technology and social media have democratized the way music is produced and shared, the question arises: What is the real value of a record label in the modern music business?

Let’s Start from the Beginning: The Traditional Role of Record Labels

In the past, record labels were indispensable. They provided the financial backing, industry connections, and expertise to develop, distribute, and market artists. Without these resources, most artists couldn’t reach their potential.

Labels covered costs such as:

• Studio recording

• Marketing campaigns

• Touring logistics

• Album production and distribution

However, these arrangements often came at a steep price. Many young artists, enticed by promises of success and support from renowned labels, signed contracts without fully understanding the terms. What initially seemed like a beneficial opportunity often resulted in artists losing control over not only their earnings, but also their music and brand.

How the Music Industry Has Changed

The advent of digital platforms and affordable production tools has disrupted the old system. Artists now have direct access to audiences through streaming platforms, social media, and independent distributors. This democratization has enabled a new wave of creators to thrive without traditional labels.

However, this newfound independence comes with its own set of challenges. Managing a music career—overseeing production, marketing, distribution, and finances—is a full-time job, and many artists struggle to juggle these responsibilities alongside their creative work. This is where managers come into play, stepping in to fill the gap. As a result, the role of managers has become the biggest threat to the relevance of record labels in today’s music landscape.

The Pros of Working with Record Labels

Despite the changing landscape, record labels still offer some undeniable advantages:

• Resources and Budget: Major labels can fund expensive music videos, marketing campaigns, and tours that independent artists might not be able to afford.

• Industry Connections: Labels have established networks, making it easier to secure high-profile licensing deals, festival spots, and media coverage.

• Marketing Expertise: Robust promotional strategies can catapult an artist into the spotlight, building audiences quickly.

• Quick Commercialization: For artists seeking rapid mainstream success, labels remain a powerful ally.

The Downsides of Signing With a Label

Yet, the traditional record label model is far from perfect. Common drawbacks include:

• Profit Sharing: Record labels often claim a substantial share of an artist’s earnings. For instance, major labels can take up to 90% of net sales. Mid-sized independent labels typically offer royalty rates ranging from 50% to 75%, while smaller indie labels retain around 50%.

• Loss of Control: Labels typically own the master rights to an artist’s music, allowing them to control distribution and usage.

• Hidden Costs: Artists are often charged for expenses like travel, promotions, and production, which can drastically reduce their income.

• Opaque Contracts: Jargon-heavy legal agreements can lock artists into unfair terms, as demonstrated by the case of TLC and LaFace Records.

The TLC Case: Unfair Contract Terms and Their Impact

In the ’90s, TLC achieved massive success with CrazySexyCool, selling over 23 million copies. Yet, each member reportedly earned less than $50,000 a year due to unfavorable contract terms and hidden expenses. Despite being recognized for having the best-selling album by a girl group in U.S. history, they received only 56 cents per album sold—which then had to be split three ways., And this is just one example. Other notable artists who have faced similar challenges include The Beatles, The Rolling Stones, Lil Wayne, and, most recently, Kanye West.

The Importance of Owning Masters

Owning master recordings has become a crucial aspect of artist independence. The owner of the masters controls how the music is used and profits from licensing deals, streaming, and sales.

Prince, a strong advocate for artists’ rights, famously said,

“If you don’t own your masters, your master owns you.”

Similarly, Kanye West tweeted,“When you sign a music deal you sign away your rights. Without the masters you can’t do anything with your own music.”

Typically, revision clauses in contracts mean that an artist may regain ownership of their intellectual property once it no longer holds commercial value or generates significant income.

A recent example of a dispute over master ownership involved Taylor Swift and Big Machine Records (BMR) in 2019. Swift requested that her masters be returned, but BMR agreed to the request only if she signed a new contract with them. Under this deal, she would have to earn her master's back one album at a time—receiving the rights to every previous album for each new one she released. This essentially forced Swift into a difficult situation where her creative output was held hostage.

The importance of owning masters, particularly in the streaming era, can greatly influence an artist’s ability to generate income.

So, Are Labels Still Relevant?

In today’s music business, labels function as key patrons, focusing on commercializing artists who appeal to broad audiences. This model works well for some artists, but it doesn’t suit everyone. Independent or boutique labels now offer an alternative, giving artists greater control while providing targeted resources and support.

A Cautionary Note for Emerging Artists

In summary, what should a young artist watch out for?

• Clauses that extend contracts without consent

• Reversion clauses that return music rights only after they lose value

• High commission fees on earnings

To avoid exploitation, artists should seek experienced legal counsel before signing any contract.

What’s Being Done: SoundCloud’s Fan-Powered Royalties

In the pursuit of more equitable compensation for independent artists, SoundCloud has introduced fan-powered royalties—a model that directly benefits the creators their fans support. Under this system, artists are paid based on how often their fans listen to their music, rather than being part of a general payout pool. In the old model, a large portion of money went into a collective pool that was distributed based on the artist’s share of total streams, benefiting major stars more than independent creators.

With fan-powered royalties, each fan’s subscription or advertising revenue is allocated specifically to the artists they listen to. This model empowers fans to play a larger role in the success of their favorite artists while fostering growth in local scenes and new genres. The new system encourages engagement, with higher payouts for artists who gain loyal, consistent listeners. This level of transparency and fairness allows emerging artists to thrive without needing to cater to mainstream trends or corporate pressures.

How MARS Fits into the New Music Landscape

MARS is stepping up to revolutionize the music industry by offering a platform where fans can directly contribute to the artists they believe in. By allowing listeners to invest in the artists they support, MARS creates genuine partnerships, turning fans into stakeholders who share in the artist’s success (and losses). This model eliminates the gatekeeping role traditionally held by record labels, which have historically made decisions based on profitability, often sidelining artists’ creative visions.

MARS empowers artists to maintain control over their music and creative direction. This fosters an environment where authenticity and passion are prioritized over following the latest trend. Fans are no longer just consumers; they are integral to the artist’s journey, helping them create new art on their own terms.

Through MARS, fans can champion music they love, while artists gain the freedom to stay true to their creative vision. This system challenges the profit-driven dynamics of major labels, enabling a new era of music that is driven by community, creativity, and genuine support.

Conclusion: A New Era for Music

The music industry is at a crossroads. While traditional record labels once dominated, the rise of digital platforms and fan-powered models like SoundCloud’s royalties and MARS is reshaping the landscape. These innovations empower independent artists, providing them with the tools to maintain control, connect directly with fans, and thrive outside the confines of outdated industry practices. By giving fans a voice and breaking down financial and creative barriers, MARS and other emerging platforms are ushering in a new era where authenticity, community, and artistic freedom take center stage. As the industry continues to evolve, the future of music is increasingly in the hands of the creators and their supporters.

Sources

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Mars Team

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