How Do Record Labels Work in 2020? [Updated]

Even in the age of Soundcloud and Spotify, record labels do a lot to help artists in the music industry.

In this current digital age of downloading and streaming, the industry has changed.

This is because some artists are now able to take-off their own musical careers without the help of record labels.

Upon seeing their stories, many wonder “how do record labels work”, and is there still a use for them with music streaming and selling online?

The truth is that record labels are still important components of the music industry.

In this article, we are going to take a closer look at how record labels work.

How do Record Labels Help with Marketing and Funding?

how do record labels make money

For those asking, how do record labels work?

Here is how it works.

Most independent artists believe that they can fly solo.

However, they often do not have the monetary backing of large record companies.

This can impede growth and promotion.

With the help of a record label’s financial backing, the world is your oyster.

They can fund top publicists to ensure that an artist gets specialist advertising and broadcasting.

In addition to this, record labels have established connections.

They can easily push an artist’s music onto influential playlists all over the world.

Do Record Labels Help in Supporting the Artist?

record label roles and responsibilities

So, how do record labels work when it comes to supporting their artists?

The music industry is full of lots of legal ups and downs that can easily confuse a budding artist.

This is where the record labels come in.

They understand issues like rights-based music, legalities, and complex administration of partnerships and many other music industry requirements.

Being that they have been players in the music industry for a long time, the record labels have specialized teams for different tasks.

Chief among them is pursuing, gathering and, allocating royalties to producers, artists and, copyright owners under their stable.

In short, record labels support artists by taking care of complex matters not related to music, so that the artist can produce music.

Label, Licensing and, Distribution Deals

how do record labels make money from streaming

A large part of answering “how do record labels work”, is knowing about the types of deals record labels make with artists.

Here is an overview of 3 common types:

A label deal or recording deal is a lawfully binding contract between an artist or artists and a record label. 

On signing the contract, the record label becomes responsible for making, marketing, and distributing the said artist’s music.

As you can imagine, this is not just out of the record label’s goodwill.

It is sort of a loan which the artist has to pay back from their earnings according to the contract signed.

A set amount of money is also paid by the record label to the artist from the sales of the music.

It is, however, advisable for each artist to consult a lawyer and accountant before signing any documents concerning a record label deal.

When it comes to licensing deals, the composer of the music retains the licensing rights.

This means that whenever anyone streams the song online, listens to the song on the radio, or performs it publicly, the composer receives royalties.

If a record label has licensed an artist’s music, they own the right to manufacture, distribute, and promote the said artist’s music.

The record label then pays the artist a stipend from the proceeds of this venture.

A distribution deal is a contract signed by a record label and a music distributor. 

In this agreement, the music distributor covers the costs of manufacturing the agreed on the album and recovers his investment from the sales of the album in addition to an agreed percentage of the profit.


Now that you have a bit more knowledge on the question “how do record labels work” you can see why record labels are constantly on the prowl for new artists who create a large fan base, who in essence increase their income.

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