Record Labels = Loan Sharks:
Labels don’t give away money anymore.
What about signing bonuses?
Gone.
What about paying for tours and recording time?
They don’t. They loan you money, and you do that.
What about all the cash my favorite rappers have?
That could be the money they made from before labels worked like loan sharks. If they’re a recent addition to our industry, what you’re seeing isn’t wealth – it’s a loan.
🐰 I Refuse to Believe It.
I know this is hard to swallow, but this is a truth every artist has to face, especially since scammers are betting on the fact that you can be made to believe things like “scouts” and “signing bonuses” are still a thing. And they’re just not.
Streaming is free – music isn’t making enough money for labels to give it away anymore, or to risk taking a flier on some unknown act. It just isn’t financially viable for them to do that.
The money isn’t there. And I see no reason why that would ever change again. I can’t see a time when people pay for music the way they used to. There’s no going back. You have to move forward, or you’ll just get sucked into one scam after another.
🐰 How Did This Happen?
Remember: Money changes everything – and when the way music was shared and consumed changed with the dawn of the streaming era, so did the revenue associated with it. From there, the entire industry underwent a huge paradigm shift, never to recover.
But this isn’t a hopeless situation to be in. Business startups have always faced the challenges that now, independent artists also face. You’re now faced with the same tough decisions that every entrepreneur faces when bootstrapping their small business.
Think of this as your own personal Shark Tank as opposed to what it can often feel like … your own personal hell. It doesn’t have to be a game-over for your dream. It just means that the way you envisioned it playing out might look a little different in reality.
But all small business owners – who also had a dream – have to navigate the exact same situation you’re now in as an independent artist. Needing to fund your own career as opposed to having that money just awarded to you is not the end of the world.
It just involves different strategies and considerations – different than the strategies that “getting a signing bonus” would’ve involved, for sure. Additionally, there are some new pitfalls that you may not be very familiar with. And trust me, you need to be.
Particularly with Record Label Deals.
So, remember: these are not unfamiliar waters in terms of business – because business startups have always worked this way. These are just unfamiliar waters to an artist.
Time to get familiar, then! Let’s dive in!
Record Label Funding
A lot of people still hold onto this romanticized vision of record labels as the golden ticket to success, back when labels “gave away money” like it was free candy.
But those days are long gone, and there’s little chance of them ever returning. Record labels have shifted from acting like venture capitalists who invest in your future to something far more sinister: loan sharks.
If you’re chasing a traditional record deal, it’s critical to understand that labels no longer work like they used to. Instead, they operate almost entirely on a loan model now, and not the kind of loan you’d get from your local bank.
These loans come with high interest, massive strings attached, and a system designed to keep you in a debt-limbo, trying to pay it back for most, if not all, of your career. In short, labels don’t pay you anything. They loan you money. Then, you pay them.
When you pay off your debt, you have to share your profits with the label for the duration of your contract (or sometimes longer).
How much you get to keep after paying off the loan depends on how well your lawyer negotiated when you signed. But it won’t be a lot, that’s certain.
Labels will always take as much as they can, because that’s the only way for them to keep the lights on at this point.
Record Labels went from pushing a fairly expensive physical product (CDs) to pushing a much-cheaper, digital product (MP3’s, which were sold during a time before streaming, when people would have to purchase and download the music they wanted to listen to) to pushing a completely digital product that is essentially free to consume.
The cost of a CD back in the late 1990s to early 2000s, before streaming and digital downloads became widespread, was typically between $15 to $18 in the U.S.
Adjusted for inflation in 2024, that price would be around $27 to $33 dollars – per physical unit. That’s how much it cost to listen to a single artist’s album, just twenty years ago.
That same product is now free, and instantaneous to consume in a digital streaming format.
So, it’s not hard to understand why the music industry suffered a near financial collapse, and why it works so much differently today than it used to. Labels don’t have money to just “give” to artists like the venture capitalists they used to be. Now, they can only really afford to loan you that money.
What Do You Mean “Loan”?
💳 When you sign to a label, they don’t give you money. What they do is loan you money, and that loan is supposed to cover everything: your living expenses, recording costs, marketing, touring, and all the other expenses that come with building a career and living your daily life.
Another misconception is that labels tell you how to spend that money, or that they tell you where to be and what to do. There were probably plenty of labels that used to work that way. But the vast majority of major labels won’t micromanage an artist’s career – even if the artist wants them to.
Labels also don’t tell you how to spend your loan money, even though that money has to be carefully budgeted and properly allocated towards various music-related expenses, as well as all of your normal living expenses (the loan has to cover personal costs, too – unless you want to have a full time job while being signed).
Many artists didn’t follow traditional career paths, and as a result, some may not be acclimated to the financial regiments required to manage all of these expenses.
Labels expect you to use that money wisely, but many artists find themselves torn between upgrading their lifestyle or investing in their music.
Next time you wonder why everyone is saying that music is in a decline, both in quality and in profit, remember that some of that has to do with the artist not having the know-how or the resources needed to properly allocate their loan money towards music.
That said – it’s not financial responsibility that’s lacking in label-signed artists. Not having the supervision artists once had isn’t helping the situation – but it’s not really the cause of music’s decline in quality.
A lot of it is a lack of access to industry professionals and other skilled experts – all of which the artist needs, in order to put out a high-quality song, music video, album, or whatever it is they’re trying to do.
Artists used to have a whole network of in-house experts in a record label. They used to get signed and immediately have some level of access to all sorts of professionals, experts, services and even other artists – all through the label. This is still somewhat the case, but – with the Major Record Labels at least – it’s nothing like it used to be.
For the most part, artists who are signed are then expected to go out and hire their own “team” – meaning, they have to find and hire a tour manager, and an album-art-guy, and a mix engineer – among a dozen other positions. And that’s all on them to accomplish – where it was once part of the services provided by the label.
It’s no surprise that many artists opt for hiring friends, or relatives, or people they’ve already worked with. This is a wonderful thing when those friends and family are good at the job they’re hired to perform – or are at least willing to learn.
But all too often, this becomes a professionally toxic environment, and there is little possibility of maintaining professional accountability or ensuring quality control when friends get involved with the work.
It’s not always bad – it just often is. You and your friends might be an exception, and that’s totally fine. But remember, you don’t need a record deal to work with your friends.
🐰 By the time you are established enough to attract any label attention, you’ll already be profitable, and already have some level of name recognition. At that point, you’ll be doing everything a record label used to do for artists, but you’ll have done it all on your own – with no debt, no loans, and no toxic workplace conditions (hopefully). Labels won’t even consider you until you’re already a profitable business. At that point, you won’t even need them anymore.
🐰 Under the changes that occurred during the streaming revolution there was a huge shift in the industry paradigm. As it stands, Record Labels will not continue to be financially viable businesses, unless something changes soon. In fact, music itself cannot continue the way it’s going now. Music isn’t going anywhere – so something will eventually have to change. The industry is not sustainable under this current business model. However, that change isn’t going to happen today. And it very likely won’t happen within the span of your career. If it does, it’ll be so far down the line that the choices you make today will have already shaped your career, and a shift in the industry at that point probably won’t do much damage to you (provided you put some money into savings as you went along – which is just good advice regardless).
So, artists who get signed today don’t have the same level of industry support they once had. They don’t have access to experts and other equally-skilled artists, and with that resource now lacking, artists struggle to get the good quality services, even when they do allocate most of the loan money towards their music.
There isn’t much we can do about this without changing the way the entire record label business model works. And to do that, we’d have to change the way the entire music industry works – including the way it is shared and consumed. That’s obviously not going to be possible. So, just don’t be the artist that chooses a new car over high-quality mastering, and you’re already off to a decent start.
Some people may understand immediately that this new record label model is a less-than desirable situation to be in, at least in most cases.
But I have heard plenty of artists expressing doubts, wondering why a loan-funded system is even a problem. I often hear questions like, how is this so different from the way it used to be? It’s still money, and I didn’t have to grind at a 9-5 to earn it. So, what’s really the issue, here?
It’s understandable to think of it that way.
But, the issue is this: All of the money they give you is borrowed, and you have to pay it back before you ever see a cent of profit. With interest. Under a label, even your debt costs something.
Also, many signed artists report feeling as if the label basically owns them during their debt period.
Imagine you still owe a lot of money to your record label, and obviously streaming revenue would take a lifetime to pay them back with. So, if the label wants you to take a cash-grab opportunity, you may feel like you have little choice in the matter.
Next time you see a famous artist in some weird Dunkin’ commercial and wonder why they wanted to take that job – just remember, it could be because they’re trying to pay off their debt. This process of paying back the label’s loan is probably the most bemoaned part of any signed-artist’s career.
And, just so you know: This process – where you’re paying off your debt to the label – is called recoupment.
What is Recoupment?
Recoupment is the process where the artist has to pay back every dollar the label fronted before they can start earning royalties.
🧠 If the label gives you a $500,000 advance to fund your album, your videos, and your marketing, you don’t get to pocket any of the profits until the label has recouped all of that money from your sales, streams, concert revenue, and often more.
The issue is that the costs are stacked heavily against the artist. Labels often charge you not just for the upfront advance but also for everything else — from marketing costs to tour support — at inflated prices.
Imagine being charged for every little service (many of which they control), only to see those charges eat into your potential profits.
All those profits go towards recouping, so when it comes time to fund your next project or tour, you go even deeper into debt, because you don’t have any actual revenue to draw from to pay for those things.
Loans often lead to more loans. If you split on the label – that’s bad, too. You’re under contract, which is a binding legal agreement.
The label can take you to court and sue you for breach of contract. And it’s not just that they can do that – they actually do it. It happens more than anyone likes to think about.
Then you have to file for bankruptcy. At that point, the label will shelf you, or drop you, and then – not only is your career over – your financial future is now irrevocably damaged as well.
👀 Record Deals can be great for those who understand what they’re signing up for. But the reality is, Record Deals can also ruin lives. They’re not always that bad, but it’s certainly not the dream come true it once was.
Some artists never fully recoup. For the ones that do, it often takes anywhere from 5 to 8 years on average, and that’s if things go smoothly. The debt is constantly climbing, and many artists end up owing more than they started with due to the way these costs are structured.
The 360 Deal:
The Industry’s New Standard
To make matters worse, labels today often demand what’s called a 360 deal.
Under this (now-standard) contractual structure, the label doesn’t just take a cut of your album sales or streaming revenue—they take a percentage of everything: merchandise sales, brand deals, touring income, endorsement deals, and even non-music-related earnings like acting gigs or product endorsements.
The reason? The music itself doesn’t generate enough revenue anymore to justify the investment, so the label wants to dip into all your other potential income streams.
Even if you don’t want to be part of certain brand deals or collaborations, you don’t get much of a say — because the label needs to make sure they get their money back, and they’re going to do whatever it takes to do so.
Why This Model is a Big Downside
This loan model puts a massive strain on artists, who are often left scrambling to pay back their advances while the label continues to extract revenue from every corner of their career.
For many artists, it feels like being trapped in a never-ending debt cycle. Labels, in essence, act more like loan sharks than the supportive venture capitalists the once were, and it’s easy to see why some artists end up in financial ruin despite having what seems like successful careers.
Wendy Day, who has seen firsthand how this industry works, strongly advocates for the investor model over chasing a record deal. An investor puts money into you and your career, expecting to share in the profits, but without the oppressive recoupment structure or the 360-deal handcuffs that keep artists in debt.
🎩 With the right investor, you retain more control over your career, your income, and your creative freedom—things that are often stripped away in a traditional label deal. With an investor, if you don’t win – they don’t either. If you can’t succeed at making a profit, it’s a loss for them as much as it is for you, because investors don’t ask that you repay the money they give you. It’s an investment, and that’s how it differs from a loan.
A Better Alternative
The key takeaway here is that artists don’t have to settle for the predatory loan model offered by most record labels today. Investor funding is a healthier option where the artist and the investor share in the risk and reward more equally.
Instead of signing away every income stream you have for the sake of a label deal, you can build a sustainable career by working with partners who believe in your vision and want to grow with you—not keep you indebted for life.
There are some situations where a record deal might be a good choice for a certain artist – under very specific circumstances.
It’s just important to ask yourself why you want a record deal – and make sure those reasons are worth the inherent risks and sacrifices.
Final Thoughts
🐰 In this installment of Rabbit Holes, it’s clear that chasing a record deal isn’t the holy grail it once was. The loan model of funding is designed to keep artists in debt, and recoupment can stretch on for years—if you ever recoup at all.
Resources We Recommend
(Free / Affordable)
Below are two methods to continue your learning on these topics, for a price you can afford from industry experts that even we trust.
Learn Music Business
You Want Don Passman.
If you want to dive deeper into how the music industry really works, almost anyone who knows this industry has one recommended-read: All You Need to Know About the Music Business by Don Passman.
It’s basically the music industry Bible. That’s because it’s a the most complete, insightful, poignant resource for understanding the complexities of record deals, publishing, and the legal side of the industry.
“Business” Doesn’t Mean “Not Art“
If you’re serious about making a career out of music, you need to think of it like a business. If you don’t – someone else will, and that’s where scams come into play.
You can keep treating your art like art, but treat your brand more like a business. And certainly, anything that involves spending or making money in this industry has to be looked at from a business lens. You don’t have to like it – but you do need to learn it.
You can read the majority of the Passman book for free, online, through Google Books.
Use the link below to dive deeper down this rabbit hole with the Google Books Preview edition, or, for a full, up-to-date version, click the second link to get it on Amazon.
And remember, you got this!
Don Passman’s Book:
📔 Free Online:
🛒 Buy The Full Copy On Amazon:
Learn Industry Strategy
You Want Wendy Day
Need more personalized advice? We recommend the small peer-focused mentor group, hosted by industry legend Wendy Day. It’s insanely affordable, and completely invaluable.
Our pick for advice you can both trust and afford is a new initiative created to help artists called Inner Circle. It gives everyone a chance to get their questions answered in twice-monthly live sessions.
Inner Circle is currently being hosted on the subscription platform Grouped. Join Wendy’s mentoring group for guidance from the industry legend herself – not to mention, it’s a great way to meet some new friends and compare notes with your peers.
Inner Circle offers inspiring tips, insightful video content, and personal access to Wendy Day through comments and live video meetings. Wendy hosts a live video meeting twice a month for her subscribers, or, her Day-Ones, as she affectionately calls them.
These meetings are incredibly inspiring and a huge opportunity for personalized help from someone who significantly shaped the industry. The live video meetings allow you to ask Wendy questions and get immediate, one-on-one answers.
Wendy also has a book that people have praised for many years which details how to get a record deal. The cost to sign up for Inner Circle is about the same as buying her book, so, honestly – you can’t go wrong here. If you’d like to learn more, click the links in the box below.
And remember, you got this!
Wendy Day’s Insights:
Learn From the Legend, Wendy Day
🛒 Book, On Amazon: How to Get a Record Deal
💬 Inner Circle, Grouped App: Join Inner Circle
Stay in the loop,
– Music Scam Alert Staff
don’t get duped.
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