How Do Independent Record Labels Make Money?

Promo Panda Staff
Staff Writer for Promo Panda

Independent record labels, which are also often referred to as indie labels, exist well outside the mainstream music industry. 

Sure, their main goals are the same as those of any major record label out there: they want to promote artists they feel are especially talented, and they want to share revenue with those artists. 

But the way in which indie labels try to achieve those goals can be very distinct from how major labels might go about the same thing. 

So how do independent record labels make money? What’s their strategy given the fact that they have nowhere near the same financial resources as the big record labels that we’ve all heard of before? 

This article will dive into different contemporary methods by which indie labels can make money for themselves and for their artists. 

Throughout all of these methods, creativity really is the key. Without massive amounts of money, indie labels need to be more creative and more personal to develop larger audiences and monetize those audiences, all while bringing in new artists to help stay current. 

Streaming listens 

We all know that physical media in general, but especially with regards to music, physical copies of albums and singles are basically a thing of the distant past. 

Yes, vinyl and even cassette tapes are still a viable option for certain artists, but that’s something we’ll be talking about later. 

The modern-day alternative to monetizing physical music sales is earning money from streaming listens of music from the label’s artists. 

Music streaming services like Apple Music, Spotify, and Pandora are great virtual spaces where users can find new music or just choose specific songs from their favorite artists to listen to. 

How Do Independent Record Labels Make Money

Even professional music critics take advantage of the ease of use that streaming services offer. 

Long story short, a music label and each associated artist can make money based on how many people are listening to their music on each streaming service. 

Now, the payout per listen tends to be incredibly small, often a small fraction of a penny per listen. But if multiple songs are getting thousands or even millions of listens, that small payout can really add up. 

Even if artists from an indie label don’t stand to make too much money from these services, this is simply a revenue and promotional stream that can’t be ignored. 

Whereas labels of the past might need to pay a radio station to get air time for a new track, music streaming services today typically allow labels to post music via any number of distribution services, some of which charge a relatively small annual fee in order to post an unlimited amount of new music to all major streaming services. 

Live shows 

Live performances can be a great way for small, independent record labels to make some money, even if only indirectly .

This is one revenue stream that tends to vary quite a bit depending on the label, the artist, and the venue in question. 

In many cases, when a band books a gig at a venue, the revenue from ticket sales will end up getting split between the artist and the venue, with the venue often taking a larger cut when it comes to smaller artists. 

But some small labels have deals with their signed artists that means the label itself will also get a small cut of the revenue from live shows. 

Again, even if that revenue for the label is relatively small, an artist might tour extensively, doing dozens of shows a year, and as a result, the label can make some significant money this way. 

The label could also make additional money from the sale of artist merchandise at these performances, which is a great transition into our next section. 

Merch 

Chances are, if there’s an artist out there that you’re aware of, they almost definitely have merchandise for sale, whether it’s available at their shows or on their website or a third-party site. 

Why? Well, in almost every case, the sale of merch can go a long way toward making some money for the artist and the label they belong to. 

Like many of the revenue streams we’ve discussed so far, this is yet another one where there will indeed be a split between the artist/label and the company that actually manufactures the merchandise, but with merch, artists and labels can get a much larger piece of the pie. 

How Do Independent Record Labels Make Money

This makes the manufacture and sale of merchandise a win-win for the artist and the label. 

Let’s say an artist has a big fan. That fan probably isn’t going to donate money directly to the artist’s label, and they might not even be aware of the artist’s label at all. 

Even if that same fan listens to the artist’s music on Spotify all the time, that still won’t give the artist of the label very much money, all told. 

But if that fan purchases some merch at a show or online, the artist and the label get a decent payout right then and there, and even more importantly, that merch will almost definitely become its own kind of promotional material. 

This is exactly why so many bands and artists try to sell t-shirts and other wearable merch. Fans will want to wear these items out in public to show their support for a certain artist, especially if they like the design of that merch. 

When that fan wears the merch during the course of their daily life, there’s a good chance other people will see it, people who don’t already know the artist or the label. 

This is marketing. This is promotion, albeit in a pretty simple form. Smaller artists and bands often can’t afford to take out traditional ads on billboards or online, but creating merch solves this problem. 

In a way, an artist’s fans might end up doing some free advertising for them, and when the artists win, their label wins, too. 

A brand buyout 

Very briefly, we’ll touch on one last way that independent labels can make money, and that is to no longer be an indie label. 

When an independent label gets bought out by a larger label/company, that can mean a huge one-time payout, and for some labels, this is the ultimate goal. 

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