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Comment by ique | Hacker News Reader

I've always been deeply interested in the inner workings of record labels.

As I understand it, it seems that a label is somewhat like a VC for artists. But no VC takes 80-90% of the company they invested in. Why do they need to take such a big part? Is pressing CDs such a huge risk and expense? If such; why continue doing it? Barely anyone buys CDs for obvious reasons, shouldn't there at least be an option for artists that don't want to press CDs? Maybe there is but artists just want CDs for some reason?

Why can't artists get regular bank-loans to fund their business? Is it just too high risk? It seems that someone as famous as Ok Go should be able to take a bank-loan to fund some studio time, but I suppose they're already under contract.

Anyway, if anyone has answers to these questions or links to where I can read more about stuff like this, please do share.

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"Why can't artists get regular bank-loans to fund their business?"

This is one of the fundamental questions that is most often overlooked!

Ok, so three long haired dudes working part-time jobs at coffee shops wander in to a bank and strike up a conversation with a loan manager...

...I think we can all fill in the blanks here. :)

The indicators that banks look to for giving out loans are quite different than the indicators an A&R man is looking at.

Would a bank care about how many people you typically draw to a concert? Would they care about a good review on Brooklyn Vegan? Or how many shows you've played outside of your home town?

Music is a specialized industry requiring specialized methods of investment, much like Internet or biotechnology companies.

Agreed, but shouldn't three long haired stoners with a couple of successful albums already under their belt be able to demand better terms? If labels aren't willing to do it because they've "always done it this way", maybe there's room for some new investors to offer less onerous terms to proven musicians?

This happens in industries as they undergo commidification, and it's pretty clear that the barrier to entry to making music has dropped a ton and the music industry is undergoing the same thing... so why aren't the funding institutions keeping up?

Well, people ARE trying. :)

Here's an article from Billboard: http://bit.ly/7qevgk

The concept was very interesting but unfortunately it had a lot going against it, which is why Jake got out of the music industry.

Jake didn't really know all that much about the music industry... he didn't know promoters, or booking agencies... having these connections are still very important, just like in any industry.

Also, Francis and the Lights are incredibly idiosyncratic and would rather not deal with the industry on any terms other than their own... which doesn't make for the best business partnership.

Independent labels still fulfill this role.. to an extent. What they are mainly lacking in is capital and a way to recoup, as bands do not sign contract for anything other recording.

It would seem that a company with the right contacts in the music industry, a good amount of capital to invest, and an all encompassing approach to the artists income would have a shot at becoming profitable.

There is most definitely money to be made from music, but understanding the intricacies of the this new marketplace are more complicated than most people are willing to admit to themselves.

Disclaimer: Jake and I have been good friends since college.

Except when a VC invests in your company, you still do all the work. They get a small share because all they are providing you is money. Record labels handle a lot of the business side of a band and let the band members just make music.

That would make sense if that was considered as part of the cut.

But it's not.

The labels still charge the band members for their services in addition to the 80-90% cut they take!

See the classic http://www.negativland.com/albini.html for an example.

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