Do you want to start a hip hop record label? If YES, here is a complete guide to starting a hip hop record label business with NO money and no experience.
Okay, so we have provided you an in-depth sample hip hop record label business plan template. We also took it further by analyzing and drafting a sample hip hop record label marketing plan backed up by actionable guerrilla marketing ideas for hip hop record labels. In this article, we will be considering all the requirements for starting a hip hop record label business. So put on your entrepreneurial hat and let’s proceed.
Why Start a Hip Hop Record Label Business?
The hip hop record label industry is huge even though revenue generated in the industry has dropped due to complaints that hip hop was becoming too violent and negative. This does not however mean that as an enterprising and innovative entrepreneur, you cannot make it in this industry should you choose to go into the hip hop recording business especially if you are going to be offering your intended audience something fresh and different from the negative hip hop currently trending in the industry.
Therefore, if you know that you have the required passion and commitment necessary, and can make your business stand out from others in the same industry, then you can look towards starting your own hip hop record label.
If you are going to be starting this business, it is necessary that you have the cash needed, even if not all, to start your hip hop record label. If you do not have all the cash, you might need to wait to have a considerable amount of time before starting the business.
The start-up capital you have at hand should be able to take care of the start-up costs that you will encounter during the course of starting the business. Drawing up an agreement with artistes you intend to sign up to your label will also cost you extra. Other areas that require finance include manufacturing, label identity and promotion.
Even though the hip hop record label is one that requires a considerable amount of money, it does not mean that there aren’t ways you can beat down how much you spend when starting the business. In a bid to reduce the costs that you will need to start your hip hop record label business, you can choose to not engage in manufacturing of CDs, which will require you to pay for pressing, and stick to just releasing digital music done by your artistes. Other ways that you can cut costs include, working with very talented but new graphic designers who are also looking to build their portfolios and also considering carrying out 50/50 deals with artistes.
Starting a Hip Hop Record Label Business – A Complete Guide
- Industry Overview
The hip hop record industry is one that has been booming since the 1990s, especially as music lovers who had cassette tapes and vinyl records were replacing them with CDs thereby causing a spike in revenue. As at 1999, music sales and licensing generated total revenue of more than $14 billion.
By the year 2009 however, revenue generated in this industry had fallen to less than $7 billion, according to the Recording Industry Association of America (RIAA), where it stated that sales of album had dropped to an average of 8 percent per year. This drop was attributed to the growing popularity of digital music where music lovers could easily transfer songs they love amongst themselves.
However, despite how much revenue the hip hop record label has lost over the past decade, the industry still is fragmented – both within the country and globally – where only a few record labels had a grip on the total industry’s distribution and production.
The grip of these companies is so strong that they are able to determine what music is available to listeners. The grip of the larger hip hop record labels over the industry is due to the fact that the independents that exist do not have the strong infrastructure necessary to compete against these larger music companies.
Even though the industry is a fragmented one with larger labels having a firm grip of the industry, the indie labels are also having their advantages as well. The indie labels are not bound by cumbersome processes and procedures and are therefore able to quickly react and adapt to changing trends and market them more quickly than their larger counterparts who will need to engage in several considerations before changing to trends in the industry.
Also, because they are limited in size and capacity, indie labels usually focus on niche markets and then using this to gain a fair share of the target market for themselves.
Globally, revenue for the music as at 2015 stood at $15 billion, which according to Statista, is the lowest revenue that has been recorded by the industry since the year 2002, which showed that the industry was perhaps reaching its peak.
As at 2014, the United States, Japan and Germany were regarded as the largest markets in the music industry according to revenue. There are three big record labels that dominate the music industry in the United States and they are Universal Music group, Warner Music Group and Sony Music Entertainment. As at 2016, Universal Music Group had more than 26 percent of the market share in the United States amongst the big three. Independent labels however owned more than 34 percent of the market in the United States.
Most record labels are now beginning to become price flexible as they are receiving more than 75 percent of their revenue via streaming with this fact helping to offset the decline that had occurred in physical sales and digital downloads.
The big three make close to $10 million every 24 hours from streaming platforms especially as streaming accounted for nearly half of the industry’s revenue in 2016. Warner Music group was the first among the big three to officially declare that its primary revenue source came from streaming. This is as Universal Music Group saw a 62 percent increase from its revenue in streaming, while Sony Music saw a more than 38 percent increase in its streaming revenue.
The hip hop industry has seen a slump and change in trends which is largely due to the internet. The hip hop which was seen as a core black culture has slowly began to lose its roots especially as record sales are down and there aren’t major label album releases anymore.
This has caused many hip hop artistes to forego the system by seeking to have a major say in their distribution deals especially as sites such as YouTube and SoundCloud has not only made distribution easy, it has also made it to be without costs. So, every artiste from established stars to new ones are exploiting the internet to reach their fans directly, thereby eliminating the middle man.
However, it is not all rosy for artistes who have chosen to eliminate the middle man as no matter how in control of distribution an artiste is, they will never be able to attend to all the needs of their fans which is where record labels come in. The collapse of the traditional industry has made hip hop to no longer seem as a culture by the radio and charts, this is because core hip hop are taking place in places that are not regarded as on the grid.
Starting a Hip Hop Record Label Business – Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic composition of those who require the services of a hip hop record label are not restricted to the artistes and black community but to also other races, companies and corporate organizations, government agencies and multinational organizations as well as other stakeholders from all over the globe.
Therefore, if you are looking to define the demographics of your hip hop record label as those meant for only a particular group of people, you will be wrong especially as the internet has opened up ways by which hip hop can get more audience and people embrace it.
List of Niche ideas Within the Hip Hop Record Label Business That You Can Specialize in
A niche is referred to as a specialized market out of a whole market and usually has dedicated target markets who might not like what the whole market has to offer. The reason why niches crop up especially in the hip hop industry is because the broader the market is, the less it will appeal to all the fans.
It is therefore important that before you choose a niche, that you study the industry well so that you will know exactly what your niche is by better defining who your demographics are, what similar artistes are in your niche and what fans exist for the niche you intend to go into. Once you have properly understood this, you will then be able to cater to the needs of these dedicated fans by giving them what they want as this will allow you remain focused and be consistent with your music.
Some of the major niches that a hip hop record label can decide to major on include;
- Hardcore Rap
- Commercial Rap
The Level of Competition in the Hip Hop Record Label Industry
The level of competition in the hip hop record label industry depends on where the record label is located. Even though new trends in the industry have made hip hop record labels to exist solely on the internet, there is still a huge need to have a physical location for artistes and management to lead.
No matter where the hip hop record label is located even prior to the evolution of the internet, it was the job of a hip hop record label to ensure that the artiste was promoted through the right and available channels. Radio and events were one of the ways labels promoted their artistes. This therefore means that no matter where the business is located, you can still operate as long as your distribution and networking are top notch.
The music industry is a fragmented one with three major group companies having a large share of the market. It is important to note that a lot of those that make up the industry are regarded as independent labels and they cumulatively have the highest share in the industry.
If you are therefore looking to start your own hip hop retail label, you should know that not only will you face stiff competition from the major companies but from indie labels of different sizes, trying to get their own share of the market.
List of Well – Known Brands in the Hip Hop Record Label Industry
Becoming a well-known brand in any industry is no mean feat especially the hip hop industry where most labels fizzle out after a little while. In order to be regarded as a successful hip hop record label in the industry, there are several factors that would need to be taken into consideration and they are; how successful the record label has been, how long they have been in the industry, how many successful artistes they have had and currently have, their promotion and distribution tactics as well as a host of other factors.
Some of the well-known hip hop record labels in the industry not only in the United States but also globally include;
- Cash Money
- Roc Nation
- Sony Music Entertainment
- Maybach Music Group
- Universal Music Group
- Warner Music Group
- GOOD Music
- Bad Boy Records
- Shady Records
Recently and due to the fact that recording technology is now easier to access and that the internet is now global, it has made independent labels to become more popular and regarded as a better alternative to the big record labels in the industry. In 2015 alone, the digital revenue of indie labels in the United States of America amounted to $2.6 billion.
Running a record label comes with so much risk especially as the reward cannot fully be determined. This is as labels spend close to 15 percent of what they make in order to develop an artiste. This percentage according to Forbes is more than what industries such as software, technology, aerospace, healthcare and pharmaceuticals spend on their research and development.
The music industry is one that is becoming more competitive as time goes on especially as there are now streaming services that are overtaking the responsibilities of traditional labels and allowing artistes to have access to their data and be able to distribute their own music. There are now also better marketing tools and investment schemes for artistes, thereby making their development become tougher than and not as straightforward as before.
Starting Your Hip Hop Record Label Company from Scratch vs Buying a Franchise
The music industry is not one where there are franchise opportunities available as entrepreneurs like to start off on their own; and even though parent companies exist and deals with several record labels can be made, the relationship is not referred to as a franchise.
Starting a business from scratch can be very hard especially if you have no prior experience in the business as this means that you will likely make more mistakes than one who has the necessary experience before starting the business.
Even though starting a business has a lot of cons, the pros far outweigh the cons because the entrepreneur has much grip on how most parts of the business are run, from promotion of artistes and their works, drafting of agreement for artistes, distribution and other such factors.
Possible Threats and Challenges You Will Face When Starting a Hip Hop Record Label
Having to deal with threats and challenges is nothing new to any entrepreneur who knows what running a business is all about. The hip hop record label industry is one that is rife with competition and negativity, which means that there are various threats and challenges that will crop up for an entrepreneur that will start or run this business and while some of the challenges will be controllable, several of the threats will not be and so as an entrepreneur, you must learn to be proactive and optimistic.
Therefore some of the threats and challenges that are likely to be faced during the course of starting or running a hip hop record label include; having to deal with dropping revenue in the industry, having to deal with intense competition from already existing competition, and having to deal with changing trends in the industry from artistes to the fans.
Starting a Hip Hop Record Label Business – Legal Matters
- Best legal entity to use for this type of business
Depending on the state where you will be operating your hip hop record label from, you can either choose a sole proprietorship or partnership, which would require you to register the name of your business with the city where you will be operating your business from.
If however you decide to incorporate your business by choosing a Limited Liability Company (LLC) or S Corporation form of legal entity, then you should get your filing fees ready and also consult an attorney who has the right experience as regards the industry you are going into to help you with all the legal procedures that will be involved in incorporating your hip hop record label. While few entrepreneurs do not like using an attorney, the wise ones know how important having an attorney is for other matters than just incorporation matters.
Catchy Business Name ideas Suitable for a Hip Hop Record Label Company
It is very important as an entrepreneur that you choose the right name for your hip hop record label. You should endeavour to choose something that is unique, easily memorable, and distinct and can be easily pronounced by musicians in the niche you intend to go into, fans, the media and other stakeholders in the industry. Also, the name you choose must be indicative of the industry you intend to go into.
If you are therefore looking to start a hip hop record label and are considering names, below are some catchy business names for you;
- Shawty Hot Records
- LaLa Boom Records
- Big Boyz Entertainment Inc
- Laid Back Records
- Smoking Gun Records
- Big Sean Records
Having insurance policies as a hip hop record label is very important and like any other business in the United States of America, it is considered very important for a business to get insurance policies otherwise they wouldn’t be able to operate.
It is important that you create a budget for the insurance policies you intend to purchase for your business. Also, it is imperative that you consult an insurance agent or broker to help guide you into choosing insurance policies that will be the most appropriate for your hip hop record label.
Some of the basic insurance policies that you might need to consider purchasing if you intend starting your own hip hop record label in the United States of America include;
- General Insurance
- Life Insurance
- Liability Insurance
- Workers’ Compensation Insurance
- Errors and Omission Insurance
- Employment Practices Liability Insurance
- Auto Insurance
- Property Insurance
- Business Owner’s Policy Group Insurance
Intellectual Property Protection/Trademark
As a record label, you will be dealing in intellectual property all the time; this is why you must take steps to protect your materials from theft by other record labels, artistes or advertising companies. Because ideas can be stolen and are being stolen on a daily basis, you must be proactive in applying for an intellectual property protection.
Most record labels get an attorney to help them develop the trademarks and copyrights as well as contracts so as to help apply for protection on all the hip hop materials that will be created via their hip hop record label.
Is Professional Certification Needed to Run a Hip Hop Record Label Business – A Complete Guide?
Even though this business requires a bit of technicality but no professional certification whatsoever is required before you can start and run this kind of business.
There are certain things that you are expected to do in order to make your hip hop record label appear more legit and gain the confidence of artistes you intend to sign and they are; joining a performance rights organization, applying as a recording rights owner so that you can secure a registrant code, registering every of your hip hop record label’s ISRC with Nielsen Soundscan and also joining the RIAA especially if your legal entity is that of an LLC or S Corporation.
List of Legal Documents You Need to Run a Hip Hop Record Label Company
Having legal documentation ready before starting your hip hop record label business is very important especially if you intend to operate your business legally in the United States of America. Below are some of the basic legal documents that you are expected to have as long as you intend to start and run your hip hop record label in the United States of America;
- Retail License
- Business License
- Artiste Agreements Contract
- Application fees
- Registrant Code
- Certificate of Incorporation
- Operating Agreement
- Non-Disclosure Agreement
- Insurance Policies
- Employer Identification Number (EIN)
- Federal Tax Identification Number
Financing Your Hip Hop Record Label Company
Regardless of how small a record label you intend to start, you will still require a considerable amount of money in order to start your hip hop record label on a good footing. This is because even if you intend to go into digital release, you will still need to promote the business and this can be very costly.
As an entrepreneur you should be able to source for the necessary capital with which to start your business. You might need to explore different sources and in order to do so; you must have a plan to show them how viable your business will be.
Some of the options that you can explore when it comes to sourcing for start-up capital for your hip hop record label include;
- Apply for loan from the bank
- Using part of your personal savings or sales from stock or properties as part of your start-up capital
- Using credit cards and lines of credit
- Approaching a venture capitalist for start-up capital
Choosing a Suitable Location for your Hip Hop Record Label Business
Choosing a location for your hip hop record label is a very important decision as this could mean life or death for your business. You have to conduct a thorough survey about the business before you can set up a recording studio as you cannot for instance choose to set up a hip hop record label in an area that is filled with people who prefer R&B or in an area where your artistes will not be comfortable coming to.
However, for artistes that are up-coming and want to run their operation alone, they can choose to run the business from their homes and partner with distribution and promotion companies. However, working from home can take its toll; so even if this might save costs, it is not totally ideal. This does not mean that an artiste with means cannot have their own in-house mini studio.
Once you have decided that you intend renting or leasing a commercial facility for your hip hop record label, you might need to engage the services of a real estate agent to help you decide on what location would be most appropriate to run your record label.
You should also ensure that you set aside a budget that will enable you pay for your location for a certain period of time without causing a strain on your overall budget. Your location should be one that is easily accessible and conspicuous so that your employees, artistes and other stakeholders can easily locate the place.
Starting a Hip Hop Record Label Business – Technical & Manpower Details
One important aspect of starting a hip hop record label is the fact that you have to fashion out a distribution deal that will enable your target audience get the music of your artistes. In order to be able to get the music of your artistes out especially in this era of internet, you will need to involve yourself in creating promotion packages that will allow both online distributors and real world distributors to get access to the music.
The promotional packages usually involve getting the necessary press clippings, ensuring that the music is on radio playlists and that there are campaigns plans and tour dates in view.
It doesn’t matter if you intend to press CDs or vinyl or just produce music that will be basically for mp3 download, you will still require a substantial amount of money to start up and you must therefore be prepared to either bring in investors or raise the money through some other means.
As a record label, it is important that you look out for talent when recruiting. This is because your breakthrough might come from those artistes you thought were too local in their delivery or style. You might also use the social media to your advantage by sourcing for artistes that are raw and unsigned.
As earlier stated, you will need a group of people to help you achieve your intended goals and objectives and these people will have to work in various divisions in order to achieve the one true vision. Therefore those you might need to employ to your hip hop record label include; Chief Executive Producer (Owner), sound engineers, music producers, studio engineer, admin manager, promotions and concert manager, accountant, front desk officer, marketing executive, cleaner and security guard.
This would mean that you would need at least 12 people asides your artistes in order to run your hip hop record label successfully.
The Service Delivery Process of a Hip Hop Record Label Company
The process that is involved in setting up a hip hop record label company includes getting the necessary licenses and joining the right organizations and associations in order to be able to operate your record label legally.
Once this has been done, you can then source for the artistes that you feel falls into the kind of music you will be willing and able to promote. One thing that you should note is that you do not have to like the music but to just recognize its quality.
Once you have successfully signed the artistes you need and gotten them to sign an agreement, you can then ensure that the music that they have is produced well and then use the promotion and distribution channels to ensure that that music reaches the intending fans.
Starting a Hip Hop Record Label Business – The Marketing Plan
- Marketing ideas and strategies
Before you can decide on what marketing strategies would be best for your record label, it is best that you conduct a market survey that will allow you to know your target market, understand them and know what they expect from you and what you should expect from them as well. This will allow you to create the right marketing strategy for your business.
Once you have conducted your market survey, you can then draft the marketing strategies that you know will be just right for your hip hop record label. Once you can market your record label well, artistes will need little convincing to join your record label and also fans will want to see what your record label is producing.
This will not only help in generating the revenue that will grow and boost your business, it will also help to create the right awareness for your hip hop record label.
Below are some of the ways that you can market your hip hop record label business;
- Ensure that you introduce your hip hop record label to stakeholders in the industry
- Attend shows and events of other labels and use that opportunity to market your label
- Use the internet especially your website to market your business
- Recruit marketing executives and empower them to market your label
- Use your connections within the industry to help spread the word about your hip hop record label
- Go to radio stations and market your hip hop record label
Strategies to Boost Your Hip Hop Record Label Brand Awareness and Create Your Corporate Identity
The music industry is one that is all about promotions and publicity and as an entrepreneur looking to start your own hip hop record label business you must ensure that you know all the various means by which you can promote your artistes and the music they sing.
Due to the fact that publicity is such a big deal because it not only creates awareness but also generates the necessary revenue for the business, big labels do not mind spending a percentage of their revenue to create awareness because they know that it would generate more revenue for the business.
If your intentions are to ensure that your artistes and your record label achieve the desired recognition you intend locally, nationally and even internationally, then you must make efforts to promote your hip hop record label. In promoting your hip hop record label, it is important that you leverage on both online and offline media as you will need both in order to reach a wide target audience even those outside the intended genre.
Below therefore are some of the platforms you can leverage on to boost your brand awareness and create a corporate identity for your hip hop record label;
- Ensure that you use social media platforms such as Facebook, Twitter, Instagram, Snapchat and other trending media to promote your artistes and their songs
- Give the audience a tease preview of what they are to expect
- Go to radio stations and hip hop inclined visual stations to promote your artistes and their songs
- Contact the necessary stakeholders in the hip hop industry and inform them of any new hit
- Place adverts in popular online music blogs
- Use your official website and that of the artiste to promote the song