So a while back I was part of a conversation about indie bands and being signed to a label, and one participant said the following:
"For me, the point is that no matter how much the artist gets screwed in terms of their cut, they are always going to get more money from signing than not - do they have much of a choice?"
Actually, yes, they DO have a choice, as both MySpace and Radiohead have demonstrated, among many, many other indie channels. But the previous poster is right, it does force an artist to do a LOT more work to get their music heard widely than if a label signs them.
Whether or not it's more work than they SHOULD do is debatable... not every artists starts at the bottom (those craptastic Boy bands are an example - many are producer- and studio-created from the ground up, no talent necessary). But I don't think that artistic success (or at least widespread acceptance) should be a cakewalk. Artists that really work and do it from the ground up are probably not only more likely to have a longer, more lucrative career, but they are also self-selected to be more passionate about getting their music heard. Annie DiFranco, Phish, many many high profile bands brought themselves up by their own bootstraps. Hard, yes - but they potential real payoff to the actual artist is MUCH greater (and more character building!)
As for always getting more music by signing - that is distinctly untrue. Spend some real time as a working, original musician (as I have in several contexts), and you will come across many tales of woe: stories of brilliant, potential-filled young bands that were signed by a label, mishandled, and ended up not only not breaking as big stars, but came away OWING money to the labels.
The labels are set up insidiously to provide themselves with as little risk as possible. They will often sign a band and give them an advance to do a record. However, in the contract, it will state that the label needs to be repaid for that advance, sometimes including recording costs. Additionally, a lot of contracts will provide minimal or no distribution and advertising, and often almost nothing as far as tour support.
So, for example, a band given $100,000 as an advance on their first record is all excited. They have an exclusive deal with a Major Label, and a bankful of cash to show for it! So they record their album, which is finally done at a REAL studio, with a good engineer, and it sounds great. They even manage to do the whole thing, down to artwork and duplication, for only $50,000, which is relatively dirt cheap in that world. Great! 50K in the bank, an album in the can - now what?
The label has distribution chains, so they will see their album in a whole line of stores, even on iTunes! Time to tour. The band discovers that the label provides almost nothing in tour support, so the tour ends up costing them money (let's call it $17,000, between tour management, crew and roadies, vehicle costs, lodging, meals, etc.). Worse, the label has booked them to play a few "high-profile" gigs advertised by the label, but they find out that the band has to SELL 50 tickets to the show to actually get paid; if they don't they have to pay the label back... they only make money on tickets over the 50, and then only a cut. Plus 25% of merchandise sales to the label, and another 10% to the venue... and the band paid for the merchandise themselves, so they are now losing money on it. Let's say they lose $3000 on these gigs.
No worries, there are still plenty of other gigs that they label doesn't control, and with an album on the shelves, they should be packed. But at most of them... why only three people in the audience? Well, the label has stocked the shelves, but other than putting them in the rotation on a few college stations and giving posters to stores, the label has done NO promotion for them. They need to do that themselves, which means either hours and hours of pre-tour and pre-show work, or hiring someone to do it. It's too late to hire someone for this tour, but they work hard getting to places early, putting up posters, etc.
Two grueling months later they come home from the tour. When all was said and done, their effort paid off, and as the tour progressed more people were there. They also managed to makes some money from some of the label gigs in which they were paired with high-profile artists from the label. All told, they brought in about $35,000!. Let's subtract that $20,000 they had to shell out on their own, but that still gives them $15,000 from the tour. So they now have $65,000 with which to pay themselves, right!
Well, not so fast. They find out that, even after six months and three tours their album has only sold a measly 4000 copies, and maybe another 2000 on line. At a very generous $2.00 per album to them for each sale, that's only $12,000. They've sold another 1000 on their own at non-label shows, but they had to pay up front for those and made about $5.00 for each one, which brings their sale total to $17,000. Sounds ok, bringing their bank total to $82,000 - more than enough to pay themselves something and start recording a new album.
But don't forget about that advance... it was an advance, taken out of lucrative sales they were supposed to have on the album. The label now wants it's $100,000 back before they let them record another album. They only had $82,000 to their name now... which means they OWE the label $18,000
But how were they supposed to sell enough albums without promotion or tour support? Not the label's problem. If they'd had enough ambition, they'd have done it and proven that they are the kind of band a label can take a well-calculated chance on, lose nothing, and know that they'd be able to make money off of them. Apparently, this band is not one of those.
If they are lucky, they might be able to talk the label into letting them do another album - at a lousier deal - to try and make up the shortfall, see if the first album picks up, etc. Or they are smart and hire a serious publicist and lawyer in the industry, and they help the first album really take off... but that costs bucks. If they're merely unfortunate, they can afford to buy the label out, take their masters (if they are really lucky), and go on their sorry way, $18,000 poorer but with their tapes and their future still in tact.
If they are like at least two bands I've known personally, they can't pay the label back... and it turns out that until they can, the label owns everything about them: name, logo, masters, rights. So if they ever want to play again under their own name, they need to pay the label. Which they can't, so their only, sad, final option is to disband and reform under a different name, which means they have to start all over again with an unknown name.
This scenario is manufactured, the numbers are guesstimates at best... but I have seen exactly this happen to two very good, promising, talented bands. Not only did they not make any money from the major labels, they lost money, time, and their entire band identity and brand.
With a very few possible exceptions, the major labels are NOT set up to help the artists. They are there to make money for shareholders and CEOs. Simple as that. Yes, rights management gets the artists SOMETHING for their troubles, but I can tell you from first-hand experience that it is negligible enough to be laughable.
The only way an artist can truly make money in the industry is though extreme hard work, dedication and talent, through an agenda outside their own plans, commission work, through serious luck, or by simply giving up and playing in a wedding band. The last may not be glorious, but I can tell you - it's fun, and it actually pays pretty well. As a parthian shot, here's the link to the [now aging] website for the band I started in 2001 and played with for almost 8 years:
Secret Service: The Band