Artist-run labels hurt by album sales slump

Twelve years ago, Madonna decided to apply the business instincts that made her a superstar toward finding and developing new acts for her own music label.

Maverick Records flourished early on. It generated hits by the likes of Alanis Morissette and Prodigy, validating the decision by Warner Music to form a partnership with its biggest star.

But Maverick’s good fortunes started to turn during the industrywide sales slump that began in 2000. The label-parent relationship soured, landing record company and artist in a nasty legal dispute that was recently settled with Warner buying out Madonna.

With the industry looking to cut costs amid lower profit margins, record companies see fewer incentives to investing in artist-run label projects.

“Back in the day, when the industry was a lot healthier, it was, ‘OK, here’s $2-$3 million. Go start your label, and let us know when you’re ready to start your first act,”’ said Universal Records president Monte Lipman. “Those days are absolutely over.”

Joint venture deals, like the one Madonna struck with Warner in 1992, are generally the riskiest label deal for a record company. The company typically fronts all the money to keep the label in business while the artist handles the job of signing and developing new acts. Profits, if any, are usually split evenly.

More common are production deals, in which the artist is in charge of recruiting talent. The record company pays for recording, marketing and distribution, then pockets all profits and gives the artist a cut of royalties.

Mariah Carey’s Crave label, which she launched with Sony Music Independent Labels in 1997, closed its doors in less than a year. Grand Royal, a joint venture between the Beastie Boys and Capitol Records, tasted success shortly after launching in 1993, but dissolved in 2001 because of debt and lackluster sales.

Other artists, such as Eminem and Limp Bizkit frontman Fred Durst, have managed to thrive despite the industry’s sales slump. Durst signed rockers Puddle of Mudd and Staind to his Flawless label. Eminem’s label, Shady Records, a joint venture with Universal Music Group’s Interscope, scored a huge hit with New York rapper 50 Cent.

But in an industry where more than 90 percent of acts fail, the chances are slim an artist-label venture will turn a profit.

Often, artists are overwhelmed by the business aspects of the music industry or are forced to disengage from their label to cope with the demands of their careers. Corporate belt-tightening also squeezes resources, leading to friction between the parent company and the artist.

Maverick alleged in its lawsuit that Warner Music failed to fund the label’s operating expenses and deliberately cheated it out of its share of profits. In its lawsuit, Warner accused Madonna and her partners of racking up $66 million in losses since 1999.

Under the terms of the settlement, Maverick will live on under one of Madonna’s business partners, Guy Oseary, but without the superstar or her other partner, Ronnie Dashev, who also was bought out.