[shampto3]

One way to look at record labels is like an investor, but I think that brings the connotation that if the business fails the investor is simply loses money.

In reality, record labels basically loan a lump sum to the artist to pay for producing the product. This loan also comes with a contract to own some/all of the final product. The artist then has to earn that money back in order to pay off the loan before they ever get a share of the profits.

It's easy to say that musicians should be more careful with the contracts they sign, but the system is kind of stacked against them if they want to pursue this career. Nowadays, you can make it fairly big (possibly) by doing most things yourself but record labels are still out their signing artists.

EDIT: I was incorrect. You don't have to pay back the record label if your music makes no money. I have removed the statement that implied that.

[gnat]

This is correct. It’s as if your startup investor took 70% of your revenue and then wouldn’t even give you the 30% until they’d used it to repay themselves the cost of their investment in you.