Record labels are complicated businesses given the fact that they must produce musical content that finds an audience. The development costs associated with producing a new album or individual piece of music has declined substantially given the fact that many people can now produce their own musical content from the comfort of their own homes. The equipment necessary in order to launch a new record label can easily be acquired for around $25,000. Of course, the most important aspects of these operations is that there needs to be a significant marketing budget so that any album or piece of musical content can easily and very quickly find an audience.
As it relates to strengths, this is a double edge sword given that the startup costs are low and the potential return on investment can be extremely high. These businesses have low barriers to entry which allows many people to develop their own content in order to find it audience. These businesses can generate very high gross margin revenues from the sale of albums, individual songs, as well as streaming media content. These businesses can also generate income from advertising sales if the content is distributed on major platforms such as YouTube.
For weaknesses, this is a highly competitive industry and only artists that are able to find a broad audience are able to thrive with new record label industry. The development costs associated with the new album can be somewhat high depending on the audio engineers and other personnel that are needed in order to complete the production. Additionally, a very low return on investment can be generated if the produced musical content does not find it audience at all.
For opportunities, a record label has near limitless opportunities to develop new content in conjunction with popular artists. These businesses can continue to generate revenues on an ongoing basis from royalties, advertising income, and streaming media income on an ongoing basis. These additional revenues can be reinvested into the production of new albums and musical content that can be easily distributed on a worldwide basis. Once highly established, many record labels can acquire the rights to other musicians work in order to profit from its distribution. These businesses can also grow by developing in-house recording studio operations which ameliorates some of the risks associated with developing a new album.
For threats, these issue always faced by any new record label are competitive issues. Given that media content is almost free these days especially among artists that upload their content to platforms such as YouTube – economic risks are typically minimal. The costs associated with acquiring a song from a consumer is negligible. As such, businesses are relatively immune from negative changes in the economy.
For a qualified audio engineer or record producer, these businesses can be extremely lucrative provided that the produce content find it audience. These businesses typically have low start up costs, and most aspiring record producers and artists are able to develop her own record labels very easily. Once established, these businesses can have a greater access to capital only from financial institutions that are going to provide working capital line to credit based on the highly predictable streams of revenue generated from media sales, but also from the large tangible asset base if the record label develops its own in-house recording operations.