How Record Companies Make Money

Record companies make money by selling recordings. It is a high-risk business. According to the Recording Industry Association of America (RIAA), approximately 90% of the records that are released by major recording labels fail to make a profit.

Independent labels have to be more careful in their choices and in their allocation of expenses because they do not have the resources to cover many failures. However, they can make and promote records for far lower costs than major labels and be profitable with far fewer sales.

The budgets for making and selling recordings are tied to what labels estimate they will sell. Knowing how many recordings might be sold makes it possible to budget recording costs. Most profitable labels have histories of selling and promoting that enable them to estimate gross income.

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