Why Record Labels Are Not Worried About Giving You (Artiste) A Lot of Money

If you’re an artiste or closely follow the music industry, you might’ve heard this before: “Record labels don’t mind losing money. That’s why they give out advances and don’t stress if artistes can’t pay back right away. Sounds wild, right? But there’s some truth to it with a lot more nuance.

Let’s break it down.

When a record label signs an artiste, they often give an advance, a lump sum of money upfront. But here’s the catch: It’s not free money. It’s more like a loan. The label will only start paying the artiste royalties after they’ve made back that advance from the artiste’s music earnings. This process is called recoupment. Example: If a label gives you $50,000, they’ll take all your streaming revenue, show percentages, and other income (from that deal) until they recover that $50K.

Here’s where the real game begins. Record labels operate more like investors. They sign multiple artistes, knowing:

• Some won’t break even.
• Some will make small profits.
• And a few will become major stars that bring in millions.

This is called a portfolio model—a strategy where losses on some artistes are expected and accepted because the success of others will cover the difference (and then some). Think of it like a sports team scouting 10 players. Not everyone becomes the MVP, but the one who does can carry the whole season.

Not all companies take the same risk. Traditional Distribution platforms like DistroKid, TuneCore, or CD Baby usually:

• Don’t give advances.
• Charge you a flat fee or take a percentage of your earnings.

They make money off volume—by helping thousands of artistes release music, not by betting on one to go global. But some distributors (like Empire, oneRPM or The Orchard) act more like labels too, offering deals, funding, and marketing. But again, with a similar risk model.

Now to the big question: Do labels want to lose money? Not at all. They just understand that: Artiste development takes time, hits don’t happen overnight and owning an artiste’s music rights and catalog over time is often more valuable than a quick return. This is why labels often own masters or lock an artiste into multi-album deals to play the long game.

As an artiste this means that, Don’t get too comfortable with advances because they come with strings attached. Understand recoupment before signing any deal. Realize that even if you don’t “blow up” right away, you might still be part of a label’s bigger strategy. And most importantly, learn the business behind your art.

Record labels aren’t crazy for giving out money and waiting years (or forever) to get it back. They’re just playing a long-term game built on risk, reward, and the occasional superstar. As an artiste, it’s okay to take the money, but be smart about what it means.