How to Spend Music Business Loans and Grants

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Let's say you've been lucky enough to find a loan or a grant to invest in your record label or another music project. You've got the cash in hand, but the hard part isn't over yet. Now, you have to figure out how to spend the money you do have wisely. There are a few reasons why making the right calls with your music business loan or investment matters.

Don't Blow the Loan or Grant Money

The most obvious reason not to blow the money you have is, well, you won't have any money left. But aside from the usual practical applications of being broke, overspending on one part of the process of your project will leave you with no money for the other parts. That means, for instance, that if you blow all the money on the pressing of your album, you won't have any money left for promotion.

Watch Out for the Strings

The money you receive may come with strings attached. This is especially true if you get money from an arts council. But if you're dealing with an investor in your business, this could matter as well. You no doubt had to explain to anyone who is funding you what your plans are and where you expect the money to go. They'll expect you to stick to the plan you presented to them, at least in general terms.

Flubbing your funding once could impact your chances of getting funded in the future.

So, clearly, the decisions you make about prioritizing your expenses are important, but they're not always easy. Let's take a look at some common music business scenarios and how to handle them. First, the small print. Not all of these scenarios will apply to you - it depends on the project you've been working on. Also, this advice is general in nature. How to best spend your money depends on your specific circumstances - first and foremost, how flush with cash you are. This advice is geared towards those who are really juggling their expenses, but there's a nugget of truth in there for most people, no matter how deep your pockets are.

Album Pressing Costs

Let's say you have an indie label. You're getting ready to release an album, and you're trying to decide how you want to present it. You could press up the album on CD and package it in a jewel case with a two or four-page booklet. You may think this option is sort of ho-hum. Alternately, you could press it on CD, package it in a digipack or a jewel case with a 16-page booklet AND press it on vinyl. You may think that it would be so cool to put something out on vinyl. What do you do?

You should probably resist temptation and go for the simple first option. It may not have all the bells and whistles, but things like digipacks and long booklets really jack up the cost of production in a hurry. Also, you don't get much return on that investment. Yes, cool artwork and packaging are lots of fun, but you have to spend wisely now to get to the point where you can afford to do that someday.

As for vinyl, well, it costs a fortune, and it's hard to sell. For some styles of music, vinyl is pretty important, and yes, when people love vinyl, they LOVE vinyl. If you're one of them, you might be convinced that vinyl is the way forward. If your friends love vinyl, then you'll REALLY be convinced that vinyl will make you rich. It won't. It's a luxury. Be smart at the start, and you'll be able to indulge your vinyl fantasies at some later day.

Of course, if you really want to save money, you could opt for a digital release and test out the interest in the album you're releasing before you press hard copies (or may decide you don't need to press at all). And if you need some more convincing about vinyl, consider Factory Records, who lost money on every copy sold of their biggest selling 12" - Blue Monday by New Order. Do you really want to be praying no one buys your album so you can pay your rent?

Demo Recording

You've got some good songs, and you think you'd like to send them out to some label to see what happens. You can record your demo at home, but your recording skills are so-so, and you're worried that your demo will sound so unprofessional the labels won't take you seriously. Your other choice is to book some studio time to record your songs pro-style. What do you do?

Even if you have funding for the album you're creating (and yes, in some places, arts councils will fund people to write songs), if you're recording a demo, don't spend your money on a studio. If your purpose is truly to shop your songs around, labels really, honestly are prepared for demos to be rough. They expect it.

Some people think that having their demo professionally recorded and presenting it complete with extensive artwork and liner notes show that they're serious about their music. Frankly, in some cases, it can actually make a bit of a bad impression—it's just a waste of money that looks a little naive.

Your money would be better invested in some kind of home recording system so you can plug away at your ideas as they come up. Yes, people do record demos in studios, but that's best left to people who are already selling some records and can afford it. For now, you have better ways to spend your cash.

The exception? If what you're after isn't really a demo at all but rather a promo. If you plan to try and sell your recordings, then a studio may be in order. 

Hiring PR

You've got an album ready for release, now all you need to do is promote it. You can do the promotion yourself, but you're not really sure what you're doing. Your other choice is to hire a music PR company to handle the work for you. What's the best option?

This one is a little tricky. Promotion is largely about contacts, contacts, contacts, and when you hire a PR company, you're really paying for access to their contacts. Having said that, there's no real magic formula. Everyone doing promotion had their first day on the job, so to speak. You have to start somewhere, so there's no reason you can't build up those contacts yourself, with lots of perseverance, research, and a thick skin. But do you have the time, or desire, to do it?

First things first, PR is expensive. When considering whether it is a worthwhile investment, consider the album you're releasing. What are the chances that it will really get high profile reviews in national media or radio plays? If it's the first album by an unknown artist, that's a tough battle even for a PR company.

You may be better off doing your promo in-house, building up as many regional reviews as you can while making sure the nationals at least know you're out there, and then hiring PR for the next release. With that groundwork in place, you're giving them something that has a fighting chance of getting noticed. On the other hand, if the album you're releasing already has that groundwork in place or already has a buzz, then PR can be a great investment.

The bottom line for PR? It depends on your release. Also, keep in mind that different PR companies cover different parts of the media. One way to split the difference if you can't make up your mind about PR is to hire a company with good radio contacts and do the print media yourself. Radio is incredibly difficult to get into, so having someone with a foot in the door on your side can be a very good thing.

Tour Support

You've got a record label, and one of the bands or artists you work with is planning to go on tour to promote their new release - and they want you to chip in on the cost. Should you do it?

This is another tricky one. Touring is costly. Very costly. However much you think it will cost, it will be more than that. And many times, independent artists just starting out aren't making enough money to even come close to breaking even. So, asking the label to pay tour support is a pretty typical and understandable request. After all, touring is a great promotion for a record, and their touring might help both of you. At the same time, most indie labels hate giving tour support, because it's hard to quantify whether or not it's a good investment. While a tour may increase the buzz about an artist, it may not translate into sales right away or enough.

Where does that leave you? It comes down to a judgment call. First, know that many, many indie labels won't even consider paying tour support. If there is enough money in the coffers to help cover the costs of the tour, and you feel good about pitching in, go for it. But, don't skimp on other important expenses to scrape together the money for tour support.

Also, keep in mind that you may have already contributed to the tour "in kind." If you booked the shows—which many indie labels find themselves doing—you have saved the band the commission an agent would charge for doing the work. If you're promoting the tour in-house, then that's another cost you're covering. Likewise, if you have your PR company do a special campaign for the tour, you're already incurring expenses for the tour.

Other things to keep in mind when weighing up tour support:

  • Your deal with the artist—if you have the artist locked into a multi-album deal (pretty rare for indie labels), investing in a tour might be a decent thing in the long run, since you have a better chance of reaping the rewards. If your deal is more flexible, there isn't much reason for you to pay for a tour for an artist whose next album you're not going to be working on.
  • Does your contract say anything about tour support?
  • If you pay tour support, will that be a recoupable cost against the artist's account?
  • How much is the artist going to be making on the tour? Things may be different at bigger labels, but for an indie label, you're kind of in things together. If they're going to be making a profit from the tour, then it's not in your interest to chip in any cash.

There are so many different scenarios you could face when you're trying to make decisions about how to spend your money, but these are some of the most common. Whatever choices you're faced with, remember to differentiate between indulging what you think would be cool (like vinyl) and what you can afford now to keep your business going in the long term. If you play your cards right at the start, you have a better chance of not having to make such hard calls in the future.