How to Start a Record Label

Ever wanted to start a record label? Picking cover art, curating playlists, designing t‑shirts, it’s all fun, right? Well, the reality is not so straightforward according to our latest Songtradr Happy Hour guests, Heather Johnson and Ryan “McLaffyTaffy” Capps of Ninety9Lives. In an entertaining hour packed with fun personal anecdotes, they explain what it really takes to run a successful 21st-century music label. Tune in to hear how a good idea can swallow your life whole for a decade, why hiring competent legal representation and a good tech person are crucial to staying afloat in a sea of insane music laws, and answers to our community questions.

Happy Hour Guests

Heather Johnson — Heather runs Ninety9Lives, a record label that provides properly licensed music to be used by content creators. She also moonlights as an advisory board member of A2IM, advocating for the value of independent music rights holders.
Ryan Capps — Known to his friends as “McLaffyTaffy,” Ryan co-founded several one million sub YouTube channels, partnered four Twitch channels, and affiliated two more. Since then, he’s sold his equity in one, formed a record label (Ninety9Lives) that’s been in the black every year of its existence and charted releases on Billboard, co-founded Pretzel (which was recently acquired by Songtradr), and streams full-time on a Twitch channel that ranks in the top 0.06% globally.

The interview was conducted by Songtradr CXO, Victoria Wiltshire.

The realities of founding a record label.

The conversation began with Heather and Ryan mapping out some key moments in Ninety9Lives’ timeline. The Arizona-based label bolted out of the gate in 2015 and found fast fame on the Billboard charts. But as the duo explains, luck played a big part in the label’s early success.

“What we didn’t know would fill the Grand Canyon,” admitted Ryan. “There was nobody there to tell us [what to do], and it really felt like anybody who was in the industry really sat on it. They were like, ‘Oh, yeah, rootin’ for you.’ And we’re like, yeah, well, if we can just get our name on everyone’s lips – for us, that felt like the only thing we needed to do. And they said, ‘Well, yeah, that’s every business in the world. Good luck, pal.’ But the problem that they didn’t bank on was that we pulled together the label, and then right out of the gate, we had Ian Stapleton, who goes by the YouTube name SSundee, as one of our business partners. And he had never endorsed anything commercially on his multi-million subscriber YouTube channel before. So he came out one day and said, ‘Hey, I built a music label with some friends. You should go check it out. It’s over on this website.’ ”

“We expected some slow growth and instead we got hit with the same amount of traffic that you would expect with a Super Bowl commercial… Nate [Beck] (Ninety9Lives’ tech person and co-founder of Pretzel) built it anticipating heavy traffic, but we got hit with halftime at the Super Bowl-type traffic and that crashed everything we were doing.”

None of the label’s founders knew anything of the legal side of the music business when they started, and that eventually caught up with them – a point the duo frequently notes throughout the conversation. However, Ryan shares that despite the bumpy ride, they managed to fly by the seat of their pants and get things done.

“We shot out of the gate, and instantly, as somebody who had never really been in music before, I was the guy who collected all the jobs that nobody else wanted to do. So I was trying to tackle legal. I was trying to tackle accounting, do customer service, work with the artists, take their emails, Skype calls, and make them feel special. I figured out what PRO’s were because nobody wanted to tell me because I have a theater degree and can’t sing and don’t play a musical instrument. And here we were, all of a sudden, with my email being hit by Billboard saying, ‘Hey, you guys are charting. You’re right behind the Chainsmokers on EDM. Do you guys have cover art?’ And I was like, ‘Yeah, yeah, no, we do.’ ”

“We had musicians, but we didn’t have music business people,” explained Heather. “People that understood rights management, that understood data management and the value of those things. And that information isn’t necessarily free-flowing.”

“Every person that I talk to now that wants to start a label, they get wrapped up in the cool creative aspects. The cover art, the music, the grassroots campaigns, and chasing down influencers to promote their music on blogs. And all of those things can be fun, but on the backside, probably about 80% of this is about knowing where to register your rights, making sure you’re chasing down your rights, and protecting those rights, which there aren’t a lot of tools to do. Like probably a good 20% of my job is chasing those things down, and it’s hard to learn”

“All the sexy stuff got a lot of the attention,” admitted Ryan. “But I felt like Chicken Little a lot of the time going we need bookkeeping, we need to know how much of our money is ours and how much is royalties for artists. None of us seem to know what sync rights are. None of us seem to know the difference between the types of rights that artists can hold and who can hold them.”

Even though they lacked knowledge in critical areas, they asked questions, studied books, and soldiered on.

“Thankfully, Nate, our CTO who is now a member of the Songtradr family, is just a voracious sponge,” said Ryan. “Whether it’s technology or music law, if it’s something that he can figure out and it solves a problem that’s in front of him, Nate will sit down and just go, I’m going to figure out 100 years of music law, and then he would go do it.”

“And then much later on, years down the line, tens of thousands of dollars later, he was the one who went to the lawyers and said, here’s the contract that you draw up. We had an entertainment lawyer in Miami who wanted everything to be wet ink. And we were like, dude, none of us live in the same state, and all the music we’re signing is from Europe.”

What factors determine a label’s success or failure?

In an industry with high stakes, small margins, and a lot of legal, failure can often feel close at hand. While no formula works for all, there are certainly some right and wrong ways to start a label. Heather and Ryan count themselves among the lucky ones that failed upwards. As a result, both have plenty of advice for those venturing into the music label business.

“A surefire way to fail is bad legal,” Heather recited without hesitation. “Don’t pick up templates online. Hire a lawyer and tell them your vision. Don’t just say I need legal that covers these rights. Tell them your vision and work with them to get what you need.”

Heather admits that Ninety9Lives is the perfect example of what not to do when it comes to contracts.

“We started out with a contract that was way more aggressive than what we had in mind,” she said. “It was hard because we didn’t really know what we were looking for. What’s most embarrassing is when you go to an artist and present them a contract, and they go, ‘Are you trying to steal my firstborn? That’s in the contract?’

“I’ve had parents come to me and say my 19-year-old showed me this contract, and I’m an arbiter, or I’m a lawyer or a barrister in London, and this is outrageous,” added Ryan. “And I was just like, I don’t understand what half of it says. My guy down in Florida insists that we need all this. It was incredibly aggressive; and it felt bad because we didn’t know enough to be able to push back on our legal and say, ‘That’s over the top, I know you’re protecting us, but we’re coming off as the bad guy.’ ”

Offering further sage advice, Ryan explained that you need to have somebody who’s piloting the ship and really trust what they’re doing. “When we hot potatoed it around, we made a lot of decisions that we couldn’t put back in Pandora’s box,” he said.

“Know who your customer is and know who your market is. We were like, yeah, we’re going to provide music for content creators. And in our mind, we’d do that like B2B,” explained Heather. “We’re providing music for another business owner that streams and is making money. That’s the kind of music we’re going to make available to them, and they’re going to want to listen to that music outside of it. And then we used Ian, who was our main promoter, but his audience isn’t content creators. His audience is Minecraft fans. So we did this all with the goal of promoting the music, but we missed that particular market.

“Then when it came around to it, we were like, OK, we’re capturing this other market, what can we do? These gamers also love YouTube and are loving our music, how can we get to know them a bit more? We were like, OK, we’re in the B2C market, let’s go for it. But then we kept going back to the content creators and not fostering anything with them other than trusting that our music was safe. It was just this weird hodgepodge of the wrong marketing techniques for the wrong audience.”

“It’s weird to be harping on about all the mistakes we made,” Heather admitted. “The label is successful. We’re in the black. We sell records consistently, our artists make money, and we’re known in the content creator space. But these are things that, if we’d been aware of them, we’d be that much more ahead.”

The “unsexy” fundamentals of starting a record label.

Nailing the fundamentals is not the sexiest part of running a business, but it helps weather the headwinds that inevitably strike every company. In the third segment of our Happy Hour conversation, we delved into the nitty-gritty details on how to stay afloat.

“I honestly think that the first section in the table of contents for a book about setting up a music label – especially if it’s in the United States – needs to be a collection of some of the most absurd laws that you’re going to have to abide by so that you know how goofy and ridiculous the world of music legal is when you go into it,” began Ryan.

“For example, in America, we have a law from, like, 1910, that was originally created to monitor the money that was generated by self-playing pianos at bars. And that law is still enforced in 2021.”

“That’s the first part, and then after that, I want to echo what Heather said, which is that you need to be grounded.”

“The unsexy foundation needs to be built and be rock-solid first. If you don’t understand the different kinds of rights that you represent or are trying to acquire, and if you don’t understand exactly how you’re going to fight on behalf of your artists or even know the rules of the game you’re in… You really don’t want to be laying track in front of the train while it’s moving.”

To illustrate how fine the line between success and failure can be, Ryan and Heather shared some of the turbulence they weathered at Ninety9Lives. Again, you’ll hear them talk about Nate – their knight in a start-up company t‑shirt.

“We came dangerously close at one time,” said Ryan. “We were not paying everybody, but we were paying people who were running out of runway on our label. And I just had a ‘holy smoke, I think we’re in trouble moment’ where I was like, I think the amount of money we have to give us and the amount of money due to artists is getting very close to each other. But I didn’t have the correct bookkeeping in place to show anybody that, so I just kind of had to run into a meeting and wave my hands around and just get everyone to pay attention to me until we figured it out.”

“We had a lot of ‘build versus buy’ conversations,” explained Heather. “Nate is a software guy, so he built a royalty payment system that I still maintain. We have a rights tracking system that he built for us that I maintain. And these are things that cost. I’ve looked at potentially replacing it so that I don’t have to maintain it, and we’re talking, even for a label our size, something that starts at $2400 a month. That’s not even facilitating the payments, that’s just doing the calculations. Then I still have to pay for the email statements to go out, which we do ourselves because we built it ourselves.”

“But most labels don’t have that,” Heather continued. “So you’re going to be living out of spreadsheets, and you’re going to be paying accountants. I’ve talked to labels that still use spreadsheets and accountants because it’s still cheaper to have two accountants on staff than to pay for some of this tech. So we are kind of a lesson in failing up. We had the big influencer, we had a tech guy, and what we didn’t know, we didn’t know. So we built what we could and somehow survived. Honestly, now we’re doing really, really well.”

“I’ll never start another company without having an absolutely rock-solid tech guy. Even if it was a shoe store,” Ryan added with conviction. “Like, I don’t think I’d start a company without having somebody who is technically savvy. Because I don’t think we survived this without having that piece.”

Our guests answer your questions.

In our final segment, we asked our guests to answer questions sourced from the Songtradr community.

What legal forms are needed to be filed? And is there is a recommended step-by-step guide out there that is relevant for starting a label in 2021?

“There is that book by Don Passman, which is often called the Bible of the music industry. That is always a good reference. But as far as a step-by-step guide is concerned, ultimately, first and foremost, you need to file this and this. And then you have to be aware of what you intend to do with the business. Is it going to be a partnership with another person? Do you ever intend to take on funding? If so, you have got to file your business differently. And so there’s so much to it. You’re gonna have to do quite a bit of research,” explained Heather.

“A step-by-step guide is called hiring a lawyer,” interjected Ryan.

“Save up the money, hire a lawyer, and tell them your vision. If you want to protect your future and what you’re investing in, the best option you can do is find a good lawyer. Don’t find forums online. Find a really good lawyer. Someone in the music industry, preferably.”

“I’ve been handed a form by a lawyer – that we fired – where the company that was in the contract was still the previous company he had given the contract to. Like, he hadn’t cut and pasted out the company’s name for our name. So I was going through and finding, like, Tom Willis Mitsubishi. And I was like, I’m not a car dealership guy. Like, I almost sent this out to somebody to sign.”

“We spent thousands of dollars on really good album art, but the more important purchase was getting legal straightened away. It’s a very litigious industry. So you want to make sure that you have everything in check.”

“A lawyer that we worked with for a while said that he represented people in film, in sports, MMA, and adult film, and he said that there was no more cutthroat legal industry than music. He said nothing else held a candle to it.”

I want to start an online record label in India. Do you have any advice?

“It comes down to similar things that we talked about before,” explained Heather. “Know your audience. Are you looking to develop artists? Are you looking to do what we do? Which is to sign on a per-track basis and try to give brand new bedroom producers a leg up and a chance to get music out there? What are you looking to do, and does it play to your market? Are you looking to stay within India, or are you looking to go worldwide? What music do you want to bring out? Understanding those pieces will get you started.”

“Literally, sit down and figure out what your mission statement is and figure out how you want to go about it. Figure out what your points of differentiation are from your competitors and what kinds of competitors are out there,” added Ryan.

“You’ve got to sell, especially in the beginning. We had to get artists who didn’t know us from a hole in the ground on board. We had to get people to come on and take points of equity, to work on things that needed to be done. But we had to sell them on why their time was well spent with us.”

“Ultimately, we had to convince people that we were doing something that needed to exist, tell them why it needed to exist, and then hype them up on how excited we were to do it. And that was a 360-degree scope of artists and other labels, mentors, lawyers, and graphic designers.”

“The more questions you can answer about why you need to start a label, the better. Then get great legal.”

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