How to Start a Record Label in South Africa

bizfluent article image

miami beach nightlife image by Immo Schiller from Fotolia.com

The South African music industry is thriving. In 2018, its revenue increased by 12.4% compared to the previous years. Top musicians get paid up to R250,000 ($17,643) per gig in addition to what they earn from music streaming, which has replaced physical sales.

One way to support aspiring artists is to start your own studio. The key is to have a strong independent record-label structure in place and build connections in the industry. Make sure you have a good understanding of the music industry in South Africa before starting a record label. Familiarize yourself with the most popular music genres, study successful artists and research the major record labels and what makes them stand out.

Consider joining the Worldwide Independent Network, the Recording Industry of South Africa, the Association of Independent Record Companies and other organizations that support artists and independent record labels. These affiliations can increase your exposure and help you build connections.

Independent Record-Label Structure

Make sure you understand the nature of independent record labels. Also known as an indie label, this type of business operates on its own without being affiliated with or funded by major record labels.

Companies that provide these services are typically small- or medium-sized enterprises and may have international licensing deals and distribution-only agreements with major labels. Their activity is supported by the Worldwide Independent Network, a global organization that facilitates communication among its members and promotes cultural diversity.

Independent record labels generate revenue from the music they release. Most of them split their earnings with the artists they promote. They may also receive public performance royalties, digital royalties and so on. Toya DeLazy, Moozlie, Fifi Cooper and other popular artists in South Africa have started their own independent record labels to avoid these fees and to have more freedom.

Make a Business Plan

The first step to starting a record-label company in South Africa is to make a business plan. Research the South African music industry, see what music genres are in demand and study your competitors. Think about what services you want to offer, how much you'll charge and how you will reach out to aspiring artists. Consider going digital to gain exposure for your business and to gain a competitive advantage.

Streaming in South Africa increased by over 334% in 2016 followed by a 40.2% increase in the following year, according to the IFPI — a nonprofit global organization representing more than 1,300 record companies. Physical music sales, on the other hand, decreased from $43.1 million in 2013 to $10.7 million in 2017. Considering these facts, it's worth taking a closer look at music-streaming services and how you can leverage them to grow your business.

You also need to consider your competition. Currently, some of the most popular record labels in South Africa are Super Black Tapes, Gallo Records, Lilac Jeans and Kalawa Jazmee; each company specializes in one or more music genres, from jazz to reggae to South African pop. Research their marketing strategy, target audience and payment models and try to come up with something different. Artists who sign up for a record label will want to know what the company can provide and what sets it apart, which is why you must define your selling proposition.

Check the Legal Requirements

In addition to the above aspects, your business plan should cover the legal and financial aspects of owning a record label. Decide whether you want to register a sole proprietorship, a partnership, a public company, a personal liability company or a proprietary limited company. The latter is the equivalent of a limited liability company in the U.S., and it's a popular choice for expats and international investors because it doesn't prohibit foreign shareholding.

The legal requirements for starting a record-label business or any type of business in South Africa depend on your circumstances. Individuals who are in a relationship with or married to a South African don't need a business visa. If this doesn't apply to you, make sure you first obtain either a business visa or an independent financial permit.

In the case that you apply for a business visa but don't qualify for a waiver, you must invest R5 million, or approximately $352,599, into your new business. Furthermore, South African citizens or permanent residency holders must account for at least 60% of your employees. Also, be aware of industry-specific regulations and prepare the documents needed to start this kind of business, such as a record-label application form, record-label trademark, recording contracts, licensing agreements and music-distribution agreements.