There have been a number of articles floating on the 'intertubes' on how much the record label "screws" the musicians. Although I cannot refute this claim there are many reasons why record labels operate the way they do.
It takes a lot of money to develop and promote an artist. I'm talking about thousands, and that's for an artist on a small independent label. This includes the expenses on recording the album, getting a photo shoot, advertising, manufacturing for CDs and merchandise. Not even mentioning the costs of an artist touring across the country. Since the record label is the one taking the financial risk they have the most to lose, so taking the majority percentage means they have the most to gain. Makes sense, but then there's the issue of the advance.
An advance is what I like to call a pseudo-loan. The label is lending money to the artist and the label gets paid back through the percentage of music sales that would go to the artist (royalties). So the label is getting paid back but unlike a loan there's no collateral required and no credit background check. Even though the record label will make back all of the advance before the artist will see a dime there is still no guarantee that the amount of music sales would equate to that amount. In fact, most of the time it doesn't.
Also keep in mind that a label does more than just invest money into an artist. They work on making the right contacts for the artist, developing marketing campaigns, being the intermediary between the artist and others involved such as recording engineers, and many other responsibilities.
But wait a minute, so a record label takes the majority cut from music sales AND gets paid back in full the advance from the artist's share? On top of that the label also gets to keep the copyrights to the music? That's pretty much how it works. It sucks but the record label wants to make sure it at least breaks even with its' investment, whatever means necessary.
The percentage a record label takes however no longer makes sense with the tools available to promote and distribute music. Back in the day the only way to sell music to consumers was through record stores. It's expensive to go through physical retail. If you add up reserves, free goods, not to mention returns it's a crappy deal. But back then you had no choice, you either had to sell through record stores or not at all. With online distribution though that changes everything. There are no returns to worry about, no reserves, no manufacturing. The distributor, such as iTunes, takes a cut from the sale and that's it.
The cost of recording has also significantly dropped, in fact an independent musician can spend a few thousand on recording equipment and produce their own album that will sound almost as good as what the major labels produce.
Labels also have the opportunity to utilizing the web for promotion with little to no cost. You can setup a twitter account, rally fans on facebook, upload music to dozens of sites, and contact the hundreds of music blogs and podcasts to get an artist noticed.
Although I agree that some arrangements are necessary, after all record labels are a business just like any other, the steps taken for securing their investment are just overkill these days. There is no reason for a label to take such a large cut while also getting paid back in full any advance provided to an artist. I also completely disagree with a label owning the copyrights to an artists' creation. A record label needs to take more responsibility in generating sales for an artist and having all of these safety nets invokes laziness. There has to be a compromise between the artist and the label so that the label has enough incentive to invest both time and money into an artist while an artist still receives their fair share.
Here are the links to those articles:
http://news.slashdot.org/story/10/07/13/1737224/RIAA-Accounting-mdash-Ho...
http://www.theroot.com/views/how-much-do-you-musicians-really-make?page=...