What are record companies?
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A record company makes, distributes, and sells records, recordings or images. Record companies are often called "labels," to describe the business partner in the recording process. But "record company" and "recording label" have the same meaning: they are businesses that control the trademark and marketing of music or video.
What Record Companies Do
Record companies usually sell the work of other artists, rather than their own records. They use "recording agreements" with artists to obtain the rights to mechanically reproduce and distribute their records. In exchange, the recording artist receives a "mechanical royalty."
How Record Companies Work
In the United States, there are less than a half dozen major recording companies (although there are hundreds of smaller labels). They are known as the Big Five: Sony, Universal/Music, BMG, Warner/Music, and EMI. The Big Five have purchased many old companies, from Apple to Capitol. The influx of new media has also allowed for different types of companies to be called "recording" companies. For instance, heavy use of the Internet video database YouTube has allowed the band "OK Go" to promote itself almost entirely online and make a considerable amount of money -- all without a separate recording label. Another prominent band, "Bonerama," actually books its own in-home concerts, again by using the Internet, for $10,000 a show.
No matter how you look at it it, independent ‘labels’ like OK Go and Internet streaming are now considered to be major players in the workings of the industry. Still, no matter how expansive the definition of recording companies may seem to be, many experts say their function remains the same: marketing and promotion. How successful a given recording company is at this function depends in part on how well-known the company is and how much attention they can give to a particular artist. This is why many people define whether or not they have a "record company" by the success and prominence of the company's "A&R,” or, “artist(s) and repertoire.”