The board of directors and shareholders preferences are paramount to the decisions made by the management of a record label when it comes to how the profits of the record company are taken into account.
Sometimes the shareholders will favor the pro growth strategy whereby the record label will not pay cash dividends but instead will carry on with the confidence that the record company is better off reinvesting its profits into the business of music.
Alternatively, the shareholders of the record label can be tendentious towards the idea of profit-sharing. This means the shareholders will be inclined towards distributing the profits that the record label makes to its shareholders based on the ownership structure.
At the end of the day its up to the owners of the record label to decide on whether the record company should reinvesting it’s profits into the music business or whether the record company should systematically pay cash dividend to its shareholders.
Pro Growth Dividend Policy for a Record Label
Pro growth dividend policy for a record label means the record company will be interested in reinvesting its returned earnings towards the growth of the record company in relation to the business of music.
The advantages of doing so are that the record label will have even more sufficient capital to invest into its artists and explore into new markets if there are any e.g signing new and upcoming artists who aren’t affiliated to any record label.dividend policy theories dividend policy pdf importance of dividend policy
When it’s all said and done the main advantage of pro growth dividend policy for a record label is that the shareholders will not have the privilege to receive cash dividends but instead they might be delighted to witness the growth of their record company.
Profit Sharing Dividend Policy for a Record Label
If the shareholders of a record label agree towards the initiative of profit-sharing of all revenue generated by the record label this means that the record company will have to pay out cash dividends to its shareholders.
The advantage of this in the interest of shareholders is that they will have reasonable capital to diverse their portfolios outside the scope of the music industry.
The opportunity of paying cash dividends is that the record label could have used that money to expand the operations of the record company in the business of music.
NOTE: When everything is all said and done in the world of investing, best believe receiving dividends can be like collecting interest on money in a bank account. That’s all we can say for now, so take care, bye!