Record labels have been around for decades and, for a long time, being signed to one meant that an artist made it in the music industry. But what does a label actually do, how do they make a profit and how are they evolving? The latest episode of Billboard Explains answers all those questions.

There are two types of labels: major labels, which are organized into umbrella companies called label groups, and independent labels. The three major labels in today’s industry are Universal Music Group, Sony Music Entertainment and Warner Music Group — with each having their own subsidiaries. Independent labels differ from major labels, as they operate on their own funding. They can also outsource distribution and publishing, while majors do that themselves.

“When you think about a record label now, it’s really important to focus on the fact that they have massive marketing and publicity muscle,” says Dan Rys, Billboard‘s senior writer. “They are the ones who are able to put a billboard up in Los Angeles. They’re the ones who can get you placement on streaming services.”

Labels typically make money on songs’ master recordings one of three ways: through music sales, downloads and streaming of an artist; brand partnerships where an artist endorses a product; and master licensing, using the exact recording of a song for a commercial, movie or TV show. Labels can also make money on touring, merch and other opportunities based on deals signed with artists.

Thanks to social media, the way labels recruit artists has changed drastically. “There was a time when record labels were the only way that anyone could actually get their music out to the public,” says Keith Caulfield, Billboard‘s managing director of charts and data operations. “They controlled all the marketing and distribution of getting your music into stores. Today, that’s greatly different because you have the Internet.”

Watch the latest Billboard Explains above. After the video, catch up on more Billboard Explains videos and learn about the origins of hip-hop, how Beyoncé arrived at Renaissance, the evolution of girl groups, BBMAs, NFTs, SXSW, the magic of boy bands, American Music Awards, the Billboard Latin Music Awards, the Hot 100 chart, how R&B/hip-hop became the biggest genre in the U.S., how festivals book their lineups, Billie Eilish’s formula for success, the history of rap battles, nonbinary awareness in music, the Billboard Music Awards, the Free Britney movement, rise of K-pop in the U.S., why Taylor Swift is re-recording her first six albums, the boom of hit all-female collaborations, how Grammy nominees and winners are chosen, why songwriters are selling their publishing catalogs, how the Super Bowl halftime show is booked and why Olivia Rodrigo’s “Drivers License” was able to shoot to No. 1 on the Hot 100.