So who runs the record labels now?

Stars like Jack White, and Kings of Leon, and many cult acts, are starting labels. Why? Are their signings better than those to traditional companies? Elisa Bray looks at the small print

It was once the preserve of rock and pop giants, but now even members of newer indie-rock bands are trying their hand at starting their own record labels. It makes sense. You are in a successful rock band, you love music, and you have a sense of how the music industry works. Why not release music by new bands? It worked well for The Delgados, whose Chemikal Underground is the most successful example. Set up by the revered Glasgow indie band in 1994 to release their first single, husband and wife team Paul Savage and Emma Pollock went on to break many Scottish bands, including Mogwai and Arab Strap, and to release early demos by bands including Interpol.

Could indie bands fare better at the job than starry failed attempts before them? After all, Noel Gallagher's Sour Mash Records, launched in 2001, failed to take off with its releases from Shack and new band Proud Mary, as did George Michael's attempts to sell music online via his label, Aegean. Mariah Carey's Crave label lasted less than a year. Perhaps Lily Allen, the latest star rumoured to be launching a label, will buck the trend.

But record labels from less publicity-courting rock-band members look to be more promising, if recent and upcoming releases from labels set up by Jack White, Grizzly Bear's Chris Taylor, The Drums' Jacob Graham and Kings of Leon are anything to go by. For a start, look at the newest releases on Jack White's label Third Man Records, also home to his myriad of bands The White Stripes, The Raconteurs and The Dead Weather and the country-pop singer-songwriter and model, his wife Karen Elson. Founded in 2001, in Detroit, Third Man's newest discovery is Smoke Fairies, a female duo from Sussex whose intoxicating swirling blues-rock licks and haunting folk harmonies have already garnered much attention. With a single for sale on the Third Man Records site, White will put out their debut album later this year. It adds a certain cachet to a new band to be taken on by a label set up by a hip act, and both the new act and the music-buyer would hope that, with musicians behind the labels, making a quick buck is less on the agenda than with many major-label deals.

"It's not to make money. It's to put out good stuff," says Grizzly Bear bassist Chris Taylor, who put out the first release on his new label Terrible Records last November with Ethan Silverman. In February it released the female-fronted Brooklyn synth-pop trio Class Actress's excellent debut EP Journal of Ardency with singer-songwriter Elizabeth Harper's ethereal, dreamy vocals against New Order-esque Eighties synth beats. The band have since performed at SXSW and their music has been heard on the hip television drama Vampire Diaries.

Having been in Grizzly Bear for five years, and produced their last three albums as well as records by Department of Eagles, Jamie Lidell and Dirty Projectors, Taylor knows his way around the industry. "I just thought it would be a place I could put out music by artists on better terms. I want to keep an honest relationship with my bands. I know my limitations as a label – I find a lot of labels promising things they know they can't actually do. I keep it open and honest and that way everyone feels satisfied and not duped or taken advantage of. If I had bigger resources to do bigger things I'd keep the same policy. I record people for free so I pick very carefully."

These are artists whose main intention is to cultivate new bands, and give them a platform to be heard. Such is also the case with Kings of Leon. Their first release, in February, Some Kind of Salvation, the debut album from fellow Tennessee band The Features, has already already caught the attention of radio DJs Jo Whiley and Steve Lamacq.

Surprisingly early in their career trajectory – so far they have released only limited edition 7in singles and their debut album is not out until June – New York band The Drums have launched an online record label. It was their October-released Summertime EP boasting the single "Let's Go Surfing" that created the initial buzz around the New York band. But setting up a label was a long-standing plan for their guitarist Jacob Graham. After waiting to secure funds to start the label, he and his brother finally launched Holiday Records after they realised it was pointless waiting for something that might never happen. They launched website Holidayrecords.net and decided to put out a free MP3 every Friday. To find the artists, they trawl MySpace globally.

"My brother and a couple of friends of ours have just always wanted to start a label", explains Graham. "We knew of a lot of bands we liked that no one was hearing. It seemed like it was time to take matters into our own hands. We are constantly working with new bands. We only work with artists that we're crazy about. A few that seem to stand out are The Young Friends, Golden Glow, The Hairs and Two Wounded Birds."

They have also found that the more attention that comes their way – and there will be a lot more to come with an appearance on Jonathan Ross later this month and a new single to follow in May – the more traffic is driven to their online record label.

"Being in The Drums does help to attract like-minded individuals to us. Ever since The Drums have been in the public eye, I've received more and more demos from artists that are doing the same sort of thing as us... which is of course trying, above all else, to write the perfect pop song."

Indie folk band Mumford & Sons are known for their musical community which includes Laura Marling and Noah and the Whale. Their keyboard player Ben Lovett set up the club night Communion, with his friend Kevin Jones, alongside producer Ian Grimble (Siouxsie and The Banshees, Marc Almond, The Manic Street Preachers) to provide a platform for new artists' early live performances . This year they expanded to launch the label, Communion Records, offering a similar ethos to its club nights, giving a first outlet for the new artists that they have been championing live.

Their first release, a double gatefold 12in vinyl, compiled the best of Communion to date, featuring folk-leaning rising stars Johnny Flynn, Jeremy Warmsley, Broadcast 2000, Alessi's Ark, as well the first recorded material released by newcomers Elena Tonra. Matt Corby and Marcus Foster, and they are now preparing to release individual EPs and singles.

"I do like how we've earned the opportunity to help musicians to release a record now as well as play live," says Lovett. "There's a lot of music that never leaves people's bedrooms or home studios. I'm certainly no A&R scout, I love music as much as the next person, but I am fully immersed in the crazy circus that is the live music and record industry and often have the great pleasure of hearing, by recommendation or sheer luck, new music.

"A perfect example would be Matthew and the Atlas, billed as local support for a Mumford & Sons show at the very start of 2009 and who just blew everyone away. He has since been in the recording studio and made an EP which we have released through Communion." Fans should also look out for the upcoming debut EP from the talented folk newcomer Pete Roe which Communion will release in June.

So watch out – these band-members-turned-A&Rs might just be getting it right.