By Ben Cardew
Record companies around the world invest $5bn (£3.3bn) a year in developing and marketing artists, according to a new report from the IFPI which aims to debunk the myth that artists no longer need labels.
The report, Investing In Music, claims that it costs around $1m (£663,000) to break a new pop act.
Of this, typically $200,000 (£133,000) goes on the advance,
$200,000 on recording,
$200,000 on filming three videos,
$100,000 (£66,300) on tour support and
$300,000 (£199,000) on promotion / marketing.
However, at a briefing to launch the report Columbia managing director Mike Smith says that this $1m figure is “a minimum to get an act up and running and moving somewhere towards platinum”.
But, he adds that companies can easily double that if they are looking to get 1m-plus sales.
“If you add the international picture and add in tour support and other things it could be $2m.
It can be more,” explains Decca managing director Dickon Stainer.
And of course this investment is no guarantee of success, but IFPI chairman and chief executive John Kennedy says the record lables are more efficient nowadawys.
He adds that 10 years ago around one act in 10 would re-coup their initial advance; now “there is a general feeling that has come down to one in five”.
This $5bn figure means that record companies spend around 30% of their sales revenues on developing and marketing artists.
Of that, a global average of 16% is spent on A&R, although this is higher in certain countries, including the UK where A&R investment totalled 23% in 2007.
The IFPI says this figure shows record companies are global leaders in investing in new product.
In the UK the pharmaceutical and biotechnology industry, for example, invests around 15% of its gross revenues in R&D.
But, the IFPI warns that this high level of investment from record companies is under threat from falling revenues from recorded music.
“A&R spending in some countries has stayed strong, for example in the UK,” says Kennedy.
“But it becomes more and more difficult to sustain that given some of the problems that we face.
The levels are at risk down to piracy.”
Kennedy adds that investing in music is the “core mission” of record companies and they should be respected as such.
“No other party can lay claim to a comparable role in the music sector.
No other party comes close to the levels of investment committed by record companies to developing, nurturing and promoting talent,” he says.
“One of the biggest myths about the music industry in the digital age is that artists no longer need record labels.
It is simply wrong.
The investment, partnership and support that help build artist careers have never been more important than they are today.”
Kennedy also claims that, despite the proliferation of fan-funded websites, there is “no evidence” of artists succeeding in the long-term by going direct to the consumer.
“Creative energy can be wasted on business problems,” he adds.
Looking beyond recorded music, the report claims there is an economic “ripple effect” from this record company investment, which helps to benefit a broader music sector that includes live music, radio, publishing and audio equipment, thought to be worth $160bn (£106.1bn ) annually.
The IFPI estimates that more than 2m people around the world are employed in this broader music economy.
However, the report also aims to disprove the myth that artists can survive just on live income.
“You probably won’t see the level or earnings of Madonna or U2 again,” Kennedy adds.
“But a successful band in the music industry could still become a millionaire.”
The IFPI estimates that there are more than 4,000 artists on major label rosters around the world, with thousands more on indies.
