New Report on Global A&R Illustrates Some Less-Than-Rosy Facts of the Business

Courtesy of TomorrowWorld
The crowd of fans at TomorrowWorld 2014 in Chattahoochee Hills, Georgia.

Last week the IFPI, the global trade organization representing record labels, released its A&R report titled "Investing in Music." A follow-up to the 2012 edition, the latest A&R report details the $4.3 billion record labels spent globally on A&R -- down from $4.5 billion in 2011 -- in the name of finding, pursuing, signing, recording and marketing artists.

The report may come across as either self-congratulatory or defensive -- after all, why do record labels need to impress upon people the amount of money they spend creating the products they sell? Actually, there are plenty of reasons.

1. Believe it or not, the record business still needs to defend the value it provides to artists.

Opinions on record labels vary wildly, but there's no doubt they invest in both new and established artists. The ability of artists to build an audience using other peoples' money, offloading financial risk in the process, is undoubtedly a major reason why artists still sign with record labels when alternatives exist (such as label services companies that perform marketing, distribution and promotion functions while allowing the artist to retain ownership of the master rights). Reports such as this are always good for citation in comments or testimony to Congress when seeking a favorable change in legislation. This A&R report also tends to get -- ahem -- broad media coverage.

2. Not all A&R is the same

The report mixes case studies of higher-risk, new artists (such as Sam Smith and Ed Sheeran) and lower-risk, established artists (such as Pharrell Williams). It would be helpful if the IFPI separated spending on new artists that typify most conversations about A&R from the costs of releasing a new album by a more established artist.

3. Some artist contracts have low risk

The record business is risky. Indeed, the A&R report talks about the components of an artist contract such as advances, recording costs, tour support, video production and marketing & promotion. For a new artist signed to a major label, the total of these expenses range from $500,000 to $2 million, according to the report. Note that some of the components of that sum are for a new pop artist.

But the IFPI's report didn't mention that labels also sign artists to small, lower-risk contracts with small advances and little-to-no tour support. This is the artist contract in the age of the digital track. A&R staffs scour the globe for songs likely to be hits and have global appeal. They're looking at single songs, not a larger body of work. (It's been said that A&R executives can reasonably predict a single's success but cannot accurately predict whether an album will be similarly successful.) If that song blows up, the resulting digital sales and synchronization revenue will turn a modest artist contract into a profitable venture.

UPDATE (12/3): A previous version of this article misstated how the IFPI defines A&R expense. It does not count marketing costs in A&R spending.