A new Investing in Music report from international music-industry trade body the International Federation of the Phonographic Industry (IFPI) concludes that, globally, record companies invested $4.5 billion in A&R and marketing in 2011, of which $2.7 billion was in A&R alone.
"It is still a very high risk industry," said Frances Moore, IFPI's CEO, pointing out that it can cost up to $1.4 million to break a new act in a major market with only one in five ending up with a successful career. "We don't see anyone else coming forward to take that risk," she added.
The report, commissioned for IFPI and independent labels' global organization WIN, was unveiled at IFPI's headquarters in London today. The study claimed the international music industry's commitment to creativity was illustrated by the 5,000 artists currently signed to the major record companies and the "tens of thousands" on the independent labels' roster.
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The report showed nearly 23% of the labels' artists were new signings. A breakdown of the potential $1.4 million cost for breaking each new act in a key music market was broken out as follows in the report under the heading "Typical investment by a major record company in a newly signed artist:" $200,000 on the advance; between $200,000 and $300,000 on recording; the budget for two to three promotional music videos could cost between $50,000 and $300,000; another $100,000 on support for touring; and up to $500,000 for marketing and promotion.
Although the possible $1.4 million cost represents the high end of the investment, it confirms the labels' financial commitment to nurturing and developing artists "despite declining revenues," Moore said.
Helping to put the 16% of music's revenues the music industry spends on A&R in perspective, the report compared other industries' research investments: the global pharmaceuticals and biotechnology sector, for example, invested 15.3% of its revenues on R&D; software and computer services spent 9.6%; while technology hardware and equipment industries devoted 7.8% of their revenues.
The Investing in Music report also features the results of a study that concluded that unsigned acts appreciate the positive impact labels can have on their careers.
Based on studies by U.K.-based The Unsigned Guide and IFPI, and German IFPI affiliate Bundesverband Musikindustrie, more than 70% of unsigned artists said a recording contract with a label is essential for the right marketing and promotion strategies. "The role of the record industry is very much undiminished," Moore said.
The global music industry saw a 3% drop in total recorded-music revenue to $16.6 billion in 2011.
During the Q&A that following the report's launch, the IFPI disclosed that global music revenues had declined 1% during the period from January to October this year.
This was compared to the 3% drop during the same period in 2011, hence the industry's confidence that the decline in revenue is truly turning around, Moore added. "We're looking at improving revenues compared to last year, which was an improvement on the year before."