The IFPI has published a new report outlining the record labels’ investment in music talent, which it says now reaches around $5 billion a year. That $5 billion includes A&R development and marketing, and represents around 30% of sales revenue.
John Kennedy, chairman and chief executive of IFPI, said in a briefing at its London HQ today (March 9) that the recorded music industry invested a greater proportion in research and development than virtually all other industries. Record companies invest an estimated 16% of sales revenue in A&R work, and the report states that one in four artists on label rosters were signed in the last 12 months.
Kennedy also spoke about the “myth” that artists no longer need record labels, and challenged anyone to name a new act that had broken through to become a major success without the support of a label.
The eye-catching figure in the “Investing In Music” report is the cost of breaking an artist, which the IFPI says is around $1 million. That typically comprises:
Advance – $200,000
Recording – $200,000
Three videos – $200,000
Tour support – $100,000
Promotion and marketing – $300,000
Kennedy attempted to avoid touching on the piracy issue for once, he said, but did refer to its impact on labels’ investment.
“It’s becoming more and more difficult to sustain that level of investment given the problems we face,” he said.
The main debate during the briefing centered on the difference between breaking an act, and an artist recouping on the investment and becoming profitable for a label.
Breaking an act depends on hits which generate buzz and can build an artist domestically and then internationally with investment in tour support, said Decca managing director Dickon Stainer.
“It takes a long time to enter the consciousness of the global public,” he said.
Profitability comes some while after an act has broken through with a hit. Columbia Records U.K. managing director Mike Smith noted that a label needs to continue “investing often hundreds of thousands of pounds to keep the campaign going.”
“Often profitability is disregarded initially in order that you can achieve chart success,” added Smith. As someone who worked in music publishing for 18 years, he acknowledged the “great risks” taken in the recorded music business.
“You can sell 500,000 records or sometimes a million and not be profitable,” he added. The formula depends on variables such as cost of music videos, but Smith said that platinum sales in the U.K. (300,000) could lead to profitability if other income such as synch licensing and brand partnerships were taken into account in addition to record sales.
Once you reach 600,000 sales, said Smith, then the act should become genuinely “lucrative.” Columbia’s BRIT Award winning U.K. rock act Kasabian recently surpassed that sales total in Britain.
Smith said the goal was long-term profitability from a successful catalog. He was not concerned about some acts and their management taking more control by licensing to labels – U.K. platinum act Mumford & Sons is one new band that has gone that route with Universal – and possibly denying a major that catalog further down the line.
“What people really want is investment,” said Kennedy, who said artists on licensing deals would often renew with a successful label partner anyway.
Both Kennedy and Smith said that the $1 million estimate to break an artist was a “conservative” figure and that it could be double that in some cases. Stainer estimates that it costs $1.5 million to break a jazz or classical act internationally. The Universal label had international success with Melody Gardot last year.
Smith added that performances on televised shows such as the BRIT Awards can be expensive to stage, with labels picking up bills of more than £100,000 ($150,000) for spectacular one-off performances, but he noted that Mark Ronson‘s appearance during the 2008 ceremony helped build the artist to more than 1 million sales.
Smith added that labels take tougher decisions now regarding which acts they stick with and develop. He said the success rate of breaking new artists was now around one in five compared to one in 10 in previous years.
It can even be positive for an artist to be dropped and successfully re-focus on a career with another label, Smith commented.
“The industry does recycle artists,” he said. “Often the best thing that can happen to an artist is to be dropped.”
U.K.-based Danish pop act Alphabeat has entered the top 40 with new set “The Beat Is” (Fascination/Universal) after it decided to move from EMI.
Kennedy also laughed off reports that Lily Allen said she is taking a break from music and that it is has never been a big earner for her. Kennedy believes the U.K. pop singer is almost certain to make a new record at some point.
There are more than 4,000 artists on major record companies’ rosters combined, and many thousands more on independent labels, the report said. It added that recorded music has a massive economic “ripple effect,” helping generate a broader music sector, including live music, radio, publishing and audio equipment, estimated to be worth $160 billion annually.
IFPI estimates that more than 2 million people are employed globally in this broader music economy.