Business News Labels & Publishers Top Stories

As IFPI releases its ‘Investing In Music’ report, what role do record labels play in 2012?

By | Published on Tuesday 13 November 2012


Hey record company haters, gather round here and listen to this.

OK, so sometimes it might feel like the major record companies are all run by aging luddites in ill-fitting suits who type with two fingers.

And we all know how labels used to promise every new signing the world, lavishing them in stretched limos, private jets and copious amounts of coke, despite knowing full well most artists failed, and all that lavishness simply meant that even moderately successful bands would never ever recoup.

And we all know a few artists who were led to believe by their labels that everything was going swimmingly, only to be dropped without warning, because an anonymous figure on high ordered some random roster culling so that his spreadsheet would have fewer red cells in it at his monthly shareholders meeting.

And we all know the artist who made a brilliant record at a label’s expense, only for it to be released to just seven record shops worldwide with zero marketing, because the one A&R guy who “got the band” was headhunted by a rival label, but the current record company wouldn’t let the band follow him, despite deleting the album from their active catalogue six weeks after release.

And we all know the older artists whose records are still shifting OK units, but whose quarterly royalties statement still has a minus figure at its base, because of loads of cost lines they don’t understand, and no one can explain, possibly because of legitimate expenses incurred by the label, possibly because the label’s business affairs team are secretly incentivised to pay out as little as possible to talent, but either way the artist can’t afford the services of the kind of lawyer or accountant who could work it all out, because of the aforementioned minus figure at the bottom of their royalties report.

Phew, that was a long sentence, wasn’t it? What was I saying again?

Oh yes, record labels are brilliant. No, really. Fucking brilliant.

Well, that was the message delivered by the International Federation Of The Phonographic Industry yesterday which, as the global trade body for record companies, probably shouldn’t be relied on too much as an unbiased source.

But the organisation’s ‘Investing In Music’ report still contains plenty of interesting facts and figures, and you don’t need to rely on the IFPI to tell you this basic fact, because I’ll tell you it myself: new artists will always need investment to succeed, and while the emerging pre-order/fan funding model remains interesting, in the vast majority of cases for new talent, it is a record company which will provide the funding that unlocks the revenue potential of an artist and their songs, recordings, live performance and fan relationship.

After all, if the record label is redundant in the internet age, as so many people have said in the last ten years, why are artists still constantly signing to labels? And why do 71% of unsigned bands surveyed by the UK’s Unsigned Guide still want a record deal? And why do 80% of unsigned bands surveyed by the German record industry say the same? (And the experience of the CMU Insights team running workshops for new bands backs up those stats).

So, for all their sins, record labels remain the key investor in new music talent, for the time being at least. And while labels are generally more risk adverse than before, and may be doing fewer deals overall, the record industry at large continues to pump a lot of money into developing and marketing talent.

According to the IFPI report, the global record industry at large spends $2.7 billion on “A&R” each year, which includes artist advances, the costs of developing and recording new albums, and accompanying videos and tour support. And an additional $1.8 billion is then spent marketing those new releases.

The labels body adds that overall A&R spending by the global record industry in 2011 is only slightly down from 2008, (when it was $2.8 billion), despite the trade value of recorded music worldwide declining 16% in that time. This means that the percentage of revenues reinvested by record labels into A&R activity has increased, from 15% to 16%, in that time.

And if A&R spend is equated to the research and development undertaken by other sectors, that means the record industry spends substantially more on R&D than most other industries, with even the pharmaceutical and biotech sector only investing 15.3% of its overall turnover into research.

Elsewhere, the report reckons that the cost of breaking a new artist in a major market in 2012 can run up to $1.4 million (of course that depends greatly on the kind of the artist and label); it notes that despite reports of the increased importance of live, the live sector has not become a prolific investor in developing and launching new talent; and also confirms that brand partnerships and sync income have become ever more important revenue streams for record companies.

Of course none of this is to say that record labels are perfect, but it’s definitely not true that record companies are becoming irrelevant in the internet age. Some of the things said at the top of this article are true of some record companies some of the time. The trick, I suppose, is doing the right deal with the right label and, as artists and managers are more aware now than ever before, that doesn’t necessarily mean the deal with the most cash attached to it. Labels in 2013 are open to (and indeed many are insisting on) new ways of dealing with talent, which is bother liberating and frightening.

Though perhaps the internet’s greatest gift to new artists isn’t social media, D2C, fan funding and all that jazz, but access to knowledge. So much information and advice now sits online, and it’s so much easier to network with other artists, to learn from their experiences, successes and failures. Of course a label will hype up a deal to an artist it is desperate to sign, and of course no record company can truly assure any act success or even constant support, but even new artists and managers without expensive lawyers and business advisors can now make more informed decisions before “doing the deal”. And, I suppose, if it does all go wrong, if you can get 200,000 Twitter followers at the record label’s expense, there’s always the Amanda Palmer option down the line.

Anyway, quotes…

IFPI chief Frances Moore: “‘Investing In Music’ highlights a simple truth – that behind the highly visible world of artists who touch people’s lives there is a less visible industry of enormous diversity, creativity and economic value. This report shows the role record companies, major and independent, play around the world in discovering, nurturing and promoting artistic talent”.

Alison Wenham, chief of the Association Of Independent Music, in her guise as chair of the World Independents Network, which partnered on the report: “Today, the relationship between the artists performing music and the investors supporting them has subtly changed and is continuing to evolve. The traditional model of significant advances and marketing support from larger record companies to artists remains widely in place, but there is now a greater emphasis on partnership, shared skills and shared revenues”.