Record labels and companies really do invest quite a lot of money to get their career off the ground. Investing in Music report, published by IFPI, outlines the very substantial investments involved in developing and marketing successful artists. In the UK and US, it is estimated that it typically costs more than US$1 million to break a pop artist. This is spread across an advance paid to the artist, recording costs, video production, tour support and promotional work. For those curious, here is a typical example of the breakdown of the costs of breaking a new pop act in major markets:
3 Videos: $200,000
Tour Support: $100,000
- Payment of an advance to the artist. Such an advance allows an artist to give up their day job and concentrate on writing, rehearsing, recording and performing music. Advances are recouped from an artist’s sales, but are not recouped if those sales do not reach certain levels, leaving the record company bearing the risk of investment. A typical advance paid to a new pop act in major markets is US$200,000, but often will be higher. Advances for an established “superstar” act will commonly be in excess of US$1 million.
- Financing of recording costs. Costs could be over US$200,000 for a new artist to record an album, though employing a top producer can drive this above US$50,000 per track. Hiring large numbers of session musicians or an orchestra can also drive up the budget. In this way, investment in recordings benefits a wide community of musicians and technicians.
- Production of videos. Video costs can also range widely. Some of the most expensive ever produced involved days of filming and editing, costing around $1 million. A typical cost for filming videos to promote a new artist’s album is around US$200,000.
- Tour support. New artists in particular need to be heavily supported by record companies. The level of tour support required is highly dependent on the nature of the artist. Tour support would typically cost around US$100,000 for a new artist in one market.
- Marketing and promotion. These are often the biggest budget items for a record label taking an act to the public. Labels invest heavily in marketing and promoting artists to a broad audience. Such promotion builds the brand identity from which artists can then earn money from numerous sources, such as live touring or merchandise. A typical investment in marketing and promoting a new act is US$300,000.
- Royalty payments. Payment of royalties is usually based on a percentage of revenues, licensed or synchronised income revenue streams. Teams in music companies are responsible for collecting and distributing royalties to the featured performers, producers and copyright owners.
There is a high level of investment on the part of the music industry. It is estimated that the recorded music industry spends around 30% of its total revenues – around US$5 billion a year – discovering, developing and promoting talent. Of that, a global average of 16% is spent on A&R. Global music industry investment in A&R is considerably higher than similar investments in other industries. A&R spending today, however, is under greater pressure than ever from the impact of illegal file-sharing and other forms of piracy.
Achieving commercial hits is the basis of the “circle of investment”, by which music companies plough back the revenues generated by successful campaigns to develop new talent and help fund the next generation of artists.
Continually investing in new talent is a hugely risky business, as only a minority of the artists developed by music companies will be commercially successful in a highly competitive market. Estimates on the commercial success ratio of artists vary between one in five and one in ten.
The level of investment in new artists required remains high, despite the development of new distribution channels for recorded music. In fact, the fragmentation of music distribution across many different physical and digital channels has often brought extra costs to record companies that are now working with many more retail partners. So obviously you should just go through one trustworthy, dependable, loyal distribution company, perhaps one that has an interesting blog like this one…