The record industry fights its corner...
The record industry fights its corner in the download age
Far from facing extinction, the record industry is still a vital cog in the music-making machine, claims a report. But will the working relationship between artist and label ever be the same?
A time for reflection … major labels such as EMI insist they still have a role to play in the internet era. Photograph: Martin Argles
Record labels have been on the receiving end of much criticism lately. They've been criticised for heavily lobbying those involved in passing the digital economy bill, accused of greediness, of being dinosaurs, of being unwilling to embrace the internet, of treating artists unfairly – even of being obsolete. Now they're fighting back in an attempt to justify their existence.
A report published this week by IFPI (International Federation of the Phonographic Industry), claims that record companies invest $5bn (£3.3bn) a year worldwide in artists, and that the "ripple effect" of this investment helps generate a broader music sector, including live music, radio and publishing, worth around $160bn annually. The report also estimates that more than two million people are employed globally in the broader music economy.
In an apparent response to those who claim that, with the internet's ability to connect artists directly with their fans, record labels will become obsolete, John Kennedy (chairman of IFPI) says: "Even artists who are typically described as having broken through the internet, the Arctic Monkeys, Lily Allen, or Sandi Thom, all ended up combining with conventional record labels." The IFPI's report says that there are more than 4,000 artists on major record label rosters, with thousands more on independents. Around one in four of these artists were signed in the last 12 months. The report points out that, in the UK, record labels spend 23% of their total revenue on A&R (the average worldwide is 16%), comparing that to the pharmaceutical industry, which spends 15% on research and development.
Mike Smith, the MD of Columbia Records, comes from a music publishing background and said he had no idea how much it costs to break an artist before he started working for a record label. "It costs us £10k-£20k for our artist to perform on The X Factor – up to £100k for them performing on the Brits." He says that retail value dropping by 40%, piracy and a la carte downloading has forced the label to work a lot smarter. How? By signing better artists, he says. "You have to overcompensate for average artists. With good artists you don't have to buy expensive advertising." He claims this has brought the hit rate of signed artists down from 1 in 10 to 1 in 4. "Our job is to reduce the random element to a minimum."
According to the report, called Investing In Music, breaking a UK or US pop artist typically costs more than $1m (£660,000): $200,000 for artist advance, $200,000 for recording costs, $200,000 for three videos, $100,000 for tour support and $300,000 for promotion and marketing. Both Kennedy and Smith says this is a conservative figure. It's not only pop artists that need tour support. Dickon Stainer of Decca Records says that his label spent £1m on tour support for jazz artist Melody Gardot to break her globally. Yes, investing in new talent is a hugely risky business, a fact Guy Hands can surely now testify to. "It takes a lot of money and a lot of balls," says Kennedy. This is why record labels need to have multi-album deals to allow a return on their investment, states the report.
As much as the anti-label crusaders paint a very black-and-white picture, unfortunately, so does this IFPI report. Both parties seem to ignore facts in an effort to fight their corner. One side says that record labels became obsolete when recording gear became affordable for the bedroom musician and with the invention of social networking sites. They also claim that touring and merchandising will be how future artist will make a living and pay for recordings. This ignores the fact that there are literally millions of acts on MySpace and that, for the majority of artists, it actually costs money to tour. The IFPI report quotes Nina Persson, lead singer of the Cardigans and A Camp, saying: "It would be very difficult for me to have made a living just from live music. I would have to travel alone with a guitar and no band or crew to make that work."
The record label side uses international pop stars as examples to illustrate the cost and commitment it takes to develop a successful career. The truth lies somewhere in between. This, as artist manager Jon Webster (CEO of the Music Managers Forum) points out, is an issue that can't be subject to generalisation. A niche singer/songwriter would most likely cost a lot less in terms of touring. Today, a business-savvy artist can make a decent living, though spending a vast amount of time on the internet to develop and sustain a hands-on career takes a lot of time; time that should, one can argue, be used to practice and write songs.
Yes, good record labels still supply a service that venture capitalists don't. Good A&R people will push artists to write better songs. They provide promotion and marketing teams with contacts and experience, which, along with advances, allows the artist to focus on the music. But the IFPI report omits to mention that their investment comes at a pretty high price (though, notably, it only does so if the artist becomes successful). One could say that it's a loan with a very high interest rate. The report states that the advance is recoupable from an artist's sales, but fails to acknowledge that much of the other costs often are, too. Tour support is sometimes recouped from merchandising. A manager I spoke to said his band's major label refused to provide £20k in tour support (a lot less than the £100k mentioned in the IFPI report) unless they received 50% of all merchandise for the length of the rest of the contract. The band chose to borrow money from their parents to cover the bill instead. If a label decides to spend money on TV advertising campaign for a record, they'll often recoup that cost from the artist – either by adding 50% of the cost to the artist's "recoupment bill" or by reducing the royalty rate due to the artist for the record by 50% for a whole year.
The manager of a big international pop star (who wants to remain anonymous for this piece), who has signed to a major, says that his biggest wish is that the artist/record label relationship becomes a partnership in the future. Today, he says, there's a tangible lack of trust. The fact that artists now have a choice of not signing a record deal will, hopefully, make record labels operate in a much more transparent manner.
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