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Labels maintain new music spend despite sales slump

By Mike Collett-White

LONDON (Reuters) - Record labels say they have maintained high levels of investment in new music despite sweeping changes to their business in the digital age and a decade of falling revenues caused by sliding album sales and online piracy.

According to a new study from industry body IFPI published on Monday, record companies invested $4.5 billion in A&R (artists and repertoire) and marketing in 2011.

That was down from $5 billion in 2008, partly due to a significant drop in the amount record labels were willing to spend on marketing up-and-coming talent at a time of shrinking income.

But the A&R side fell less sharply to $2.7 billion last year versus $2.8 billion in 2008 despite a decline of 16 percent in the trade value of the industry globally over the same period.

Presenting the report in London, Max Hole, COO of Universal Music Group International, said he was cautiously optimistic that the music business would return to growth soon, helped by the proliferation of digital platforms.

"The stats are getting better, the rate of decline is slowing," he told reporters.

"There's every reason to hope that in the next couple of years we'll reach the low point and start to go back to growth."

According to the IFPI, in the first nine months of 2012, global recorded music sales had fallen by around one percent year-on-year after a fall of three percent in 2011.

The industry peaked in 1999 when sales were $28.6 billion, but has shrunk every year since, reaching $16.6 billion in 2011.

"I just feel that we are at a tipping point of lots and lots of services coming on, and services that really are in touch with the consumer," Hole said, adding that, crucially, the platforms were more attractive than illegal pirate sites.

BANDS WANT LABELS

The report showed that more than 70 percent of unsigned acts in Britain and Germany wanted a record deal, despite the perception that many artists are keen to go it alone with the help of social networking.

Major labels have been accused of being slow to adjust to the challenges posed by digital music and illegal downloads, and relying too heavily on older, established acts to make money.

But the IFPI report sought to underline their role in unearthing new talent in a notoriously risky business.

Revenues invested in A&R represent around 16 percent of industry turnover, compared with 15.3 percent in the pharmaceuticals and biotech sector and 9.6 percent in software and computing.

The IFPI estimated breaking a pop act in a major market typically costs from $750,000 to $1.4 million, including a $200,000 advance, $200-300,000 on recording, $50-300,000 on videos, $100,000 on touring and $200-500,000 on marketing.

The Internet has revolutionized the way record labels go about their business, the report said.

A&R representatives today rely on the Internet as much as they do on attending gigs up and down the country to discover the next best thing, although most still want to see an act live before making up their minds.

According to the report, record labels are providing far more digital content as part of their marketing and promotion, and tend to sign deals with artists which go well beyond the shrinking recorded music business.

Brand partnerships, offering songs for use on television, in film and in commercials, and linking up singers from different regions to generate cross-over interest are just some of the ways they can help establish a new act, the IFPI added.

Hole said the recent merger between Universal, already the world's largest music label, and EMI, would not lead to less A&R spending, but more.

"We have stated quite categorically that our intention is to reinvest in EMI and boost it and we think it will result in more investment in A&R," he said.

"We operate a multi-label structure and that was something that had declined at EMI," he added. "We're going to reverse that."

(Editing by Steve Addison)

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