1
INVESTING
IN MUSIC
THE VALUE OF
RECORD COMPANIES
INVESTING
IN MUSIC
2
© IFPI 2016
All data, copy and images are subject to copyright and may
not be reproduced, transmitted or made available without
permission from IFPI
IN THIS REPORT
Music is about
hard work and
substantial investment
11
Record labels
are the primary
investors in music
22
Breaking down
labels’ US$4.5 billion
annual investment
33
Developing the
digital market
4
Unlocking new
revenue streams
55
M
aking music is about passion,
inspiration, emotion and
creative talent. However, it
is not just a gift of human
nature: it also requires an extraordinary
amount of hard work, time, effort and
sustained investment.
An enormous supporting cast of skilled,
dedicated and passionate people are
devoted to helping make the artist and
their music a success. This behind-the-
scenes community works in hundreds
of different ways, in countless different
roles, to support the artist and to take
their work to a large audience of fans,
often spanning the globe. It is no less
important in today’s music landscape
than in the past – in fact it is more
important. In a world of digital diversity
and complexity, this help is needed
more than ever before.
“Investing in Music” tells the story of
the immense effort and skill of the
team surrounding today’s recording
artists. It also shows how much
financial investment is needed to help
an artist pursue the career to which
they aspire.
This is a truly impressive story, giving
insight into the work of today’s global
music sector. As an artist who has
witnessed their vital role over my long
career, I salute the investors in music.
PLÁCIDO DOMINGO
CHAIRMAN, IFPI
4
3
M
usic does not just happen. Taking a song from a
concept to a recording and then distributing it
around the world takes a huge amount of work, time
and effort, and an array of people. There are the
writers and recording artists, the creators and performers.
There are those who discover and nurture artists, those
who produce the recordings and the videos, and those who
market and promote them. And there is the distribution, in
physical and digital formats, to thousands of retail partners
and digital services.
All this can demand substantial up-front investment, well
before a single stream plays or an album goes on sale.
Success often also requires a long-term vision. The vast
majority of albums do not break even financially, and those
that do take time to do so. Nor is the true value of every artist
or album immediately recognised and appreciated.
Record companies remain the largest investor in music,
ploughing in more than US$4.5 billion in 2015, or about 27 per
cent of their revenues, into A&R and marketing. They have
sustained this investment through recent years, even as the
industry weathered two decades of revenue decline.
The partnership between artists and labels goes far beyond
the financial. Record companies nurture artists, allowing
them to develop their sound, their craft and their careers.
Labels’ marketing expertise and resources enable them
to create and deliver cutting-edge campaigns that engage
fans around the world. They help manage thousands of
partners spanning the globe, requiring local expertise in
each market with networks of relationships and marketing
and promotional resources. They help develop local artists
in diverse languages across genres from classical to hip hop.
The investment from the record industry has also been
essential in driving music’s digital transition. Record
companies build out the systems and infrastructure that
enable the licensing of some 360 digital music services
with more than 40 million tracks. As a result, today’s
music industry helps connect artists and their music with
fans in multiple new formats – from buying downloads to
subscription streaming and more.
This report is about record companies’ enduring value
to music. In the digital world, the nature of their work has
evolved, but their core mission remains the same. It is the
mission of discovering and breaking new artists, building
their careers and bringing the best new music to fans. These
are the defining qualities of record companies’ investment
in music.
FRANCES MOORE
CEO, IFPI
ALISON WENHAM
CEO, WIN
THE INVESTMENT FROM RECORD COMPANIES HAS BEEN
ESSENTIAL IN DRIVING MUSIC’S DIGITAL TRANSFORMATION
RECORD
COMPANIES BRING
INVESTMENT AND
VALUE TO MUSIC
4
the typical cost
of breaking a
worldwide-signed
artist in a major market
such as US and UK
THE VALUE OF
RECORD COMPANIES
US$
global investment in A&R
and marketing in 2015
share of record company
revenues invested in
A&R and marketing
music sites serviced by record
labels worldwide
+
360360
+
27%
27%
$0.5 – $2
MILLION
US
$0.5 – $2
MILLION
5
1
Music is about hard work
and substantial investment
1
Music is being crafted, created,
produced and enjoyed in more
ways than ever before in history.
Virtually every artist who reaches the charts has partnered
with a record company. They do so by choice, in a landscape
that offers artists more ways to release their music than
ever before. They choose this route for good reason: to gain
the experience, expertise and significant investment that a
record deal brings.
A record company works with a constellation of different
teams, all centred around the artist. There are songwriters
and producers, A&R (artist and repertoire) professionals,
marketing, publicity, promotion and video production
teams, as well as those in merchandising, accounting and
distribution.
Those working in A&R discover artists and help them refine
their music. Other teams see that albums are produced
and recorded to meet the highest audio standards and
converted into the hundreds of digital formats used by
the digital music services. They also ensure that CDs and
vinyl are manufactured and shipped to record stores and
retail partners.
Justin Bieber
Photo courtesy of Def Jam Recordings
RECORD COMPANIES PROVIDE SUPPORT IN THREE KEY WAYS:
1. DISCOVERING &
NURTURING ARTISTS
enabling them to develop their
sound and their craft.
2. PRODUCING THE
WORK OF ARTISTS
producing their music and other
forms of creative output (such as
visual media or merchandise) so
they can enjoy the greatest success
creatively and commercially.
3. PROMOTING ARTISTS
Connecting them with fans in
new and innovative ways.
Sia
Photo by Mary Ellen Matthews
6
Creative teams produce high-quality videos whilst
promotional experts publicise and market artists and their
music. Other teams manage essential backroom jobs:
accounting for sales and consumption and delivering artists
their royalty payments.
This work requires substantial investment. At the top end, a
major international signing will cost between US$0.5 million
and US$2 million to break in a major market such as the US
or UK. That is the upfront investment only: it may or may not
ever be recouped by the label on a specific album, which is
why artist contracts often span several albums.
Labels’ typical investment in a major new signing
ADVANCES US$50,000 – 350,000
RECORDING COSTS US$150,000 - 500,000
VIDEO PRODUCTION US$25,000 – 300,000
TOUR SUPPORT US$50,000 – 150,000
MARKETING AND PROMOTION US$200,000 – 700,000
TOTAL US $475,000 – 2,000,000
how it
breaks down
A MAJOR INTERNATIONAL
SIGNING WILL
COST BETWEEN US$0.5
MILLION AND U S $ 2
MILLION TO BREAK
IN A MAJOR MARKET
6
ADVANCES
Advances are commonly paid to artists to allow them to
concentrate on writing, rehearsing and recording. These
advances are non-returnable, but recoupable against future
royalties. Record companies are therefore taking the risk in
this highly competitive market.
RECORDING COSTS
These can vary widely between different artists and can
reach as high as US$500,000 for projects with the most
sought-after producers and session musicians.
VIDEO PRODUCTION
Virtually all new releases involve the production of a video.
Costs vary widely from US$1,500 for a very small-scale
production to US$500,000 for superstar projects.
TOUR SUPPORT
Labels in many cases provide tour support for their artists.
The longer duration of campaigns in the streaming world
means that artists can be on the road for a longer period,
promoting their material through live performances. They
need funding to sustain this and it is often the record
company that provides it.
MARKETING AND PROMOTION
This is the biggest item of spending, where labels have a key
impact. As consumers increasingly access music digitally,
marketing efforts have shifted substantially online, where
labels create campaigns that directly link fans to artists and
services where they can access their music.
77
Record labels are the
primary investors in music
2
2
No other segment of the music sector invests in
artists on anything like this scale. No other
third parties or music distributors invest any
comparable sums in artists’ careers.
THE GLOBAL RECORDED MUSIC
INDUSTRY IN 2016 IS HIGHLY
INVESTMENT-INTENSIVE, PLOUGHING
OF ITS REVENUE BACK INTO DEVELOPING
AND MARKETING ARTISTS.
The companies have maintained this share over many years,
even as they have weathered downturns in the market.
MUSIC COMPANIES INVEST
US$4.5 BILLION ANNUALLY
IN DISCOVERING, NURTURING AND PROMOTING ARTISTS
27%
Sevn Alias
Photo by Ruud Baan
88
S E V N
ALIAS
FOCUS ON:
Investment in
local repertoire
Music has a unique power to unite
people around the world. It can also
serve as a celebration of a culture or
community. Record companies invest
heavily in local music, helped by a
streaming world that has transformed
the opportunities for local acts to
reach fans. The recovery of streaming-
dominated markets such as Norway
and The Netherlands has increased
investment in local artists. In major
non-English language markets such
as France and Germany, national
repertoire has grown in importance in
recent years.
Local artists emerging
through streaming
Streaming can help local artists cut
through more effectively to their
fan base. Dutch independent record
company, Cloud 9, has been at the
forefront of developing the urban music
scene in The Netherlands – stepping
up its spending on local acts by more
than 300% in the last two years and
signing pioneering local artists such as
Sevn Alias.
ITALY
FRANCE
GERMANY
UK
NETHERLANDS
90%
90%
80%
70%
55%
Share of local acts in the national
top 10 album chart, 2015:
Sevn Alias
Photo by Ruud Baan
9
3
3
Record companies’ annual
US$4.5 billion investment
(or about 27 per cent of their
annual revenues) breaks down
into two primary areas:
A&R (or Artists &
Repertoire), the discovery
and development of artists
– representing more than
US$2.8 billion every year.
Marketing, the campaigns
that promote artists and
their music, bringing them
to fans’ attention around the
world – which totals over
US$1.7 billion annually.
MARKETING &
PROMOTIONAL
CAMPAIGNS
US$1.7 BILLION
US$4.5 BILLION
INVESTMENT
THIS INVESTMENT IN A&R HAS INCREASED
FROM US. BILLION IN
ARTISTS &
REPERTOIRE A&R
US$2.8 BILLION
Breaking down
labels’ US$4.5 billion
annual investment
The 1975
Photo courtesy of Universal Music
10
MUSIC 16.9%
PHARMACEUTICALS & BIOTECHNOLOGY 14.4%
SOFTWARE & COMPUTER SERVICES 1O.1%
TECHNOLOGY HARDWARE & EQUIPMENT 8.O%
LEISURE GOODS 5.8%
AEROSPACE & DEFENCE 4.5%
ELECTRONIC & ELECTRICAL EQUIPMENT 4.5%
AUTOMOBILE & PARTS 4.4%
HEALTHCARE EQUIPMENT & SERVICES 3.8%
INDUSTRIAL ENGINEERING 2.9%
CHEMICALS 2.6%
How music’s
global 16.9% A&R
investment compares
with other sectors’
R&D investment
Recorded music is an exceptionally
investment intensive business. The
proportion of revenue invested in A&R
remains higher than the equivalent
spent on research and development
(or R&D) by any other sector. This
is highlighted by the European
Union’s Industrial R&D Investment
Scoreboard 2015.
A&R INVESTMENT OR R&D EQUIVALENT BY INDUSTRY
Source: 2015 EU Industrial R&D Investment Scoreboard. R&D intensity is the ratio between
R&D investment and the net sales of a company or group of companies
FOCUS ON:
A&R (Artists and Repertoire) – nurturing talent
The ability to discover, nurture and break a recording artist
is a defining skill and asset of the record companies. They
invest US$2.8 billion (or about 17 per cent of revenues) a year
in discovering and developing artists, with a view to achieving
commercial success with their acts. This investment in A&R
has increased from US$2.5 billion in 2013.
It is an activity full of risk. Some labels estimate the ratio of
commercial success to failure as 1 in 4; others consider the
chances to be much lower – less than 1 in 10. It is the record
companies alone that shoulder this considerable risk.
There are tens of thousands of artists on label rosters
worldwide. Newly-signed artists are the lifeblood of a record
company’s business and around one-fifth of all roster artists
are new signings from the previous 12 months.
In addition to financial support, a record company provides
artists with access to a wealth of experience, expertise and
a network of connections. They collaborate creatively with
developing artists, helping them to realise their vision for
how they want their music to sound and how they want to
express this visually to their fans.
The early backing of a record label also acts as a signal to
other players in the industry – from songwriters to record
producers – that this artist has strong potential.
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FOCUS ON:
Marketing – smarter, wider, better
Record companies invest more than US$1.7 billion
annually in marketing artists. They also assign expert teams
to create and deliver the campaigns that break their music
worldwide.
These teams will work with an artist to develop a bespoke
campaign. They create content that tells a compelling story
about the artist and their music and find the right channels
to appeal to their future fan base.
A global marketing team at a major record company can
coordinate as many as 1,500 marketing people worldwide.
They will use their local connections and expertise to
promote an act in individual markets around the world.
A streaming world
The streaming world has dramatically changed the economics
of marketing new releases, creating new opportunities and
risks. Streaming services can sustain the popularity of new
releases over a long period of time, but they also require a
longer period of marketing investment.
On streaming services, where revenue is generated by the
number of times a track is listened to, it can take about a third
longer, compared to physical and download formats, for a
company to recoup its investment in an artist. Consequently,
record companies are now funding and supporting sustained
marketing campaigns for a longer period of time with the aim
of achieving commercial success with their act.
Congolese-born rapper and singer,
Maître Gims, first found success as a
solo artist in France. Signed to Wati
B, under exclusive licence to Jive Epic
(a division of Sony Music France),
he is now breaking through to other
European countries while still singing
and rapping in French.
Australian artist Sia has found success
both as a songwriter, penning huge hits
for Rihanna, Beyoncé and Katy Perry,
and as a global superstar in her own
right. Well known for being camera shy,
her label helped promote the music
with non-traditional marketing tactics
led by creative visuals for multiple hit
records. Her music resonates with
fans around the globe.
BREAKING
BEYOND
BORDERS
RECORD COMPANIES SPEND
US$1.7 BILLION
ANNUALLY
IN MARKETING ARTISTS
Sia
Photo by Mary Ellen Matthews
Maître Gims
Photo by Fifou
Maître Gims
Sia
1212
Justin Bieber
With Justin Bieber’s album, Purpose, his record company
harnessed its global reach in coordination with local teams
around the world. In total around 1,500 marketing experts
were involved in launching it to his fans, helping to make it a
huge global success.
The 1975
The 1975 have found huge success
with their recent album, topping both
the UK and US charts and earning a
Mercury Prize nomination in the UK.
They have created a strong visual
identity to distinguish their music and
live performances.
Christine and
the Queens
Indie pop star, Christine and the
Queens, is a French artist who has
launched out of her native market to
achieve huge success internationally
since releasing her first EP in 2012.
Developed in France by her record
company, Because Music, and singing
in two languages, she has now broken
into the US, UK, other European
markets and Australia in recent years.
1,500
MARKETING
EXPERTS
HARNESSING
A GLOBAL TEAM –
WITH LOCAL
EXPERTISE
The 1975
Photo courtesy of
Universal Music
Christine and the Queens
Photo by DR
Justin Bieber
Photo courtesy of Def Jam Recordings
13
4
Developing
the digital market
This investment remains constant as record companies
adapt to keep pace with the needs of each individual digital
service as well as those of the fans, artists and managers.
Record companies have also invested heavily in the
development of “portals” that show artists and their
managers how and where their music is being consumed
and the revenues being generated. These are designed to
be easily accessible and can provide up to date information
that can be filtered in different ways to show an artist how
their music is being listened to on digital services and around
the world.
Li Ronghao
Photo courtesy of Warner Music Group
LI RONGHAO
Singer songwriter Li Ronghao has developed from
a breakthrough artist in China to one of the biggest
regional superstars, built up by Warner Music,
enjoying success in Taiwan, Hong Kong, Singapore
and Malaysia.
In addition to investing directly
in artists, music companies also
invest, along with distributors, in
the fast-developing infrastructure
of the digital market.
Servicing a supply chain with around 360 licensed digital
services worldwide brings significant costs. Substantial
investment goes into systems to manage the large and
complex task of efficiently and securely distributing more
than 40 million recordings, videos and images across multi-
ple platforms. This ensures the right music is made available
around the world in the right format.
These systems also ensure the revenue generated can be
tracked and distributed accurately whilst also providing huge
amounts of data about where the music is being listened to in
order to inform their approach to marketing and promoting artists.
360
MUSIC SITES
SERVICED BY RECORD
LABELS WORLDWIDE
SYSTEMS TO
MANAGE MORE
THAN MILLION
RECORDINGS
4
+
14
The record company’s investment
is the seed that can build a career
generating an array of other
revenue streams. Once a record
company has helped an artist
to break through to an audience
with their music, further revenue
opportunities can be developed.
These can directly relate to their music – such as licensing
a track for use in a movie, TV programme or video game –
or draw on the wider ‘brand’ of the artist – where they may
endorse a product or even develop products of their own.
Individual artists commonly earn up to 90 per cent of the
revenues earned from a branding partnership, and music has
been the catalyst for this.
A record company may have as many as 200 long-term
brand partnerships active on behalf of their artists at any
point in time. In careful collaboration with their artists,
record companies actively seek out, develop and secure
these opportunities.
Unlocking new
revenue streams
5
5
200
Anitta
Photo courtesy of Warner Music Group
90%
INDIVIDUAL ARTISTS
COMMONLY EARN UP TO
OF THE REVENUES
FROM A BRAND
PARTNERSHIP
A RECORD
COMPANY
MAY HAVE
ACTIVE BRAND
PARTNERSHIPS
ANITTA
Brazilian recording artist Anitta is working with her
record company to take her enormous success in
Latin America to Europe and the US. She participates
in partnerships with a number of leading brands
including Danio-Nestlé, Fiat, Pepsi and Samsung.
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