Major Labels: We Spend Up to $1.4 Million Developing a New Artist…

It’s a tricky ATM for artists, but major labels claim they’re still spending massive amounts to break new acts.  That is, between $750,000 and $1.4 million, depending on the artist in question.  Here’s the typical breakdown, as supplied this morning by global label trade group IFPI.

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And, here’s the more detailed explanation, also from the IFPI.

Payment of Advances

Competition between record labels to sign certain artists can be intense. This inevitably drives up the levels of advance on offer. The payment of an advance typically enables an artist to give up their day job and concentrate on writing, rehearsing, recording and performing music. Advances are recoupable against an artist’s royalties from sales, but they are not recouped if sales fail to reach a certain level. Thus it is the record company that primarily bears the risk on the investment. A typical advance from a major label for a new pop act in a major market is estimated to be around US$200,000 and can go much higher in competitive situations. In other cases, advances can be very small or non-existent, with the artist benefiting more from revenue-sharing than upfront expenditure by the record company.

Financing of Recording Costs

Recording costs can vary widely between individual projects. The involvement of producers, session musicians, professional mixers and studio engineers can all have an effect on the costs. Investment in recordings benefits a wide community of musicians and technicians. Recording costs incurred in major markets can vary between US$200,000 and US$300,000 on a significant project.

Production of Videos

Video costs can range widely from project to project. Some of the most expensive can involve high-profile directors, large crews and days of filming. It can cost between US$50,000 and US$300,000 to produce two or three videos to promote tracks from an album in major markets. Such high expenditure is not always needed and videos can be produced much more cheaply. The approach will depend on the needs of the individual project.

Genre Differences

Pop acts usually require the largest investment to develop. They tend to involve multiple songwriters, higher recording costs, more expensive photos and videos, the placing of stylists on the payroll and often higher travel costs, perhaps covering parents and chaperones as well as the artists. Other genres, such as dance, urban and classical music, have different cost profiles. In contrast with pop is the development of artists performing folk, alternative and rock music. It is cheaper to record; there are smaller marketing costs, no stylists and generally less expensive videos to produce. In addition, fans of these genres usually buy albums, rather than singles, so it can be easier to secure a return on investment in a folk act.

Tour Support

Emerging artists often need to be heavily supported by record companies. The level of tour support required is highly dependent on the nature of the artist. Typically, tour support is the one area where rock acts require greater investment than pop acts. Artists who require a backing band or orchestra can drive the highest costs in this area. Tour support can cost a major record company upwards of US $100,000.

Marketing & Promotion

Marketing and promotional costs are usually the largest expense for a record company. It is this heavy promotion that brings an act to a wide audience, enabling them to develop a broad fan base and opening up the opportunity for an artist to secure revenue from a wide range of sources from live touring to merchandising. A record company can spend between US$200,000 and US$500,000 trying to break an artist in a major market.

18 Responses

  1. Amplify Music

    Who cares?
    The majors manufacture identikit pop “hits” with the usual suspects being (over)paid to pull the strings in the background.
    I’d be interested to see a typical investment by an indie though.

    • Club Rock Records

      These numbers are basically accurate (on a smaller level) for independents too. We’ve been working to “break” a brand for years now – with money invested in recording, promotion, webpages (URLs have maintenance and development costs), lawyers fees!, more promotional efforts, photographs, videos, wardrobe, gear, rehearsal space — and our efforts will need to be doubled, if we want to succeed. It’s a rough business getting people’s attention. The previous commentors note about the same rotten product being produced is simply because it sells. When I was a teen, I used to actually buy band related stuff at SamGoody (a record shop) — now I’m giving away merchandise (as a producer) to get attention.

    • Esol Esek

      I sort of have to agree with the Who Cares?
      Case in point is Nirvana, who were already a going concern for a record or two when they changed up their drummer, went into a studio with a real, but also hungry talented engineer, and came out with a song that hadn’t even been written before going into the studio. Teen Spirit, of course, was that song, and it drove itself into the stratosphere, not vice versa. All the marketing team had to do was fight off the hangers on.
      Any label that sinks this kind of money into an artist without a guarantee from payola is nuts. An indie that did it would soon be out of business.
      Isnt anyone capable of recognizing talent anymore? And 200-300k to record an album? Really? Video budgets i understand, but any band that can’t play tight enough to play their album wall to wall isn’t worth supporting. ENough overdubbing already, and if the project is pop or electronic, they ought to have their own recording chops.
      And people need to stop signing ‘indie’ bands with lousy vocalists. They don’t want to stay indie forever, do they?

  2. Mitchell Fox

    This is proof positive that there are, at least, two (2) different conversations going on between “labels” and “artists.” The one being had in this article would handcuff the artist to the label forever, or until they got dropped, or until they renegotiated upon landing on the moon. The other would allow the arist to figure out how best to craft their own music and perform it live and make a living as a blue-collar worker and then see if they could hitch a ride to the moon. If someone gave me upwards of $1,000,000.00 I could/would/should start an artist collective that would be self-sufficient/sustaining within a few years time. Oh, that’s right, I did that already sans the million dollars.
    No right answer…just a quality life decision.

    Your choice.

    • Hugh

      Sounds very good. I do have a question though. When you say the “collective” is self-sufficient and sustaining, are the individual artists that support the collective also self-sufficient and sustaining with their music?

  3. MusiciBox

    These numbers fluctuate so much in each and every catagory that it renders the article pointless. Who cares what it costs mcdonalds to make a Big Mac. They still produce a terrible product with no nutritional value.

  4. hippydog

    Quote “It can cost between US$50,000 and US$300,000 to produce two or three videos to promote tracks from an album in major markets.”
    thats the part that bugs me.. Why is the “video” a throw away marketing promotion? It encapsulates the song and ADDS talent and entertainment value.. Yet its a ‘promotional item’? That blows my mind..
    Basically the “audio only” item is valued at $1 yet the video is valued at $0.00? isnt that a tad crazy?

  5. Sam Flintlock

    As other people have pointed out, “We Spend Up to $1.4 Million Developing a New pop artist” is not the same as “we spend up to 1.4 million on developing a new artist”. I’m guessing you just rewrote an IFPI press release though?
    A few more points/questions.
    Has this report been peer reviewed before being put out, or is it exclusively a pr project?

    Why is this not broken down by genre? Ok, that’s rhetorical. They’ve chosen pop acts because it gives the most impressive figure for their purposes.
    What is the median and the average spent on new acts? That would tell us a lot more than just giving us a range.

    Is the advance the only cost recoupable from an artist’s royalties, or is that also the case with some of the other expenses?
    Is it true to say that “it is the record company that primarily bears the risk on the investment” if an artist gives up their day job to pursue a music career? What are the chances of any major label executive not making a wage at the end of the year? What are the chances of an artist coming out of a deal with nothing to show for it?

    What percentage of new rock bands actually require an orchestra?
    Why has the raw statistical data not been made available, considering the limited sample group used?
    Does “new acts” include musicians from previously successful bands?

    Does it include those who are successful actors, from reality shows etc. (The answer to this one is almost certainly yes, considering One Direction are specifically mentioned as a success story).

  6. Red Buttons

    Advances & large recording budgets for a new artist is a thing of the past that does not exist in todays business!

  7. Kris

    What most keep forgetting are the basic factors of supply and demand. 20 years ago the demand factor for music was at a massive high oppose to today’s levels being on the opposite end because the tables have turned and the demand for music isn’t the same.
    Because of easier studio equipment access now being able on a basic pc computer, everone and their mom can have access to a studio and production. Major labels never seem to take this into account which changes those expense budget figures. It has loweres the cost for good production whiles the talent levels on that same new production has gotten worst from an artist perspective. This saturated factor has changed what is getting played because of manufactoring cost dropping. Plus the sales perspectives of music has taken an all time loss as well.

    There is no way, that the numbers will add up from any accounting business angle so the major labels who still want to spend ridiculous amounts of money on marketing a new artist or group will lose plenty because if they can’t recoup what they put into the artist/group expense or make a 20% minimum. Some might want to ask them, why are they wasting their time and money?

  8. gordon haskell

    There are exceptions. I made well over 2 million pounds for Warners UK and it cost them very little. I wrote a hit song which was ‘A’ listed on BBC Radio 2. For 12 weeks I could not get retail to stock the record so I was left with no choice but to ‘give’ it to a corporate. The single entered the chart at No 2 and would have been No 1 but for interference from the City of London who were financing Robbie Williams to the tune of 42 million pounds. The Financial Times called me that week to ask how I managed to creep under the radar of the powerful corporate-government ie the BBC/EMI.The answer was it took one DJ to play a hit once and the public response was enormous. My album was marketed on the back of the hit and entered the chart at No 2 also. So far , all that Warners had to pay was some TV ads ,after the event. The fact that New York refused to take the record suggests to me that they hate things to happen that they don’t control. I am sorry to have to say it, but it’s called Fascism.

  9. Bluant music group - Derek Ant

    It’s David and Goliath over again. Two years ago I started my own label. I know that the odds are against me but you have to be smarter and have to find creative ways to promote and drive your fan base.

    Great info to read and validate. It’s unfortunate the business has turned in this direction where labels are just banks. And radio is loosing money or taking advantage of the loss revenue and increasing their costs to labels and artists.
    Keep pushing forward. Freedom isn’t free.

  10. element

    This is a good article but i think you should also include the expectation..
    If we use your 1.4 million investment budget as a guideline .
    The artist would have to generate over 2 million in income. Pay the taxes then the label recoups their 1.4 million from the remains. (including breakages )
    The artist gets the leftovers & will also have to pay management etc.. Then the process starts again or ends depending on the success or failure of the artists.
    A recording contracting is basically a loan with many stipulations. which can propel ,enhance or compromise the group or artist. As there is a lot at stake…