Universal Music, Sony Invest in Artists as Industry Value Drops

Record labels spent $2.7 billion on artists and repertoire last year, even as revenue in the music business contracted and a gloomy economy caused other industries to curb investment.

Labels spent about 16 percent of 2011 revenue on A&R, the International Federation of the Phonographic Industry said in a report today. That is more than in other industries, where such spending would be described as research and development, it said, citing 9.6 percent investment in the software industry and 15.3 percent in pharmaceuticals. The investment comparisons are based on the European Commission’s 2011 EU Industrial R&D Investment Scoreboard.

Music companies are trimming costs with cheaper and more focused marketing campaigns via digital and social media and increasingly rely on licensing of music in TV, film and games as well as partnerships with brands to drive revenue, according to the report from the IFPI, which represents businesses including Universal Music Group, Sony and Warner Music Group.

With marketing added to the A&R total, record companies spent $4.5 billion last year, as revenue for the worldwide recorded music industry fell 2.9 percent to $16.7 billion, according to the IFPI. A&R spending dropped only 3.6 percent from 2008 even as the industry’s value fell 16 percent.

Costs associated with breaking a major artist average $1.4 million, which includes an advance payment to the artist and costs for recording, video production and touring, according to the report

The top-five global live acts of 2011 were U2, Bon Jovi, Take That, Roger Waters and Taylor Swift.

To contact the reporter on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net.

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.