Commentary: What the Music Biz, Patrick Ewing Have In Common March 09, 2010
By Glenn Peoples, L.A.
On Tuesday, the IFPI released a report that detailed the high cost of investment in breaking new artists. About 30% of revenue, or $5 billion annually, goes into A&R development and marketing.
The main problem: costs of developing new talent are not dropping along with recorded music revenue. "It's becoming more and more difficult to sustain that level of investment given the problems we face," John Kennedy, chairman and chief executive of IFPI, said. In effect, the IFPI is saying record labels need to make more money because they spend a lot of money.
The rationale behind the report is reminiscent of a statement once made by former professional basketball player Patrick Ewing. A prolonged work stoppage during the 1998-1999 NBA season resulted in canceled games while owners and players negotiated terms of the league’s collective bargaining agreement. Ewing, then the president of the National Basketball Players Association, defended the work stoppage as a protection of a particular lifestyle enjoyed by him and his peers. “Sure, NBA players make a lot of money,” he said, “but we also spend a lot of money.”
Record labels are in the same boat that NBA owners were in 1998. Although they have cut costs and restructured their businesses, the act of selling recorded music is becoming more costly than can be supported by the revenues generated by recorded music. It would be great if development costs could be a fixed percent of revenue that fluctuated with the rise and fall of revenues. But the standard way of developing and marketing new music requires labels to bear large expenses. Over the last decade, video budgets, advances and marketing budgets have been slashed. However, they cannot be avoided altogether.
This IFPI report comes one day after the release of a BPI report that described the riches that await ISPs who offer music services to their subscribers. The timing may be coincidental, but the two reports make an interesting couple. In essence, the IFPI and BPI are seeking government help in fighting piracy and ISPs’ help in monetizing broadband customers in large part because they can’t spend any less money developing new artists.
Governments and private businesses are under no obligation to protect companies that cannot pay their bills (with the recent exceptions of some U.S. auto manufacturers, insurance companies and banks). If the standard way of developing and marketing new talent is too expensive, alternatives must be found. It’s that simple and that difficult.
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