According to a report "Investing in Music" from IFPI, it costs a record label at least $1 million to launch the career of a new recording artist. It also states that $5 billion a year is invested in new artists and the "broader sector" of music employees 2 million people.
Looking at A&R as Research & Development, the record labels spend about 16% of their sales revenue on A&R, which far exceeds the R&D budgets of any other industry.
John Kennedy, chairman and chief executive of IFPI, says: "One of the biggest myths about the music industry in the digital age is that artists no longer need record labels. It is simply wrong. The investment, partnership and support that help build artist careers have never been more important than they are today. This report aims to explain why. Investing in Music is about how the music business works. It explains the value that music companies add, helping artists to realise a talent that would typically go unrecognised and get to an audience they would otherwise not reach."
This is definitely true for mainstream pop artists. Jam bands, rock bands and singer/songwriters might not benefit from a major label deal in this climate. Those acts need to tour and connect with fans immediately to be successful. Most labels won't take a chance on that kind of an act without a following. These musicians can be more profitable and sustain a longer career by doing it on their own, especially if they have a fan base. Things may change, but when saddled with $1 million in recoupable expenses before a song is released, they are standing behind the 8 Ball.
The report can be downloaded from their website.