Can Major Labels Keep A&R Costs Under Control in The Streaming Marketplace?

What happens when the money runs out? Yes, changes are coming to major label record deals.
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This is a guest editorial by Mark Tavern, an artist manager, consultant, educator, administrator, and arts advocate with more than 20 years of music business experience.

I had lunch last week with a major-label executive who was telling me about the influx of new signings they were seeing.

As I listened to the stories of the speed with which those deals were closing and the spending that went along with them, I remembered a piece that Tim Ingham just wrote in Rolling Stone. The basis for the article was news that Warner had recently filed paperwork in connection with an upcoming IPO, and Ingham was warning about the rising costs of A&R highlighted by it.

It struck me that my friend was offering anecdotal evidence of the very problem that Ingham described, and to me, their stories showed the problem getting worse.

I’ve heard this before from other high-level execs: The streaming business has turned major-label A&R into a feeding frenzy. The ease with which beats are being made and sold has changed the way pop and hip-hop music is created, taking it out of earshot of A&Rs, and fooling everyone else into thinking that spotting talent is simple.

Easy access to distribution has removed the obstacles previously associated with releasing music, allowing new artists to flood the marketplace. With the manufacturing and shipping of physical releases no longer a dominant factor in scheduling, supply chains aren’t responsible for creating delays. Metrics are continuously updated, alerting everyone in the business to an act blowing up in real-time (not just the diligent A&R who had been quietly tracking them).

Whether the signing process, the marketing planning, or the release cycle, every part of the timeline has sped up. What once took months and years can now take but days and weeks as labels scramble to get records out before they lose them to the competition or the listeners move on to something else.

But how are these changes impacting the deals? With music coming from all directions, without the vetting and cultivation that A&R provided in the past, with everything happening in a highly visible, data-driven environment, and where everything happens instantly, how can labels keep up? 

The answer is money.

But if A&R has always been expensive, what has changed? What is responsible for making these costs skyrocket?

The answer is ownership, or rather, lack of it.

The record business has always been risky. Part of that risk is attributable to talent acquisition. Consumer behavior is difficult to predict, and A&R must find that delicate balance between following and foretelling trends. Labels, to mitigate this risk, previously sought to own the sound recordings, essentially using the duration of copyright to pay off their costs. Labels used time as a hedge against money.

But that assumed they could own those sound recordings.

Today, with so many more options available to artists, the pressure is on labels to do increasingly artist-friendly deals (i.e., licenses as opposed to purchases, ownership that reverts, profit-splitting arrangements instead of low royalty rates, etc.). Now, record labels, coupled with the other factors surrounding talent acquisition in a streaming marketplace, have to make money before they lose the content, and therefore have less time to mitigate the risks they face.

Terms need to be more competitive. Advances need to go up. Deals need to close faster. This is partly to beat out the competition, and partly to ensure the label can capture revenue from their signings. Those signings are always risky, but a singles-driven streaming market makes everything more so. Labels, to compensate for these changes, have no choice but to spend more: more money on A&R (in terms of salaries and expenses); more money for deals (in terms of advances and royalties).

Ingham points out the dangers inherent with increasing costs and is right to suggest that investors (and labels) need to be mindful of them. But while A&R costs have always gone up, what labels are experiencing now is something entirely new. It’s clear that to remain competitive, they must change their deal structures and keep pace with the speed of the streaming business.

But making these changes will cost them, and what is even more dangerous is how those costs are exacerbated by the labels’ inability to manage risk. Try as they might to control costs, the streaming business is wreaking havoc on the old model labels used to handle it. If those labels no longer have the luxury of time, and costs continue to skyrocket, what happens when their money runs out?

Mark Tavern is an artist manager, consultant, educator, administrator, and arts advocate with more than twenty years of music business experience. In addition to running his own management company, he currently teaches music business at LaGuardia Community College and before that at the Institute of Audio Research. Prior to 2012, Tavern worked at major record companies including Universal Music Group, SONY Music Entertainment, and BMG Entertainment. As an A&R Administrator with such labels as Island, Def Jam, RCA, and RCA Victor, he took part in more than 200 recordings, a dozen Broadway cast albums, and numerous reissue projects, including the GRAMMY®-winning 24-CD box set The Duke Ellington Centennial Edition. Visit his website for insider tips about the music business, and subscribe to his newsletter to get a free ebook: Listen Up! A Simple Guide To Getting Heard On Spotify.

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