The music industry now finds itself in a perpetual state of transformation, creating considerable challenges for record companies. Much has been written on these issues, with little focus on solutions. Still, market validation for music is becoming an increasingly useful tool for industry professionals. This article explores the necessity of high-value financial investments being made on the basis of market research and supporting data, and not only on creative instinct and public metrics.

The Impact of Digitalization on Record Companies

Over the last two decades, new technology has revolutionized both the consumption and distribution of music. With this, record companies, who were once firmly positioned at the epicenter of the industry’s traditional ‘value-added network,’ began to suffer [1] . In 2011, Dotted [2] published an article exploring the industry elements that were negatively impacted by the crisis. Physical music sales, traditional radio, internet radio, 360 deals, live music, physical music sales, lawsuits, media sharing, and piracy, were all included. In addition to these changes, digitalization also caused a real lack of clarity for the future. Ultimately, the transformative changes left all aspects of the industry shaken and rocked the very foundations upon which the music business was built.

However, after years of missteps and uncertainty, the music industry is once again trending in a positive direction and showing signs of an economic upturn. In 2017, annual US music spending increased by 17% (to $4 billion), and the US music industry is now in its third year of consecutive growth, for the first time since the 1990’s [3]. Streaming services are widely credited as the saviors of the industry, with steams increasing over 60% from 2015 to 2016, and continually rising [4]. Streaming also represented 62% of total music spending in the first half of 2017, with major players such as Spotify, Apple and YouTube all benefiting from the growth. [3]

A&R

Though the future now appears much brighter than before, digitalization caused structural shifts and disruptions to the marketing, distribution and communication functions of record companies. Now, all are tasked with navigating unfamiliar territory. One of the most notable examples is A&R. Scouts, managers and directors have all faced new challenges and been forced to adapt to stay ahead of the curve. Increased consumer accessibility to music and the self-marketing empowerment for artists, has brought inevitable questions as to the value of A&R in today’s age. If content aggregators can efficiently provide music to consumers, wherein lies the importance of A&R?

In January 2016, Ben Wardle, former A&R at BMG, V2 and Turtleneck Records, contributed a guest post at Music Business Worldwide [5]. He suggested that A&R retains significant value and that four factors now determine its success:

  1. Scouting & signing
  2. Creating commercial recordings that are timely and within budget
  3. Artist representation
  4. Luck

Ben is not alone; experts appear in unanimous agreement that A&R remains an essential function. It is true that artists now have many tools at their disposable. Still, this does not reduce the necessity of intermediary tastemakers, who can discover talent from the vast quantities of music available. Indeed, Jack Ponti, CEO of Merovingian Music, wrote in a guest post for Music Xray [6]: ‘If the rallying cry of “we can do it ourselves” were true, then why are there not thousands of success stories? Because the ability to market and promote inside a clogged bandwidth is virtually impossible. You can’t build critical mass. This also creates a big problem for the industry. There is no filter.’

Indeed, recent research conducted in Sweden by Primschitz (2016) also demonstrates the value of A&R. Through a series of interviews, Primschitz found that while artists themselves have moved towards a more individualistic, digitalized process of releasing music, this has not proved fruitful. While artists cite that it is now more comfortable to put out music, it has not positively affected income and artists are now finding the working climate more difficult than ever. [7]

Evidently, A&R remains valuable. It is also increasingly evident that new, data-driven tools can be of value to the field. The below text considers new challenges to A&R and explores how market research can help counteract these difficulties.

Budgets & Jobs

Like much of the industry, A&R has undergone a turbulent journey within the last few years. As reported in Digital Music News [8], in a five-year period until 2011, 319 A&Rs were fired or made redundant, with only a small fraction regaining employment in the field. However, A&R is also now recovering, with spend sitting at it’s highest for the last five years [9]. Moreover, the IFPI [10] estimates that record companies still invest $4.5 million, per annum, into their A&R and marketing functions. For an average major label, the most extensive area of investment is now promotion, with $200,000- $700,000 being an average spend for a new artist [9]. Apparently, talent acquisition and market preparation is still big business.

Considering the financial outlay associated with launching a new artist, consumer insight is invaluable for evaluating artist potential. The majority of promotion and marketing budgets are now spent on digital platforms, where targeting can be refined to specific audiences of potential consumers. Moreover, in the face of rising digital marketing costs, record companies are going one step further and increasingly allocating their spending to market validation techniques [9].

While significant budgets remain within record companies, costs are rising, and effective decision-making is more critical than ever. The value of market research at this level is evidenced by the profound monetary investments in artists and the high potential for no return.

Pace, Risk & Power Shift

Another challenge comes from the pace of the industry. 20% of major label artists were signed within the last twelve months, and only one of these is believed to make any money for the label at all. A&R insight also suggests that labels are more cutthroat with removing A&Rs that don’t make money, and it is fair to expect this trend to continue [11]. With this, each success or failure comes with more attention. It is then, unsurprising that label staff can feel pressured and the inevitable consequence of this culture, is less risk-taking.

As such, ’star-creation’ is more important than ever. It is also much more difficult. At one time, A&R staff was the only real link between production and market, at least on a large scale. However, with artists increasingly able to find success while circumventing the traditional artist-to-label-to-market flow, record companies now have reduced leverage. Leverage is reduced further by the power of the streaming market, where players are rapidly increasing their market share and able to command attention from artists and listeners alike. While record companies can significantly boost the chances of market success, they cannot dictate it. This makes the timing behind an artist ‘leap of faith,’ vitally important. Premature investment in an artist can be as costly as the hesitation and potential loss to competitors.

The pace, risk and power shift of the industry all represent difficult challenges for company staff, and this climate demonstrates the value of in-market validation. The use of market research can stack the odds in favor of the label, add empirical data backing and provide a more objective perspective to very subjective, creative decisions.

Unreliable Public Metrics

One form of consumer insight comes from the publicly available metrics generated by media platforms such as YouTube, Facebook, and Twitter. Statistics such as views and followers can provide a basis for decision-making, but they are far from infallible and have several limitations. The ‘social status’ of an artist on these platforms may be a strong indicator as to an artist’s popularity, however, is not necessarily indicative of translation on sales of music, merchandise or live shows.

With demand for artists to have an increased level of self-sufficiency, there exists a wide variety of marketing knowledge and strategy at play amongst independent artists. The differing marketing strategies employed by artists further clouds the reliability of this metric data. It is difficult to determine from these figures what an artist’s organic reach and reception are, and as social status is based on prior data, its ability as a predictor is limited [12]. As the success of A&R is strongly tied to the ability to make accurate predictions, these metrics are thus, of limited use.

While views, likes, and shares can provide some insight into consumer reception, there are new forms of market validation available, which provide increased depth and can analyze both market reception as well as auditory components. To lessen the risk of failure, labels should utilize the opportunity to conduct specific testing in data pools, across age, genre and geographic location.

Why Market Research is Critical

Label staff must be capable of recognizing and understanding new trends. They must also have the business savvy to use market information to back their financial decisions.

While data is not the sole solution, it can be a significant factor, assisting in risk mediation, when faced with high-value decisions. In today’s age, a successful A&R is one able to find a balance between art & science.

This article has explored why data-driven market research techniques are a worthwhile investment for record labels. The second piece in this two-part series explores how specifically market validation can provide its value.

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