Record industry bosses hit back at the myth that musicians no longer need them to become successful, insisting the Internet can help raise their profile but cannot make them stars.
The success of the Arctic Monkeys, the British band who made their name through fan websites, and Radiohead, who decided to release an album for free online, have sparked debate about whether record labels have had their day.
But a new report from the IFPI, which represents the global industry, has catalogued the millions of dollars required to break a new artist.
There s not really any evidence of anybody succeeding going direct, said John Kennedy, IFPI s chairman, at the report s launch in London.
Even artists who are typically described as having broken through the Internet, like the Arctic Monkeys, Lily Allen, or Sandi Thom, all ended up combining with conventional record labels.
Developing an online presence can get a band in better shape to negotiate a record deal, he acknowledged, but with 2.5 million hip hop acts and 1.8 million rock groups registered on MySpace, getting noticed was not easy.
Trying to break through this is like screaming in space, he said.
What record labels can offer is expertise, such as in choosing the right song to release as a single, contacts, and above all, investment.
IFPI estimates that with the advance payment, recording the music, making music videos, arranging a tour and marketing the artist, a new pop act costs at least $1 million to break – and even this is conservative.
French DJ David Guetta, who is signed to EMI, said: What I know is how to make music, but that is not enough. To reach the public, music needs to be known, it needs to be available to buy and it needs to be talked about.
Although artists often make much of their money from touring, the IFPI insists the biggest-earning live acts such as U2, Madonna, Bruce Springsteen and AC/DC could only fill the stadiums after a solid record career.
Globally, music companies invest about 30 percent of their total revenue in discovering, developing and promoting artists – about $5 billion a year – with about half this going on artists and repertoire (A&R) discovery.
The A&R team, who spend their evenings in bars and clubs searching for new talent, are one of the most important parts of the business, says Dickon Stainer, managing director of Decca Records.
New artists will always be the lifeblood of record companies, he said.
Decca, which has Jamie Cullum, Robert Plant and Alison Krauss on its label, spends about 60 percent of its A&R budget each year on new acts. Industry-wide, about one in four artists on the major labels were signed in the previous year.
Not all of them will make it, of course. Ten years ago, about one in 10 artists would probably become successful, and although this is now one in five, many of these will not recoup what the label has spent.
You can often sell 500,000 records, sometimes even a million records, and not be profitable, said Mike Smith, managing director of Columbia Records UK, whose artists include Mark Ronson, the Foo Fighters and Barbra Streisand.
But for Columbia, which also holds the rights to Bob Dylan, building a back catalogue that will bring in future revenue is a key part of their work.
We re constantly trying to judge which artists are going to grow and develop and turn into something special, Smith said. So at times we will be prepared to take risks.
The shift away from buying albums on CD to downloading individual tracks via iTunes or through illegal file-sharing has taken a chunk out of the record industry s revenue, however, and both they and the artists are suffering.
We probably won t see the level of earnings of Madonna and U2 again, Kennedy said, but added of the new artists coming through: If they re successful they will become millionaires.
