BUSINESS 2000: A generation of emerging musical talent are left with CDs of demos, or even completed material, burning holes in their pockets rather than setting the charts alight

The music business has a reputation for being high-risk. Bands have short life-spans, singers struggle to survive without time-consuming day jobs and dance acts lose their novelty value. For every record that sells more than 15,000 copies in the Republic, 150 others sell less than 1,000. No wonder potential investors consider the music industry to be hit and miss, but mostly miss.

"There still is this 'television out the window' view of the music industry, despite the fact that it generates enormous income," sighs Ms Angela Dorgan, chief executive of the Federation of Music Collectives (FMC).

Music generates more employment and contributes more to the national income than any other cultural industry.

The FMC produces fact sheets on setting up independent record labels, and how to write business plans, build a fanbase and finance the release of a record.

Taking the independent route is becoming more popular, partly because major record companies facing a sales slump in the all-important US market are reluctant to risk advancing money to develop new bands or artists.

Ten years ago, new artists attracting attention from radio DJs and teenage audiences chose to start their own companies because they felt signing on the dotted line to an existing label meant signing over artistic control and a share of the royalties.

Today, the do-it-yourself approach to making music is less likely to be a matter of choice.

Luckily, technology has made the entry costs cheaper, especially for dance artists. The price of recording equipment has fallen by 30 per cent in five years, estimates FMC development officer Mr Justin Rami.

"Where people fall down is on the marketing and promotion side. Bigger labels like EMI can afford to push and plug their artists, get them on the radio. Smaller businesses can't compete on the same level as labels that sometimes have pre-publicity budgets of €2 million or €3 million for an artist," says Mr Rami.

This leaves a generation of emerging musical talent with CDs of demos, or even completed material, burning holes in their pockets rather than setting the charts alight.

In Britain, research has indicated that music entrepreneurs are less likely to approach financial institutions for funding than SMEs in other sectors, and often aren't aware of available grants or schemes designed to help them. Musicians and their managers are more likely to use personal loans or funds because they believe a "culture gap" will lead to banks turning down their applications for business loans.

"It's not like setting up a restaurant or a coffee shop," agrees Mr Conor Brooks, director of Lakota Records, an independent record label with a roster including Dublin guitar band JJ72.

"We might say to a normal financial institution, well, we're going to give €500,000 or €1 million to an artist, and if they're not successful, then they never really have to pay it back. That just doesn't make sense to them."

There is a feeling that music and accountancy don't mix, that new artists lack the skills to manage cashflow. But most people who avail of the FMC's free advice service are "quite serious about the business end of things", says Ms Dorgan, they just "hit the wall" when they run out of investment options.

"In the UK, the Association of Independent Music is looking into a scheme where the onus is on the banks rather than the music businesses. They are persuading banks that they are losing customers by not being popular music-friendly," she says.

The FMC warns that running a label is a full-time job - in addition to the full-time job that musicians and their managers might have anyway. "That's the step we're trying to help people make - help people shed the pay-off-the-mortgage job," says Ms Dorgan. "Someone needs to take that leap of faith."

When it comes to giving up the day job, Mr Brooks believes musicians need to get their timing right, not drop everything the day they sign a deal. "The best thing is to keep the day job until you are going into the studio full-time or until the first tour. That way you're not running up hundreds of thousands of pounds on wages for your band and putting unnecessary costs upfront."

One option for unsigned musicians is the Business Expansion Scheme (BES). Individuals can get tax relief on amounts up to €31,744 that they invest in a limited company set up by an artist or band. The maximum that can be raised through a BES fund is €317,435, which the artist or band can use to record, market and distribute their album.

Irish music acts such as Jack L, Metisse and the Revs have all used the scheme, which can be used for one album only and needs approval from the Department of Arts, Heritage, Gaeltacht and the Islands, and the Revenue Commissioner.

"It's an ideal scheme for new bands," says Mr Anthony Casey of Noone Casey, accountants and business advisers with experience in structuring music BES funds. And for investors, too, there are benefits. "Investors will get 42 per cent of the investment back by tax relief so they are only risking 58 per cent of their money," Mr Casey explains. "There were 60 to 65 investors in the Jack L scheme, ranging from business investors to fans. Metisse advertised in newspapers to get investors but the Celtic Divas have got people who know them, and have confidence in what they were doing, on board."

BES funds have the advantage of covering crucial marketing costs, according to Mr Rami at the FMC, but there is still a lot of risk involved.

"The artists usually rely on family and friends, and it's not so good to do that, to mix business with family."

The FMC, which is part-funded by the Arts Council, has put forward ideas on how to tailor bursaries for musicians and hopes the new Music Board of Ireland will be "a sympathetic ear" for independent labels. The Music Board was set up in May 2001 and aims to publish a report on the economic significance of the industry in June.

"We are still asking questions about what our role should be," says board chief executive Ms Maura Eaton.

"What do bands need? Is there a need for management training? Should the board get into funding projects? We haven't been set up as a funding body but we may eventually go that way."

In the meantime, the small businesses that are up-and-running continue to act as "breeding grounds" for the major labels with their ear to the ground, Mr Rami says.

But the industry is based on short-term investments more than ever before, he adds.

With the next big thing lying in wait, record companies can tear up contracts as quickly as bands can sign them.

THE IRISH TIMES BUSINESS 2000 - 5TH EDITION

The Business 2000 column provides information for business studies teachers and students on the current business climate.

It is intended to complement the Irish Times Business 2000 multimedia resource package developed by Woodgrange Technologies, which is sent to all second-level schools and selected third-level institutions.

Business 2000 is published every Friday. The Teachers' Support Desk at Woodgrange Technologies can be reached at 01 - 4352514 or by email at: business2000@woodgrange.com.

Companies participating in Business 2000 are: Allied Irish Banks; An Garda Síochána; Bus Éireann; Cadburys; Central Bank of Ireland; Coca-Cola Ireland; Coillte Teoranta; CRH plc; Dell; Department of Finance; Elan Corporation plc; Enterprise Ireland; Glaxosmithkline; Guinness Ireland Group; Health & Safety Authority; Irish Shell.

Masterfoods Ireland Ltd; Musgraves; National Development Plan; National Roads Authority; National Treasury Management Agency; Radio Teilifís Éireann; The Courts Service; The Office of the Revenue Commissioners; and Wyeth Medica Ireland.