Record labels have fought back against claims they are irrelevant in the digital age, with a new report saying each new artists has $1m (£670,000) invested in them.

The International Federation of the Phonographic Industry (IFPI), which represents record companies worldwide, has compiled evidence that it says shows most new artists break through with their backing.

Their report 'Investing in Music' says it costs $1m to break a new act, with record labels around the world spending a total of $5bn (£3.3bn) a year on developing and promoting new and established artists. IFPI chief executive John Kennedy said attempting to forge a career online was like "screaming in space."

"There's not really any evidence of anybody succeeding having gone direct," he said. "Even artists who are typically described as having broken from the internet like Arctic Monkeys, Lily Allen or Sandi Thom all ended up combining with a conventional record label."

Those artists gained early attention on the internet but did not achieve mainstream success until they signed record deals. The likes of Radiohead, Dizzee Rascal and Simply Red have all struck out on their own, but only after building up their careers with labels.

Jeremy Silver, chief executive of lobby group the Featured Artists Coalition, countered that labels were signing fewer acts because budgets have gone down, and artists were beginning to make a living without them. "The combination of touring, playing live and working online is really starting to make a difference," he said.