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Chaos and Transformation
Peter Jenner is a man who knows his "freak-outs" -- sixties terminology for an intense, drug-induced emotional experience. He was Pink Floyd's first manager, after all, and he has remained one of the industry's most forward-looking thinkers for forty years. So when he spoke to a room full of music executives in the fall of 2006 at the Future of Music Policy Summit in Montreal, his assessment of their business resonated.
"We are in the midst of a technological freak-out," he said. "The business is broken.... Digital technology is fundamentally changing our business in a way that no development of the last two hundred years equals, except the onset of electricity."
Jenner described a worst-case scenario for people who had made a lucrative living as middlemen in the twentieth-century music business, the conduits between musicmakers and consumers. The Internet was making them obsolete.
"We're trying to force a nineteenth- and twentieth-century business model into twenty-first-century technology," he said. "I'm not surprised we're in chaos."
Peer-to-peer file sharing had turned consumers into distributors. CD burners had turned them into manufacturers. This shift in responsibilities left the industry with only one role: as "policeman...hostile to consumers...[and] stopping progress."
In a report prepared that same year, Beyond the Soundbytes, Jenner expanded on his disdain for this shortsighted response: "The flagrant spread of 'Internet piracy' in developed countries is a reflection of the failure of the industry as a whole to develop an appropriate copyright response to the distribution and remuneration options made possible by the new technologies."
He mocked the industry's response to the new challenges posed by Internet distribution and peer-to-peer file sharing: hand-wringing, followed by litigation, in which "the endless predictions of victory reminds one of the Vietnam War."
We were back in the sixties again, when Rock 'n' Roll Inc. was still in its infancy. Now four decades later, it was looking like a relic. "When five percent of the artists are making ninety-five percent of the money, the system is broken," Daniel Levitin, a McGill University music professor, proclaimed.
Through the breach rushed a new generation of bands and fans empowered by personal computers and broadband Internet connections. Willy-nilly they forged a new world of music distribution that seized control from once all-powerful music and radio conglomerates.
In less than a decade, a new Internet-savvy music hierarchy had been created. Commercial radio, MTV, retail stores, and record companies lost their exclusive tastemaker status, while consumers morphed into de facto music programmers who shared information and music via message boards, Web pages, e-zines, and MP3 blogs.
In the process, more people than ever were creating and consuming music. Without a physical product to sell, costs sunk for recording and distributing music. At the same time, opportunities to be heard increased. In this world, the fringe players could more easily find and build a dedicated audience, and a musical ecosystem encompassing thousands of microcultures began to emerge.
"We're moving into an era of massive niche markets rather than a mass market," Jenner said. This was bad news for people awaiting the next Beatles or the new U2 -- a band that could unite the masses in a whirlwind of hits and hype. For everybody else, this was an opportunity for more music to flourish in more places than ever.
In this broader, more diversified world, bands such as Montreal's Arcade Fire, Seattle's Death Cab for Cutie, and Omaha's Bright Eyes rose to prominence. They were viral success stories, selling out shows around the world before they were selling albums in the kind of numbers that would make the majors take notice of them.
It was enough to make Death Cab for Cutie's Chris Walla proselytize like a digital evangelist: "This is the golden age of the Internet. The laptop kids have clued in everybody else to what's going on: radio, television, the record industry -- they're all following the Internet's lead. Because those kids know their laptop can make their cultural existence more fulfilling than any media corporation."
Who knew a laptop could be so empowering? The music industry sure didn't. But the Internet turned fans into gatekeepers. It also gave bands an independence they never had: the ability to communicate directly with their fans in ways their predecessors never could have imagined.
Consider that when the nineties roared to a close with CDs generating millions in profit, the industry consisted of six multinational record labels, and a single corporation (SFX, soon to be bought out by Clear Channel) that dominated the concert and commercial radio businesses. The primary decisions about what kind of music most of America would hear and how consumers would access that music (through radio, retail, and touring) were essentially being made by a few dozen key executives at a handful of companies.
But that power structure, the by-product of a century's worth of empire building, started to crumble the instant the first music file was ripped onto a computer hard drive and shared online. Metallica and the major labels took the rogue file-swapping service Napster to court in 2000 and held back the Internet tide for a few months. But as independent producer Steve Albini said, "It's like trying to hold back the ocean, like trying to keep the sun from rising every morning. It's a whole new era, except the music industry doesn't know it yet." It would find out soon enough.
In the fall of 2000, Radiohead's Kid A was a Napster-fueled hit on the Internet long before it arrived in record stores. The esoteric album barely registered on commercial radio; but it was in heavy rotation on the Net months before its release. The result was a number one album, an extraordinary confluence of underground taste and mass popularity.
The industry responded not with vigorous new ideas, but with strong-arm tactics and threats. It served fans not with digital innovation but with lawsuits -- more than twenty thousand in a span of four years, in an attempt to intimidate consumers away from file sharing.
Seven years after Kid A, Radiohead released In Rainbows through its website, without the aid of a record label.
The cost to fans? "It's up to you," Radiohead told them.
In contrast to the major labels, the band embraced one of the fundamental principles of good business: the customer is always right. It was a moment of clarity, a moment in which the future finally overtook the past. The following pages contain the story of that transformation.Copyright © 2009 by Greg Kot
Consolidated to Death
In February 1999, Sheryl Crow found herself in the strange position of having won a Grammy Award for an album put out by a record label that no longer existed.
In the weeks before the Grammys, A&M -- the record label that had signed her, nurtured her career, and overseen her rise from Los Angeles studio singer to international rock star over the previous decade -- was gutted and folded into the Interscope label as part of the newly formed Universal Music Group. The demise of A&M was the result of a $10.4 billion purchase of the PolyGram music companies by Seagram.
As the rest of the industry celebrated itself at the Grammys, Crow saw trouble ahead. In her acceptance speech, the singer delivered something of a eulogy for her old label. She was the only artist at the nationally televised ceremony to publicly acknowledge the huge toll exacted by the wave of consolidation that had washed over her profession.
Up until a few months before, she had been working for one of the smaller major-label companies, headed by veteran music executive Al Cafaro; now Cafaro and A&M were gone and she found herself under contract to the world's largest record company, headed by Edgar Bronfman Jr. The immediate costs of the merger were easy to quantify: besides Cafaro, more than twenty-five hundred employees lost their jobs and 250 bands lost their deals with labels such as A&M, Geffen, Mercury, Island, and Motown.
But in the long term, the effects of consolidation would be even more profound, and usher in a decade when the twentieth-century music industry would suddenly find itself fighting for its life, undone by its single-minded pursuit of profit at the expense of the cornerstone principle that had allowed it to thrive for decades: artist development, as nurtured by savvy executives who not only knew their business but knew their music.
Now Cafaro, a music lifer, was out, and Bronfman, a longtime liquor magnate, was in. He'd soon head the biggest music corporation in the world. Bronfman was heir to the Seagram fortune and was running the family business in the nineties when he sought to diversify the company's holdings by branching out into music. As with the other moneymen taking power in the consolidation-heavy nineties, music was not central to his vision but rather a piece in a larger portfolio of products.
Cafaro was one of Crow's champions; he had signed her to her first record deal in 1991 and had allowed her to rerecord her debut album because she was dissatisfied with the initial results. Cafaro's faith was rewarded with a hit: Tuesday Night Music Club established Crow as an artist to be reckoned with in 1993. It went on to sell more than 4 million copies and her career flourished; her 1999 Grammy was her sixth.
Yet she wasn't in a particularly celebratory mood in the days after the '99 ceremony.
"It's a frightening time as far as the music industry being an artist-nurturing industry," she said. "Now everything is so numbers-oriented and new artists get one shot, maybe two, to get a hit, and that's it. They sign two-album deals now. I was signed to seven albums and I was given a chance to get on the road and hone my craft. You want artists who have a strong point of view, who have the potential to grow into something wonderful, like Jackson Browne and Joni Mitchell, who found themselves by touring and continuing to write, and their album sales slowly grew. But now artists aren't getting that opportunity because there's pressure to have instant hits."
Consolidation was the era's trendiest business strategy. It caught on because it enabled companies to claim bigger market share, streamline operations by cutting overlapping positions and payroll, and explore new revenue streams. By the late nineties, Wall Street was rife with merger news, and deals that further centralized power in the record, radio, and concert industries were brokered. Power was concentrated in fewer hands than ever: the PolyGram-Universal merger left five multinational conglomerates to run the $14.6 billion-a-year record industry. Ten conglomerates accounted for 62 percent of the gross revenue in the $10.2 billion commercial-radio business, and one company -- SFX Entertainment -- dominated the $1.5 billion concert-touring industry.
One side effect of this strategy profoundly affected consumers: the price for music spiked. Compact disc prices approached a record $19, even though the manufacturing cost had actually declined since the discs came into the marketplace in the early eighties. Tickets for major shows skyrocketed. Indirectly, an even steeper price was being paid: concerts were being transformed into marketing opportunities for a vast network of products.
Enter New York-based SFX, which bought more than a hundred major concert venues nationwide and then began acquiring tours by major artists underwritten by national advertisers. In 1999, SFX had a hand in producing 60 percent of the two hundred biggest revenue-generating shows; the concert industry had its biggest year ever, with $1.5 billion in sales. The reason? Ticket prices had increased a whopping $10 a ticket, a 30 percent increase over 1998, to an average of $44.
With consolidation came pressure to produce profit. The multinationals were effectively run by their shareholders, who wanted a steady flow of quarterly returns to justify their investment. But in an industry supposedly devoted to creating a highly volatile and unpredictable product -- music -- this was hardly a sound strategy. How to reconcile the whims of creativity with the need for producing profit on a prescribed schedule?
"That's a big problem because Wall Street is looking for stability -- quarter-over-quarter growth -- in an industry that is dependent on artists," whose creativity can't be doled out in quarterly spurts, said Michael Nathanson, a New York investment counselor.
His words -- delivered in 1999 at the South by Southwest music conference in Austin, Texas -- brought silent "Amens" from a roomful of music executives, many of whom must've felt like they were attending their own wake. Each of their jobs was in jeopardy as longtime record labels were folded inside Godzilla-sized multinational corporations.
"Every day the corporation became more and more powerful inside of the company and suddenly it was our total focus, rather than the consumers, or the artists," said Howie Klein, a longtime old-guard executive who ran Reprise Records until he was deemed expendable in 2000. "And at a certain point, it wasn't even the shareholders we were serving, but the Wall Street analysts. We were there for the short-term needs of Wall Street, which is antithetical to the needs of a company that is supposedly founded on music. The industry was built on signing artists with a strong vision, and trusting that vision to do good work over a long period of time. Your job as a record-company man was to help them realize that. [Former Warner executive] Lenny Waronker once told me, 'If it's a real artist, you can never go wrong.'"
Klein's view of the industry he once knew is highly romanticized. There were always plenty of bloodsuckers in it for a quick buck. But Klein had his priorities straight. In the eighties, he had started a fine independent label, 415 Records, in his San Francisco bedroom. When he was able to finally pay himself $100 a week, it was a big deal. "I'd never seen a three-figure salary before," he says now with a laugh. Later he was mentored by some of the best minds in the business, including Sire's Seymour Stein and Warner Bros.' Mo Ostin, and he'd help nurture the careers of artists and bands such as Romeo Void, Lou Reed, and Depeche Mode.
To a large extent, those artists built a career by being different. It was their idiosyncrasies that made them interesting and gave them staying power. But the industry of the late nineties didn't want idiosyncrasy. The long-range, career-building view was out. Instant payback was in. In the late nineties the acts dominating the charts were marketing triumphs more than creative ones: Britney Spears, 'N Sync, the Backstreet Boys, Ricky Martin, and Will Smith. They were the kind of telegenic, cross-format acts that could be sold quickly through a variety of mediums.
"There is so much pressure on the people at the label to generate profits that the music isn't allowed to breathe and artists aren't allowed to develop," said Moby, who had just signed a deal with an independent label, V2 Records, and released what would be his biggest record, Play.
"It makes bad creative sense, and it makes bad business sense. Under the circumstances of the music business right now, Bruce Springsteen and Fleetwood Mac would have been dropped long before they had a hit because their first few records didn't do that well. Prince's first few records were not huge sellers. So the major labels in the pursuit of quarterly profits are shooting themselves in the foot by putting out lowest-common-denominator music that works on the radio but doesn't generate any loyalty. There's no room for idiosyncratic artists. You have to fit the mold, and radio defines that mold. Right now, if you're not a teen pop star, an R&B artist, a hip-hop artist, a generic alternative rock band, or a female singer-songwriter, you might as well not even think about making records."
That mold was set largely by two monoliths: MTV and commercial radio. To get the word out about its latest music, record companies had to do business with both. And both were becoming increasingly narrow outlets for only the most heavily budgeted music. Though MTV launched in 1981 by playing music videos round the clock, it was now much like any other cable television station. Nonmusic programming dominated its schedule, and videos were confined to a select few superstars. Commercial radio was still the kingmaker as far as hits were concerned, and in the consolidation era it was all about centralized decision making. The playlists at commercial stations across the country became increasingly difficult to tell apart.
The trend was accelerated by the 1996 Telecommunications Act, the first major overhaul of U.S. telecommunications law since 1934. It eliminated most media ownership laws. Section 202 of the act, in particular, would prove to have a major impact on music; it required the Federal Communications Commission to eliminate "any provisions limiting the number of AM or FM broadcast stations which may be owned or controlled by one entity nationally."
That decree quickly led to the rapid near monopolization of the radio industry by a handful of corporations, most notably Clear Channel Communications. In 2000, the San Antonio, Texas-based radio conglomerate further expanded its interests by acquiring SFX. It was a move hailed by the company as a triumph of synergy that would enable Clear Channel stations to promote concerts in Clear Channel concert venues. By 2002, the company owned more than twelve hundred radio stations, covering 247 of the nation's top 250 markets, and controlled the biggest concert venues nationwide.
"I think that putting stations in the hands of people who are committed to public service and who are top broadcasters is good for the public," said Randy Michaels, the CEO of Clear Channel from 1999 to 2002. "When we were in the mom-and-pop era, half the radio stations were owned by people who were as interested in playing what they liked as opposed to really serving the public. When you have professional management, who is focused on serving the listener, then of necessity we are obsessed with what the public wants, and we work every day to give them what they want."
But the numbers told a different story. At the time Michaels was interviewed, Arbitron surveys showed that the average time spent listening to radio by consumers twelve years old and older had dropped 9 percent since deregulation. The young especially were tuning out: teenage listeners were down 11 percent, and listeners between the ages of eighteen and twenty-four had declined 10 percent. From 1998 to 2008, the average share of Americans listening to radio at any given time declined 14 percent.
Indeed, the real story was not that radio stations were trying to give listeners what they wanted so much as fretting about chasing them off with new, unfamiliar music. In this environment, taking chances on unproven artists supported by underfunded independent labels was considered bad business.
Clear Channel's Michaels argued that listeners didn't want adventuresome music chosen for reasons of taste; they wanted familiarity. His argument wasn't particularly new; corporations had always put making a buck ahead of aesthetics. But now that philosophy was integral to the corporate culture. "We all have nostalgia for the way things were, but radio is experiencing the same kind of consolidation that every other business has seen," Michaels said. "I love to visit small towns and eat at the mom-and-pop restaurants. But more and more it's getting harder to do, because there are a million choices and the chain restaurants are nudging out the mom-and-pop places. There are people, including me, who think that's bad. But people want to eat at the chain restaurant for some reason."
A handful of locally owned stations, such as WMPS in Memphis, were hanging tough by reviving some of the adventurousness and eclecticism of FM radio's free-form golden age in the seventies. WMPS's playlist blended Ben Harper, R.E.M., and Ani DiFranco with hard-core country acts (Rodney Crowell), Tex-Mex roots groups (Los Super Seven), and independent local artists.
"We play records based on gut instinct," said WMPS program director Alexandra Inzer, an adventurer marooned in an ocean of Clear Channel vanilla. "The problem with radio today is that corporations have paid a tremendous amount to buy these properties, so they can't afford to take a risk, which makes for really boring radio. Our approach is risky, and our audience is smaller because of it. But the ones who do like it stick with us. They have the station on for long periods because they're not going to hear the same songs over and over."
A similar philosophy prevailed at locally owned WWCD, an alternative rock station in Columbus, Ohio, that worked records by indie artists and local rockers into its rotation in a town where rigorously programmed playlists by Clear Channel and Infinity stations predominated.
"This conglomeration thing has totally ruined our industry," said WWCD program director Andy Davis. "I think people are listening to radio less and disappointed more when they do listen. We are fortunate to be owned by a local guy who loves music, who has a passion for new and progressive sounds. But always lingering in the back of my mind is that the next quarter could be our last, because there aren't many of us left."
Indeed, no comment summarized commercial radio's attitude toward music more succinctly than one made by Clear Channel chairman Lowry Mays to Fortune magazine in 2003.
"We're not in the business of providing news and information," he said. "We're not in the business of providing well-researched music. We're simply in the business of selling our customers products."Copyright © 2009 by Greg Kot