Posted on 06/29/2007 10:29:49 AM PDT by ShadowAce
For the music industry, it was a rare bit of good news: Linkin Park's new album sold 623,000 copies in its first week this May -- the strongest debut of the year. But it wasn't nearly enough. That same month, the band's record company, Warner Music Group, announced that it would lay off 400 people, and its stock price lingered at fifty-eight percent of its peak from last June.
Overall CD sales have plummeted sixteen percent for the year so far -- and that's after seven years of near-constant erosion. In the face of widespread piracy, consumers' growing preference for low-profit-margin digital singles over albums, and other woes, the record business has plunged into a historic decline.
The major labels are struggling to reinvent their business models, even as some wonder whether it's too late. "The record business is over," says music attorney Peter Paterno, who represents Metallica and Dr. Dre. "The labels have wonderful assets -- they just can't make any money off them." One senior music-industry source who requested anonymity went further: "Here we have a business that's dying. There won't be any major labels pretty soon."
In 2000, U.S. consumers bought 785.1 million albums; last year, they bought 588.2 million (a figure that includes both CDs and downloaded albums), according to Nielsen SoundScan. In 2000, the ten top-selling albums in the U.S. sold a combined 60 million copies; in 2006, the top ten sold just 25 million. Digital sales are growing -- fans bought 582 million digital singles last year, up sixty-five percent from 2005, and purchased $600 million worth of ringtones -- but the new revenue sources aren't making up for the shortfall.
More than 5,000 record-company employees have been laid off since 2000. The number of major labels dropped from five to four when Sony Music Entertainment and BMG Entertainment merged in 2004 -- and two of the remaining companies, EMI and Warner, have flirted with their own merger for years.
About 2,700 record stores have closed across the country since 2003, according to the research group Almighty Institute of Music Retail. Last year the eighty-nine-store Tower Records chain, which represented 2.5 percent of overall retail sales, went out of business, and Musicland, which operated more than 800 stores under the Sam Goody brand, among others, filed for bankruptcy. Around sixty-five percent of all music sales now take place in big-box stores such as Wal-Mart and Best Buy, which carry fewer titles than specialty stores and put less effort behind promoting new artists.
Just a few years ago, many industry executives thought their problems could be solved by bigger hits. "There wasn't anything a good hit couldn't fix for these guys," says a source who worked closely with top executives earlier this decade. "They felt like things were bad and getting worse, but I'm not sure they had the bandwidth to figure out how to fix it. Now, very few of those people are still heads of the companies."
More record executives now seem to understand that their problems are structural: The Internet appears to be the most consequential technological shift for the business of selling music since the 1920s, when phonograph records replaced sheet music as the industry's profit center. "We have to collectively understand that times have changed," says Lyor Cohen, CEO of Warner Music Group USA. In June, Warner announced a deal with the Web site Lala.com that will allow consumers to stream much of its catalog for free, in hopes that they will then pay for downloads. It's the latest of recent major-label moves that would have been unthinkable a few years back:
So who killed the record industry as we knew it? "The record companies have created this situation themselves," says Simon Wright, CEO of Virgin Entertainment Group, which operates Virgin Megastores. While there are factors outside of the labels' control -- from the rise of the Internet to the popularity of video games and DVDs -- many in the industry see the last seven years as a series of botched opportunities. And among the biggest, they say, was the labels' failure to address online piracy at the beginning by making peace with the first file-sharing service, Napster. "They left billions and billions of dollars on the table by suing Napster -- that was the moment that the labels killed themselves," says Jeff Kwatinetz, CEO of management company the Firm. "The record business had an unbelievable opportunity there. They were all using the same service. It was as if everybody was listening to the same radio station. Then Napster shut down, and all those 30 or 40 million people went to other [file-sharing services]."
It all could have been different: Seven years ago, the music industry's top executives gathered for secret talks with Napster CEO Hank Barry. At a July 15th, 2000, meeting, the execs -- including the CEO of Universal's parent company, Edgar Bronfman Jr.; Sony Corp. head Nobuyuki Idei; and Bertelsmann chief Thomas Middelhof -- sat in a hotel in Sun Valley, Idaho, with Barry and told him that they wanted to strike licensing deals with Napster. "Mr. Idei started the meeting," recalls Barry, now a director in the law firm Howard Rice. "He was talking about how Napster was something the customers wanted."
The idea was to let Napster's 38 million users keep downloading for a monthly subscription fee -- roughly $10 -- with revenues split between the service and the labels. But ultimately, despite a public offer of $1 billion from Napster, the companies never reached a settlement. "The record companies needed to jump off a cliff, and they couldn't bring themselves to jump," says Hilary Rosen, who was then CEO of the Recording Industry Association of America. "A lot of people say, 'The labels were dinosaurs and idiots, and what was the matter with them?' But they had retailers telling them, 'You better not sell anything online cheaper than in a store,' and they had artists saying, 'Don't screw up my Wal-Mart sales.' " Adds Jim Guerinot, who manages Nine Inch Nails and Gwen Stefani, "Innovation meant cannibalizing their core business."
Even worse, the record companies waited almost two years after Napster's July 2nd, 2001, shutdown before licensing a user-friendly legal alternative to unauthorized file-sharing services: Apple's iTunes Music Store, which launched in the spring of 2003. Before that, labels started their own subscription services: PressPlay, which initially offered only Sony, Universal and EMI music, and MusicNet, which had only EMI, Warner and BMG music. The services failed. They were expensive, allowed little or no CD burning and didn't work with many MP3 players then on the market.
Rosen and others see that 2001-03 period as disastrous for the business. "That's when we lost the users," Rosen says. "Peer-to-peer took hold. That's when we went from music having real value in people's minds to music having no economic value, just emotional value."
In the fall of 2003, the RIAA filed its first copyright-infringement lawsuits against file sharers. They've since sued more than 20,000 music fans. The RIAA maintains that the lawsuits are meant to spread the word that unauthorized downloading can have consequences. "It isn't being done on a punitive basis," says RIAA CEO Mitch Bainwol. But file-sharing isn't going away -- there was a 4.4 percent increase in the number of peer-to-peer users in 2006, with about a billion tracks downloaded illegally per month, according to research group BigChampagne.
Despite the industry's woes, people are listening to at least as much music as ever. Consumers have bought more than 100 million iPods since their November 2001 introduction, and the touring business is thriving, earning a record $437 million last year. And according to research organization NPD Group, listenership to recorded music -- whether from CDs, downloads, video games, satellite radio, terrestrial radio, online streams or other sources -- has increased since 2002. The problem the business faces is how to turn that interest into money. "How is it that the people that make the product of music are going bankrupt, while the use of the product is skyrocketing?" asks the Firm's Kwatinetz. "The model is wrong."
Kwatinetz sees other, leaner kinds of companies -- from management firms like his own, which now doubles as a record label, to outsiders such as Starbucks -- stepping in. Paul McCartney recently abandoned his longtime relationship with EMI Records to sign with Starbucks' fledgling Hear Music. Video-game giant Electronic Arts also started a label, exploiting the promotional value of its games, and the newly revived CBS Records will sell music featured in CBS TV shows.
Licensing music to video games, movies, TV shows and online subscription services is becoming an increasing source of revenue."We expect to be a brand licensing organization," says Cohen of Warner, which in May started a new division, Den of Thieves, devoted to producing TV shows and other video content from its music properties. And the record companies are looking to increase their takes in the booming music publishing business, which collects songwriting royalties from radio play and other sources. The performance-rights organization ASCAP reported a record $785 million in revenue in 2006, a five percent increase from 2005. Revenues are up "across the board," according to Martin Bandier, CEO of Sony/ATV Music Publishing, which controls the Beatles' publishing. "Music publishing will become a more important part of the business," he says. "If I worked for a record company, I'd be pulling my hair out. The recorded-music business is in total confusion, looking for a way out."
Nearly every corner of the record industry is feeling the pain. "A great American sector has been damaged enormously," says the RIAA's Bainwol, who blames piracy, "from songwriters to backup musicians to people who work at labels. The number of bands signed to labels has been compromised in a pretty severe fashion, roughly a third."
Times are hard for record-company employees. "People feel threatened," says Rosen. "Their friends are getting laid off left and right." Adam Shore, general manager of the then-Atlantic Records-affiliated Vice Records, told Rolling Stone in January that his colleagues are having an "existential crisis." "We have great records, but we're less sure than ever that people are going to buy them," he says. "There's a sense around here of losing faith."
I don't agree. With them, I get all the movies I want (plus some), with a single, monthly price. They get mailed to my house, I watch them, take the watched movies into the local store, and get a "free" rental for the return.
In return, I get to watch the movies I want to watch, in my own home, without the screaming kids, overpriced concessions, and nasty, sticky floors.
I think Blockbuster's business model is changing with the times, and they are adapting quite well.
It’s their selection I was reffering to. Good luck finding something remotely obscure. A lot of local libraries have stuff cheaper.
Songs are available at WalMart.com for less than $1.00.
The good, high quality ones are available at iTunes for $1.29 each.
You can burn them to a CD or download them onto a personal MP3 player.
Check out this article by Hip Hop entrepreneur and now Warner exec, Lyor Cohen, in the May 7 Forbes:
Live ActionCohen says that the industry assumed raw talent could be manufactured in the studio, and having given up on live music, it lost sight of talent. He's also got some interesting things to say about myspace.com self-promoters.
We knew we were on to something when the offers to play small gigs started rolling in. I remember when Charles Koppelman, then the chief executive of EMI (and currently chairman of Martha Stewart Living Omnimedia, wanted to hire Run-DMC to play his daughter's Sweet 16 party. Sure, so long as Charles also hired one of our new bands to open. The band was the Beastie Boys....
At a big corporation things are different. Finding artists is usually done through a network of lawyers, artist managers and other insiders. They're like Washington lobbyists--they have the access to power, and they shop their artists constantly .... but artist discovery at the big record companies has mostly evolved into a ritualized mating dance performed by a tiny number of players in a highly restricted network ....
(sorry if that link doesn't work for you... it's Forbes)
Brilliant.
(1) Big production music is generally concert music and is recorded live or in live-like conditions (i.e. a Philharmonic recording a piece in an empty hall for their label and then performing the same piece in the same space that evening for the audience).
(2) All music can be performed live. Music that incorporates hard-to-reproduce-live studio tricks is still performed live in differently-arranged versions - Pink Floyd is a classic example.
I could never find this writing on my own. But then again, without copyright protection, writers would stop writing altogether.
We're not discussing pure copyright here - copywriting in its pure form as it applies to music applies to the written score, not a recorded performance.
A writer wouldn't write unless he was entitled to be compensated each time what he wrote was printed or reprinted.
Likewise, composers are compensated each time someone purchases their sheet music or performs their music.
Recorded performances are not the same as a novel - they are more like the author reading the novel aloud - which authors routinely do for free in order to generate buzz for their book.
Musicians generally perform for money, unlike authors - yet expect to be compensated for copies of performances, like authors. Double-dipping is nice, if you can convince people to do it.
I don't have the time. Most people don't.
And you get out what you put into it: not much. If you care about music - just as if you care about wine, or cigars or what have you - you will gleefully do the research and the hunting to find what you really enjoy.
If you want quality wine, you will have precious few choices at Wal-Mart. If you want quality new music, you will have precious few choices at the majors.
People need to temper their concept of what a “dieing” entertainment industry is. Sure the numbers are down for the music industry, but by their own estimates they sold 588 million albums or equivalents last year, that’s just under 2 units for every man woman and child in the country, at an average price of $15 a unit that just shy of $9 billion in revenue. There are a lot of industries that would love to “dieing” with $9 billion a year coming in. And of course that’s just the albums, not the tours, t-shirts, posters etc etc etc.
And look 'emo' up at the Urban Dictionary for about 15 minutes worth of amusement. :)
I'm content on prowling around the bargain bins at used book stores, rummage sales, etc to find those lost sonic gems if I can't find what I'm looking fo on CD. Most of the used LP's I find were well cared for by their previous owner(s) - much of it due to the fact that a 12 inch LP and jacket cover was something of a work of art to be handled carefully.
True. It bothers me that anywhere I travel in U.S., all the radio music is the same. Exactly the same. No apparent regional differences or preferences. In this huge country, all radio music sounds alike.
One exception is a Navajo station in western New Mexico where, curiously, they play old cowboy songs and all the ads and talk are in Navajo.
Thanks!
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