Cowboys and Indies: The Epic History of the Record Industry (52 page)

Sure enough, the inherent weaknesses of the compact disc, notably its high price, cold sound, and cheap packaging, provoked structural market problems in the second half of the decade as music got corporate. Just as conglomerates bought up record companies, giants like Best Buy, Walmart, Target, and Circuit City were muscling in on the lucrative retail market. Aggressively undercutting the established record chains by selling bestsellers at $12, by 1996, Best Buy and Walmart were moving 154 million compact discs per year.

Simultaneously, gargantuan buyouts were further concentrating production. In March 1995, Edgar Bronfman, Jr., heir to Canadian beverage giant Seagram, persuaded his board to spend $5.7 billion on 80 percent of MCA, which Bronfman renamed Universal following his acquisition of the movie group. Meanwhile, in Amsterdam, the new chief executive of Philips, Cor Boonstra—straight out of the food industry—promised worried investors he would cut down the group’s “bleeders.” Although PolyGram was the biggest record company in Europe, it was put on the market partly because its movie division was littered with money-losing companies.

In 1998, Edgar Bronfman persuaded the Seagram board to buy out PolyGram for $10.6 billion. PolyGram’s chief, Alain Levy, was swiftly replaced by former Atlantic copresident Doug Morris, who laid off 980 employees and cut two-hundred acts as part of a massive restructuring plan. PolyGram was duly merged with the group formerly known as MCA to create Universal Music Group—the corporate equivalent of Goliath.

Bubbles tend to defy logic just before bursting—and the CD was no different from any property or speculation bubble. In 1999, the Backstreet Boys’ album
Millennium
broke all existing records by selling over 1 million CDs in its first week of release. Then Britney Spears’s
Oops!… I Did It Again
broke the record with 1.3 million sales in its first week. ’N Sync smashed it again in 2000 with a historic 2.4 million sales in just one week. Those three acts alone sold 96 million records in America. From that teen-pop wave, in 2001,
Pop Idol
in Britain inspired the first season of
American Idol
on Fox.

In purely financial terms, by 1999, as Napster arrived, the CD business was statistically booming like never before; the annual turnover was $12.8 billion in America alone. In an indication of how the supply of music was getting concentrated, Walmart was enjoying 20 percent of American retail CD sales with an average of just 750 titles per outlet.

“The way music was just pumped out,” said Rick Rubin, “it seemed like the people in charge cared very little for quality. Like they had this big switch. They’d have just one song, which they’d push at radio and put it out as a CD with a load of filler—basically trying to trick people into buying albums. And I think that behavior led to a revolt. If you buy five terrible albums with only one good song, you start to lose faith in the system. I feel like the system was broken, creatively broken. And that’s a big part of why the falloff eventually happened. There was very little goodwill built up between fans and the artists on the radio.”

Adding to the perfect storm was technological ignorance. Unlike Steve Ross, who moved into video games, MTV, and the compact disc, the new emperors reigning over the entertainment industries, just kept selling the plastic. As Seymour Stein put it, “The real name of EMI is the Gramophone Company; the real name of RCA is the Victor Talking Machine Company; the real name of Columbia Records is the Columbia Graphophone Company; the real name of Decca is the Decca Phonograph Company. You get it? They made phonographs … In the fifties, Columbia invented the 33 rpm, RCA invented the 45 rpm, rock ’n’ roll came along and the record business exploded, so they thought, ‘Thank God we don’t have to make this furniture anymore.’ Luckily, by some miracle, Philips and Sony made the cassette and the CD, so we held on a little bit longer, but we planted the seeds of our own destruction. This could have been avoided. We never should have stopped making hardware.”

“Technology has done more to change the record business than any other entertainment medium,” reasoned his Warner confrere Jac Holzman. “That’s certainly true of film. Television followed a straight evolutionary path—always getting better, but you were using the same frequencies, the same airwaves. Records were fundamentally different, from cylinder to discs to LPs to CDs. And what happened was that this CD model goes along happily for eighteen years until, in 2000, you get Napster and suddenly the majors see they may lose control. This was an issue of control … I once asked one of the guys who is in this book—I can’t mention the name—I said, ‘Look, there is a big change going to come and we can do all kinds of other things with the new technology.’ And he said, ‘Oh, Jac, you’re always talking about the future. I just want to deal with the present.’ I said, ‘No, this is going to happen. How are you going to plan to embrace it?’ And he said, ‘I’m not embracing it, I just want it to go away.’ So everybody gets up and they start fighting.”

As Napster and other file-sharing systems began eating into retail sales, the record industry was, like Nero, fiddling while Rome burned. In 2000, Edgar Bronfman persuaded his board into a fateful stock-only merger with French water monopoly Vivendi for a theoretical $34 billion, thus creating Vivendi Universal, one of the legendary own goals of that crazy period.

Folly was in the air—even among more experienced players who should have known better. In 2001, for example, Ken Berry at Virgin splashed out $80 million in a bidding war to pick up Mariah Carey. Imagine Berry’s surprise when he realized the thirty-year-old diva was having a nervous breakdown and past her prime. Bad luck turned the risky investment into a commercial wipeout; Mariah Carey’s relaunch on Virgin was scheduled for September 11, 2001.

The most surreal fairy tale from the bubblegum forest was surely the sale of the Zomba Group—the sugariest of the teen pop factories, whose Jive label brought you Britney Spears, Backstreet Boys, ’N Sync, and Justin Timberlake. As a result of a badly thought-out contract signed ten years previously, BMG was contractually obliged to buy out Zomba at a price based on its previous year’s turnover. Due to a fortuitous alignment of the stars, Zomba owner Clive Calder sailed off into the Caribbean sunset with an unbelievable $2.74 billion in his hip pocket. For its money, BMG inherited a chocolate factory without its Willy Wonka.

The bubblegum index finally began to crash the following year. First, Vivendi Universal’s share price plummeted. Suffering losses of $23 billion, Edgar Bronfman, Jr., had effectively poured his family’s beverage empire down a drain.

Meanwhile, on the street, with the huge success of the retail juggernauts altering the fragile status quo, the traditional record chains Tower and Musicland were forced to follow all the latest Top 40 junk. After decades of giving the store’s prominent positions to artists who actually played instruments, traditional stores all over America and Britain began to lose their feel as places of pop culture. The gaudy covers of manufactured bands paid their way onto the end caps and began scaring away older audiences.

With 65 percent of the market controlled by Best Buy and Walmart, the older record chains Tower and Musicland eventually went bust. “The saddest day was the closing of Tower Records,” lamented Craig Kallman. “Tower was obviously such a lover of music, which had a really deep inventory. So for those of us operating on the front line, the business was really changing because you had this consolidation around hit records on your established artists. So for new artists getting going, it became tougher and tougher to find a way in.”

Of course, not everyone in those champagne-belching years was buying teen pop. From the late nineties onward, there was also an adult wave in electronic music. Innovative albums from the likes of Massive Attack, Moby, the Prodigy, Björk, Orbital, the Chemical Brothers, St. Germain, Thievery Corporation, Kruder & Dorfmeister, and Daft Punk, brought electronica to mainstream audiences—not just listeners but established artists and small producers also. As this high-tech genre inspired a flood of imitations, the mass of electronic music being produced from home studios became far too vast for labels, shops, and consumers to keep track of.

So the adult CD market witnessed a glut of DJ-mixed compilations grouping the best moments of the electronic underground. Specific genre terms began to grow under the increasingly defunct
dance
appellation as
house, ambient, trance, trip-hop, chill-out, lounge
, and
electro
became the hallmark sounds inside nightclubs, hotels, and restaurants. Gradually a whole new generation of compilation brand names was taking up larger spaces, particularly in European record stores. Ministry of Sound, Defected, Café Del Mar, Global Underground, Hed Kandi, Space Night, Hotel Costes, Buddha Bar, DJ-Kicks, and many others sold truckloads of compilations to the urban adult market.

Although nobody noticed what was happening, a deejay-mixed compilation is nothing more than a collection of singles assembled dynamically into a personalized storyboard. All these compilation makers understood that the thirty-sixty-year-old urban demographic simply wanted the
best of
the electronic underground. People didn’t want the sixty-minute albums.

Illegal downloading devices, apart from being free, enabled the public to get the one song they wanted. Because CD stores had ceased to be centers of street culture, all the subversive action was happening on the Internet. Thanks also to MP3 software like Winamp and iTunes, people could become their own deejays. Suddenly, in the first years of the new millennium, pop culture entered the
anyone-can-be-a-deejay
era. The previous century’s music became a dusty surplus from which you could assemble the soundtrack to your own life.

To its credit, Apple, the most popular hardware manufacturer among this urban demographic, spotted an opportunity to launch its very successful iPod and from there meander its way into the smartphone market with admirable stealth. A twenty-year trademark saga with the Beatles’ production company, Apple Corps, was finally resolved thanks to a rumored $500 million payout, allowing the Californian giant of the same name to break into the music business. For the third time in 110 years, the jukebox was about to throw the drowning recording business a lifesaver.

In April 2002, Steve Jobs personally telephoned the president of AOL Time Warner, who dispatched Paul Vidich, a Warner Music executive. A technology VP in the Warner delegation, Kevin Gage, described one meeting at Apple’s headquarters where he and Vidich argued for “locks” to be encrypted into digital tracks to prevent file sharing. Just as Gage began his PowerPoint presentation, Steve Jobs pitched a fit, shouting. “You’ve got your head stuck up your ass!” In an oblique reference to such outbursts, the EMI boss, Robert Faxon, recalled how Jobs “pushed us in ways we needed to be pushed … He sometimes didn’t hold the executives in very high esteem, but he always put the creators of music at the pinnacle of the business.”

Or so they thought. By personally lobbying the world’s most powerful artist managers and pop stars—notably Bono, who became Apple’s loudest cheerleader—Jobs was tacitly reminding the majors that if they weren’t compliant, they might have a messy mutiny on their hands. In the cut and thrust of business, Steve Jobs ran circles around the shell-shocked executives of the world’s rapidly shrinking majors. Amazingly, nobody noticed that, despite Jobs’s claims about the iTunes Store being
for artists
, he knew virtually nothing about music. As one senior Apple colleague recently admitted, at the time Jobs hadn’t even heard of hip-hop—the genre!

Jobs knew other things, though. What he wasn’t telling the record companies in 2002 was that
he
urgently needed content to embark on his hazardous expedition into the terra incognita of handheld devices. “I need you guys to be healthy,” he later told Universal CEO Lucian Grainge, “because if you are healthy, then you’ll invest in more artists, more talent, and it means I grow my business.”

The figures draw the clearest picture. In the first year of the iTunes Store, iPod sales shot up ninefold—becoming Apple’s biggest-selling product and pushing up turnover by 37 percent. Between 2003 and 2011, Apple sold a total of 300 million iPods and 10 billion songs via the iTunes Store, overtaking both Walmart and Best Buy as retailers. For Apple, the iTunes Store was the key battle that won them the war. However, over a ten-year spread, music and apps only represented between 5 and 10 percent of Apple’s overall revenue—a percentage relatively stable with Apple’s growth. Thanks to the increasing volume of iPhone and iPads, the iTunes Store exceeded $1 billion in 2009 and $2 billion in 2012. As more machines get sold, more music gets bought.

Apple’s spectacular growth has been a stark contrast to the ill-fortunes of majors, who have been kicked around like deflating soccer balls. Still determined to leave his mark, Edgar Bronfman bought out Warner Music for an undisclosed sum, then sold it in May 2011 for $3.3 billion to a Russian-born tycoon of Jewish origin, Len Blavatnik. In 2004, Sony and BMG merged to create Sony BMG; in 2008, Bertelsmann sold off BMG to Sony. In 2011, due to £4 billion in debts, EMI was carved up and sold off by its creditor Citibank—the record division to Universal for just £1.2 billion, and its publishing arm to a Sony-led consortium for $2.2 billion. More fire sales will follow.

On balance, viewed from the mountaintop, the recent music industry crash resembles a forest fire that, however cruel, is maybe just a part of Mother Nature’s epic cycles. Scientists have learned that, strange as it seems, forests actually
need
catastrophic fires about once a century to replenish nutrients in the underlying soil.

31. REVELATIONS

I suppose you’ve come to see the future? If you wish to believe today’s self-proclaimed experts, imagine a system of mobile devices through which music flows as a kind of utility, financed by a subscription similar to public television in Europe. Tomorrow’s listeners will, they say, consume music like water. Just as water pours from your tap, old catalog will be legally available in online libraries. Discerning ears will pay a little extra for premium music, in the way that sensitive palates prefer bottled mineral water. In short, imagine a musical Utopia where technology makes us all happier and richer.