How Music Got Free (12 page)

The most obvious idea was to create a legal paid alternative. Bronfman was bullish on the future of digital tech and, at Seagram, began directing capital toward a wide variety of ideas. The company’s annual report from 2000 sounded like the mission statement from a venture capital firm: “Our investments include internal infrastructure, which includes hardware and software that will allow the music business to be conducted over the Internet, such as bluematter.com and Jimmy and Doug’s Farm Club, as well as investments in GetMusic, ARTISTdirect, InterTrust Technologies, ReplayTV, eritmo .com and others.”

It was a list of busts. Within five years, most of the ventures would no longer exist, and the surviving stragglers would have no meaningful impact. Morris—and Bronfman, and dozens of other corporate executives throughout the entertainment industry and beyond—had fallen victim to the promises of the dot-com hucksters.

Rosen alone could see where the music industry stood. In repeated conversations, Morris doggedly insisted that his tech investments would obsolesce Napster. Rosen tried to disabuse him of this notion—at first patiently, then, as time went on, with an increasing sense of exasperation. She could see that Morris was operating in a world he didn’t really understand, and she felt he wasn’t listening to reason. Just as it was in music, tech was about
talent
, and Morris, overseeing
a confusing panoply of competing, overlapping ventures from an office on the wrong side of the country, didn’t have it.

The most damning example was his enthusiasm for
Pressplay, an online music store that Morris would sink tens of millions of dollars into developing. The venture was a coproduction between Universal and Sony, and the cooperation between these former rivals led Morris to be bullish, despite the store’s complicated licensing structure and limited selection. On several occasions he told Rosen to stop talking to Napster, to stop negotiating with the Fannings, to stop worrying so much, because he had something that would “make it all go away.” In later years, Pressplay would be a reliable starting point for listicles of the “Top All-Time Tech Busts.”

Rosen was in a tough position. She understood the industry’s future better than any of the CEOs, except perhaps Middelhoff. But ultimately, these men were her bosses, and while on conference calls she privately objected and pushed for accommodation with the Fannings, in public she was forced to act as the music business’s hatchet woman.

The first stage was to get law enforcement involved. Rosen and her antipiracy team had regular conversations with the Department of Justice, trying to convince them to go after the more brazen profiteers like mp3.com and Napster. This proved difficult. The music industry was not well liked on Capitol Hill. The record execs had stood their ground against Tipper Gore and Bill Bennett, and won decisive battles, but those victories had left the congressmen—and their wives—looking like humorless scolds. Even among liberals, the attitude on Capitol Hill was not favorably predisposed toward the record labels.

Other sectors of the entertainment industry had much more influence. The movie industry in particular was well represented. This was largely due to the work of Rosen’s movie business counterpart, Jack Valenti, the longtime head of the Motion Picture Association of America. Valenti was a legend on Capitol Hill, at least in part
because he had bowed to the demands of the culture police and instituted a self-regulatory rating system for movies. Valenti’s rating system was deeply flawed—at times it was incomprehensible—but it kept the industry in good standing on Capitol Hill, and for Hollywood, at least, the sacrifice of artistic integrity was worth it.

To its everlasting credit, the recording industry refused to make this compromise. Ratings systems had an undeniable effect on culture, determining what kinds of product got made, and for how much, and what they featured. Executives like Morris recoiled at the idea of a secret council of humorless nincompoops deciding the proper age to first listen to the Beatles—or 2 Live Crew, for that matter. Morris had personally championed the First Amendment rights of his artists with enthusiasm, sometimes at great personal cost. Perhaps it was difficult to disentangle his personal ideology from his economic incentives, but that only made his defense all the more sincere.

But for his principles he would be made to suffer. Congress had failed to protect the teenager from the moral depredations of the music industry; now it was disinclined to protect the music industry from the file-sharing of the teenager. The elected officials tended to be forthright about their motivations in this regard. In repeated conversations with Morris’ lieutenants, they made clear that their constituencies generally supported file-sharing and generally opposed the aggressive enforcement of copyright law. Like the “blue laws” against sodomy, the guarantees of intellectual property protection were in danger of obsolescence—on the books, but unenforced. Although he was not a lobbyist, Harvey Geller, Universal’s chief litigator, met occasionally with members of Congress and pushed the case for stricter enforcement against the file-sharers. He was told, repeatedly, that such a move would likely cost votes. “Politicians pander to their constituents,” Geller would later say, describing these encounters. “And there were more constituents stealing music than constituents selling it.”

Other industries did not face this problem. The movie business
put the FBI’s antipiracy warning on every videotape they shipped—but they had Valenti. The publishing industry churned out at least as much filth each year as the musicians did—but they also offered big book advances to retiring politicians. The software manufacturers had enjoyed the benefits of numerous Department of Justice antipiracy campaigns—but many of them secretly collaborated with the NSA. The music industry stood alone in its defiant refusal to cooperate, and now it found itself abandoned by the state. If it wanted to enforce its intellectual property rights, it would have to do so on its own.

So Morris—and, by extension, the rest of the industry—came up with a plan for the mp3. They were going to sue it out of existence. This was a two-pronged strategy. The first salvo was
RIAA vs. Diamond Multimedia Systems
. Using their trade organization as a front, the major labels sued the device makers themselves. The lawsuit sought to obtain an injunction prohibiting the sale of Diamond’s Rio portable digital audio device, and any others like it, suffocating the nascent mp3 player market in the cradle. The second lawsuit,
A&M Records vs. Napster
, was filed by
18 record companies, including Universal. The suit alleged that Napster was legally responsible for the copyright infringement occurring over its peer-to-peer network, and that the company was liable for damages.

The two lawsuits wound through various civil courts and various stages of appeal. Napster peaked at sixty million users, while Diamond’s Rio player was plagued by various design flaws and sold poorly. The lawsuits had a chilling effect on industry R&D. As long as it might be found liable for the copyright infringement of its users, no legitimate software company was going to market a peer-to-peer file-sharing app, and, facing the possibility of a court-ordered injunction removing it from the shelves, no legitimate device maker was going to invest in designing a player for mp3s.

The most striking thing about this localized investment drought was that it occurred amidst the general dot-com deluge. The world had
gone screwy, and the normal laws of capital allocation no longer applied. In January 2000, Morris’ old bosses at Time Warner announced a startling transaction: they would be selling their company—their whole company—to America Online, the company whose business model was to drown the earth in unsolicited junk mail CDs. In exchange for $164 billion of hyperinflated AOL stock, Time Warner would sell it all—the magazines, the cable stations, the music labels, all of it—to an upstart Internet service provider trading at 200 times earnings that even an unsophisticated technology observer like Morris could see was a total house of cards.

It was the stupidest transaction in the history of organized capitalism. But for Bronfman it was a model deal, one to be imitated. Having spent the last six years buying, he now felt that the time had come to sell. In June 2000, he announced the dissolution of the Seagram group, marking the end of the Bronfman family’s eighty-year liquor empire. The remaining booze and beverage assets would end up being split among Diageo and Coca-Cola. Universal would be sold to Vivendi, the French media conglomerate.

Vivendi and Seagram were practically doppelgangers. The company was run by a flamboyant megalomaniac named Jean-Marie Messier, who, like Bronfman, had been seduced by the allure of celebrity, and had transformed a boring French water utility into a technology and entertainment conglomerate. These like-minded business geniuses were theoretically to share joint responsibility for overseeing the Universal entertainment assets. In practice, though, Junior was made “Executive Vice Chairman,” a position about as important as it sounded.

Morris, by contrast, was a franchise player, and retained control. The merger meant a chance to renegotiate the terms of his employment in the middle of the dot-com boom, bargaining against a free-spending Frenchman who made even Bronfman look cheap. The resulting contract—let’s call it The Contract—went into effect in 2001, and for the next decade
Morris was the best-paid man in music.

Like Junior before them, the suits at Vivendi did not quite seem to understand what they were purchasing. They had acquired telephone companies, tech investments, and media and publishing properties, funding these purchases by borrowing heavily. As so often with deals of this kind, the investment bankers who sold the bonds assured the public that these investments were sound. But servicing this debt required a reliable stream of incoming cash, and, once the contracts were signed, Vivendi began pushing Morris for estimates of future earnings. These he declined to provide. He explained to his new bosses that his sales were subject to shifting whims of culture that he found impossible to understand and that he was powerless to control. If perhaps he was overconfident in his technology investments, then by contrast a lifetime of scouting the order-taker had taught him that there was no such thing as a sure thing. The idea that some big-shot corporate tastemakers dictated their aesthetics to the masses was absurd, and Morris’ entire career was predicated on the belief that the opposite was true. From the Music Explosion onward, he had always paid close attention to what the people wanted, and he tried his best to give it to them, even when it meant overruling his own critical judgment. Morris was agnostic about his own taste—even his own abilities. How was one 63-year-old white guy in a corporate office in Manhattan going to know what the kids wanted?

He had an excellent track record of breaking new acts, but that had no predictive power. The number of orange juice cartons you sold one year was an excellent guide to the number you were going to sell the next. The number of Limp Bizkit albums was not. Every year, Morris had to reinvent his entire product line from scratch. Mostly, that meant failing. The typical CD had a shorter shelf life than yogurt, and every year Morris ordered millions of them dumped into landfills. Despite forty years in the music business, he still never knew for certain which of his acts would succeed, and the Hollywood dictum that “Nobody knows anything” held equally true for every other type of show business. Every year hundreds of movies played to empty
theaters; dozens of TV shows were commissioned and then killed after a few episodes; thousands of freshly printed books were remaindered and pulped. Perhaps the saying even held true for the corporate world at large, and those who embraced this uncomfortable state of Socratic ignorance were those who tended to survive.

To a limited extent, Morris could rely on Universal’s back catalog: the number of Led Zeppelin albums sold each year actually
was
a pretty good indicator of the number that would be sold in the next. But Universal’s back catalog contributed to only about 30 percent of the company’s overall revenue stream. And, although inevitably some of the disposable pop hits of today would grow in stature to become the timeless classics of yesteryear, determining which songs this would actually happen to was impossible as well.

It was a well-known problem in corporate America—performance targets were too often tied to short-term results. It wasn’t supposed to be this way. In theory, publicly traded stock was an asset with infinite duration, and managers were supposed to invest in projects that built value for shareholders over the very long term. In practice, though, corporate consolidation in the industry meant an increased emphasis on the near-term bottom line. Morris was aware of this problem, and he tried his best to maintain stability on his labels’ rosters and inside the executive suite. He encouraged his label heads to focus on long-term profitability, and he always looked to sign Universal’s most important acts to multi-album deals. But still, he was paid his bonus annually, and much of the value of that bonus came from disposable pop trash. If that meant passing on Radiohead to sign Hanson, so be it. He was incentivized to make hits now.

He did so. Even as digital piracy spread from college dormitories to the public at large, 2000 was still a banner year for the industry. Customers bought more music that year than ever before or since, with
the average American spending over $70 a year on CDs alone. Universal led the way, cleaning up with three rap “sequel” albums: Dr. Dre’s
Chronic 2001
, Eminem’s
The Marshall Mathers LP
,
and Jay-Z’s
Vol. 3 . . . Life and Times of S. Carter
. “The Next Episode,” “Stan,” and “Big Pimpin’” were among the most pirated files on Napster, but this seemed to translate directly into increased album sales. Some industry observers began to wonder if digital piracy really hurt the music industry. Some even wondered if it was possible that piracy actually helped.

The argument was nonsensical. If something was available for free, and could be freely and infinitely reproduced for free, with no degradation in quality, why would anyone pay to own it for a second time, when they already had it, for free? The moral compulsion to compensate artists certainly wouldn’t be enough. Nevertheless, the Napster boom coincided with the two best years the recording industry ever saw, and even Morris would later concede that, for a while, Napster’s pirate trade in mp3s fueled the CD boom. What was the explanation?