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interviews: jeff leeds
I actually think this is a time when, probably more so than at any other time in history, the fans are in control.

… [How was MTV originally viewed by the music industry?]

I think there are two things that are sort of important to think about and remember. If you remember back in the time there were different radio formats than there are now. And there were still radio stations that played more into rock, and MTV was primarily kind of seen as almost like a rock radio station and was pretty white, and was pretty straightforward about that.

The other thing that's important to remember from a corporate standpoint is that it was such a small venture at the time that they had to beg the record companies for these videos. These [were] very sort of cheap visual materials to send overseas to markets where they couldn't get the artist or what have you. And they, obviously, had all the clout, all the power at the time and so, they would say to MTV, "Run this, we'll throw you a bone" or what have you.

And then a couple of things happened. One is that over time, actually very quickly, it was clear that there was a whole range of artists that MTV wasn't showing. The whole hip-hop movement was essentially about to explode. And MTV was ultimately forced to start looking, start broadening out and start kind of incorporating hip-hop into their playlist.

And it's ironic, to when you think way back to 1981, because you know, now hip-hop is probably the most dominant force in music, and it takes up a pretty big chunk of their playlist, and has pretty much ever since then. So, I think it's sort of strange that they resisted that.

The other significant change is that MTV, and its parent company Viacom, have become so much more powerful as a cultural force, and as businesses. And for years now, the relationship has changed. It's not just a question of the record company saying, "Do this," you know, directing them. I think for awhile the record companies saw MTV as an extension of their own marketing departments. It was just "We'll make a video, they'll air it. It's that simple."

But there was a point when that relationship started changing. As MTV became more powerful, really MTV was able to kind of make their own demands [to the record companies], to say, "Well, we're not going to play every video that you give us. We're going to make the decisions about that. We're going to say we really want this artist to appear at this time and so forth."

There's no question it's been a symbiotic sort of a thing. MTV has benefited from its relationship with the record companies; and the record companies have benefited too. MTV has helped feed the success of artists that might not have made it otherwise. I think for the most part everyone's gotten something out of it.

photo of leeds

A reporter for the Los Angeles Times, Jeff Leeds covers the radio, music, and entertainment industries. In this interview, he offers his views on the state of the music industry, how it got to its current state, and why he feels that the music itself is not in as dire straights as some say. "You know, I've never really bought this argument that the music has gotten worse, or that the quality has changed that dramatically," he tells FRONTLINE. "I think that at any time, you can point to a number of albums and say this is really fantastic material. They may be independent releases, they may be different kinds of music than what's in the sort of pop mainstream. But, I think generally, I just don't really agree that overall quality is dramatically different from what it was 10, or 15 years ago." This interview was conducted on Feb. 11, 2004.

But there was a point when that relationship started changing. As MTV became more powerful, really MTV was able to kind of make their own demands [to the record companies], to say, "Well, we're not going to play every video that you give us. We're going to make the decisions about that. We're going to say we really want this artist to appear at this time and so forth."

There's no question it's been a symbiotic sort of a thing. MTV has benefited from its relationship with the record companies; and the record companies have benefited too. MTV has helped feed the success of artists that might not have made it otherwise. I think for the most part everyone's gotten something out of it.

But these days, the complaint I guess is that MTV has moved so far away from the mission of marketing and music, that the record companies don't really see that as a particularly powerful outlet for them anymore. I mean, they're still spending plenty of money on videos, and still doing whatever they can to get exposure on MTV. But it's just different from when they started.

Yes, exactly. And here's the thing about MTV that a lot of these guys tell us. That in the beginning the artists [felt], "Hey, this is cool. This is a chance to strut my stuff," [market myself via] another avenue. Then they started to say, "Hey wait a minute, my audience, when they listen to my song on the radio, they imagine what Penny Lane looks like. Now, I got to show them what Penny Lane looks like in my video," part one. So the kind of fun of it is going away. Second impact, "It's all about singles; it's not about albums and deep cuts in a business that was going to go that way anyway. It's about three minutes; it's not about 40 minutes, so we're not making big album stories anymore." ...

There are plenty of criticisms you can make of MTV. And I know many of them, record companies believe are valid. But I'm not sure that it's fair to say that it's ruined the business. There are numerous examples of artists who really didn't have a lot of success on the radio or through other sort of markets before MTV ultimately embraced them.

Eminem is probably the biggest star in the world right now. If you talk to his record label, I think they might tell you that the very first single off the very first Eminem album was very difficult to break on radio. Hip-hop-oriented radio stations weren't initially that favorable toward the single and so forth. MTV played a very big role in breaking Eminem. And there's a ton of other examples.

I just don't know that you could say that it's been entirely bad. I think that's kind of a generalization that probably doesn't quite capture the significance of it. I think it has become a burden for artists, for a certain type of artist that just is not flashy, and is not visually oriented. I think that's probably true. But there's a whole other scene that's happened that wouldn't be what it is without MTV.

The peak of the record business really was a couple of years when you had Britney Spears and the Backstreet Boys, and that sort of teen pop flappy stuff. That just wouldn't have been as big as it was without MTV.

And so, yes, there are people who were in the record business, back four or five years ago, who were just raking in all kinds of cash because of that success, that enormous kind of bloom. Now they might tell you they didn't particularly think the music itself was that great, or lasting or meaningful to the culture. It didn't stand for a political revolution. It wasn't the force that it was in the '60s or the '70s. But for the business it was a great time. And MTV was partly responsible for that.

Help me understand. It is true that when I was young, music was a big political force, and a cultural force. The kind of clothes you wore, your hair, it was everything. ... But, then it became obviously an incredibly powerful financial interest. Is it true, in your understanding of the way business works, does money follow politics and political force? Is that what happened to get us to the moment where there was an MTV creation, where there's a "this" and a "that" that happened?

I think it's probably right that there was a time in the '80s and early '90s when big corporations started to recognize that there was a whole business that had been built up around the world of entrepreneurs, independent guys who had discovered music in whatever part of the world that they were in, and were making a lot of money by finding these artists that were just connecting with the audience for whatever reason. Because they had political significance, or they were so different and fashion-forward and whatever, that people just wanted to buy their records.

And so there was a period when big companies went and bought a lot of these smaller labels. That's essentially how the business became conglomeratized (sic). And so you did have a period when these independent entrepreneurs who had been just going along, they had small, private companies that were having good years and bad years. Which suddenly, in a system where they were counted on for quarterly profits, quarterly targets they had to hit. I think from an overall business standpoint, that's probably the biggest change in the record business in the last 25 years.

[How did the invention of the CD affect the music business?]

… [F]rom the time that the CD sort of emerged as a new format, and became kind of the mainstream format there was a period when everyone went and tried to replace their LP collections or their cassette collections with this new format that was supposedly higher-quality, and offered all kind of other benefits. And that provided this enormous [boom] for a number of years that covered up a lot of problems that were starting to emerge within the business.

When you have these huge piles of cash coming in, it's a lot easier to say, "Yeah, we can afford to make that $5 million video that actually never sees the light of day." There are a lot of sort of problems that [were] covered up and when that period ended, that coincided with a lot of other things that were happening in the world. Radio gradually was sort of consolidating. MTV was kind of drifting away from being kind of a straight music-oriented outlet.

This great boom almost turned inside out, because the very thing that led to it -- which was the idea that you could take music and turn it into a digital file and put it on a plastic disc -- that became really the unraveling of the business. Because those exact same digital files became something that you could take off of that disc, send to a friend or a million friends through the Internet. And that's why the business has the problem that it does right now.

... This is a business that has always, it seems to me, resisted technological innovation. We hate the 8-track, we hate tape, we hate radio. We basically, as a recording industry, have hated every innovation. Tell me about that.

I think that when the Internet emerged as a force, that the record companies looked at it and thought, "Okay, here's another change in the way that we do our business, the way that we get music to people." They realized very early that this could be a very powerful thing and could ultimately become a way that they can sell music.

But they also feared it in a way and were very weary of it because looked at it as another potential gatekeeper. At this point they're in a system where their gatekeepers are quickly starting to take more power over them. They've got radio, which is becoming conglomeratized and consolidating. And so instead of this kind of network of individual stations around the country, you've got these powerful radio giants that really can tell them what to do, or what not to do, or how to do things. So it's not as easy as it used to be for the labels to say to radio "Here's the songs we want to really get on the air," and really be able to kind of run the table with radio.

And at the same time, MTV by the mid-'90s had ... somewhat abandoned what it used to do in terms of the number of videos it used to play. So those record companies were frustrated with that.

And both radio and MTV have become like gatekeepers, where you had to somehow work them in order to get them to do what you needed them to do, whether it was to play a song on the radio, or video on MTV or what have you. And so that had become a costly machine for them to work in. They had to spend more and more money, they felt like, with less and less a return at both radio and MTV.

So when the Internet came along, they thought, "Man, here's another thing, that if we're not careful, someone is going to control this and make us pay more money to use it, to get exposure for our music."

They didn't immediately want to embrace it. They were trying to figure out how to co-opt it. In different ways, they all wanted to get a piece of the action. They all started individually -- the different companies cut deals with different technology companies, different software developers. All of the different kinds of things that they were developing were incompatible. And so there was a lot of in-fighting within the business about who was going to dominate. None of them wanted the other guy to become the most powerful music/technology company and then control the way Internet distribution was going to work.

While they were feuding with each other, this [technology], MP3 just became kind of a de facto format. The record companies were all trying to develop their own secure format, their own sort of way of packaging music on the Internet, but where it could be distributed safely and securely and at whatever price the record companies wanted to set. [In] the meantime, this technologically simple format called MP3 just became popular because the people that were able to encode their music digitally were using MP3 format. So that just became the de facto thing.

And then all of a sudden, when Napster emerged, there was a way for those MP3s to just be traded across the world. And the record companies had then wasted all this time trying to each develop their own kind of way to adapt to this thing. It hasn't really become a gatekeeper. It was more like it became this open world where everything that the record companies base their value on, which is their musical archives, were suddenly out then.

The archive of a record company, its music library what its value is. That's what the record company is worth. Someone owns the masters of Jimi Hendrix and Led Zeppelin and Aretha Franklin and countless other timeless, classical classics. Owning those masters was suddenly not that big of a deal, because all of that music was just out there for [free]. And so I think that that's the story.

What have they tried to do, and how successful [have they been] to put the genie back in the bottle?

After a couple of years of trying to figure out what to do, and each try to develop their own systems, all the record companies ultimately agreed to back Apple iTunes music service. That started last spring. They all agreed, "Okay, we're going to make our catalogues available digitally, and Apple is going to sell them for 99 cents each." So, Apple, for the moment, has sort of become the gatekeeper. And we're all working with Apple now and trying to get catalogues and music on the service.

They really enjoy the fact that Apple has committed tens of millions of dollars to advertising the service, and trying to make it a cool and popular thing to do. And then now they're licensing all kinds of other legal services around the world that they hope will gradually begin to draw consumers back in and take away from the piracy.

And the downside or the unknown?

Well, the unknown is how consumers are going to be using these services, how much they're going to buy, what they're ultimately going to be willing to pay, and those kinds of questions. The record industry is going to have a really serious problem if consumers come to a service like iTunes and buy only the one song that they heard on the radio.

There was a time when maybe we'd buy an entire album, based on hearing a single on a radio, or seeing the one video on MTV, one video for one song. You'd go and you pay $12 or $15 or $18 for that album. That would be your transaction. But, if you're only buying one song, then there's a gap there. There's a gap between 99 cents and 18 dollars. And you got to either draw more people into the system, so you've got 18 people paying 99 cents for that single, who weren't going to buy it otherwise, or you've got to figure out some other economic model.

Like subscription or something?

Well, no, you've got to make shorter albums, or you've got to cut back dramatically on something. Because the financial system that you got now is not going to be supported by a world where the same number of people who are buying music right now pay less money.

Now switching from commerce to art, the imperative of an artist is to create an album that kind of tells the story of Tommy, the rock opera. It may not be the financial incentive for something like that. You really become a creator of the pop single.

It's hard to tell. I mean, the record company may decide, "We're in the singles business entirely now. So instead of giving someone a recording budget that allows them to make a big album, and a big concert piece, we're going to pay for them to make three singles and then we're going to see how they do. Maybe if they do well, then we'll make an album," or something like that. But, I think that the way the music is recorded and marketed is going to have to change because of the fact that people can buy singles or can buy just pieces of an album.

We talked to some people who say they actually believe that if you could draw eyeballs to the Web to buy or even steal a single, that there would be such intense interest in that single and that group, that if the buzz gets out that there's a whole album filled with hits, 14 hits ... the days where you could throw a bunch of crap on an album would be probably gone. ...

There's a couple of different ways that things could go. On the one hand, there is an upside for the record companies, which is that right now they're spending whatever it is that they're spending to make the video, to make the album, to promote the single at radio stations and so forth. If they can hold the line and kind of keep CD sales roughly what they are, and they can get some kind of new influx of people through Apple and other services on the Internet, then essentially they've got two income streams from the same recording. Right? They've only spent the money once to make that album and to start promoting it. And now you've got some number of people that are still buying CDs in stores. And now you've got maybe an additional, you know, number of people who might not have bought the CD, but who are going to give you money for at least some of that album.

There's a school of thought that says, "This is going to be great, because if we can just hold on to where we are with CDs and gradually build up the digital sales then we'll have two income onto the same report, or off the same expenses.

Yeah, it's also possible that people will be able to say, "Well, if you like this single then you should buy more of them." But what the Internet allows you to do is sample those things and make up your own mind before you really do. And I'm not so sure that it's always been that easy to do that with CDs. In the last couple of years stores have become better about having listening stations and making it possible for you to try things out before you buy them. And I think that's been a positive things for the consumers.

So, sure, their hope is that if they can get you to buy one that you'll want to buy the others. And there are people who admit to downloading music on the Internet who say that they buy more music than they used to because their world has been opened to so much more music. They've been able to try things they never really knew existed. And then they've liked it, and they've bought the album.

But, by the same token, you know there are people out there who just don't buy albums anymore.

Is the music going to be better if people can shop online for different single songs that they can cherry pick, or as an artist are you making pop hits and not following your bliss?

You know, I've never really bought this argument that the music has gotten worse, or that the quality has changed that dramatically. I think that at any time, you can point to a number of albums and say this is really fantastic material. They may be independent releases, they may be different kinds of music than what's in the sort of pop mainstream. But, I think generally, I just don't really agree that overall quality is dramatically different from what it was 10, or 15 years ago.

So, the people who say, "Hey, wait a minute, Jeff, 35 years from now who's the Elton John, who are the Beatles, who will I listen to on the elevator, who's provided the soundtrack of my marriage, my divorce, my child, my this, my that?" Is that OutKast, is that Jay-Z? Am I really listening to that on an elevator 30 years from now?

There's no doubt that music's place in the culture has changed. There was a moment in history when you had this rock revolution. And then there was a moment in history when you had this kind of street revolution, where hip-hop culture kind of became the most powerful influence in culture, fashion, media, politics, everything else.

I suspect if there's going to be another sort of change, another force that will come to dominate the culture like that, it may not be something that you look back on with nostalgia the way that, I think some people do with music from the '60s. But, you know, I think music is always going to be a cultural force.

Why?

Because, I think that whatever style the music is, whatever style the music will be in the future, there's going to be a style that connects with kids are growing up and who are changing, are looking for something to be the soundtrack of their teenage rebellion. As long as there are kids who want to tick off their parents and just be different, be non-conformists, there's always going to be music that's there for them.

What does the business do with the Sarah Hudsons? What are the economics of what she's probably come up against? … What's the trajectory?

I think the trajectory for a young artist is that they're going to take their shot and have a record company that is behind them, that's going to do their best to run them through this massive [media machine] that's been created. They're going to be going to radio stations. Maybe they'll be making a video. And then it's up to the record company to try to promote them. They're going to have to try to get that video on MTV. They're going to try to get radio stations to play that song. And then they're going to sort of hope that what they've produced is going to connect with the public and connect with enough of the public that people will go and either try out that music for free on the Internet, and then buy it, or just go to the record store and listen to it, and buy it. They're going to hope that this new sensation that they've tried to create is going to be powerful enough that people will pay for them.

The trick thing is the economics aren't having to change this dramatically. The record business is still about finding that untested talent and rolling the dice, and seeing what happens. The odds are against every new person, every new band, every new singer, every new rapper that comes out, because, like I was saying, there's only so much room in the media outlets that we've got. Radio stations are only going to add so many songs a week to their playlist, and MTV is going to do the same thing. And so it's tough. It's really tough to be a brand-new singer, or a brand-new rapper or a brand-new band and make it.

I know there's always an impulse to find new talent, there's a need for it, etc. But what is different, if anything, about how an artist is pushed? How much time, how much energy? We always hear this complaint about artists developing -- once upon a time Bon Jovi got to sell 10,000 albums, and then two years later it sold 40,000, then it sound 10 million because it was developed over time.

There's always going to be this kind of tension between two forces, even within one record company or within one kind of media conglomerate that owns the record company. There's going to be guys who want to say, "Look, we've got to make our numbers, and we can't afford to wait, to finish, to really make this album the very best it can be." There's going to be guys who say, "You know, we can't spend what we really would like to spend on that music video. We can't fly to every single radio station we thought we wanted to, because we've got to save our money. We've got to hit those core targets."

But at any record company there's going to be a guy who really supports that artist, who's passionate about that artist, and who wants to give him every possible opportunity and spare no expense in trying to break them through. So every record company is basically going through that right now, with every single artist and every single marketing decision, you're deciding between, "How do we be responsible for our own business and meet the obligations that we have as a company financially?" And then the other side that says, "You know, we've discovered what we think is a great new talent, and we've got to do everything we can to try to make this a success."

The problem of course is, I gather, that once when there were a hundred separate labels you could have 40 people inside a label, and that label could be a driving engine, depending on the economics [to] fuel the rest of the machine. When you're aggregated into five and maybe soon four [major labels], thousands of artists, potentially inside every label, the [tendency] to get, lost in the shuffle, for lack of a better phrase, is much higher.

Yeah, I think that's true. I think in every major label there's a marching order. There are things that become priorities, and things that sort of fall by the wayside. There are going to be records that the company finances and goes through the process of recording it, and starting to make a video and doing whatever [they need]. "We just don't think this is going to work; we're going to cut it off now so we don't throw good money after bad, and thank you very much." While other things are going to become the biggest priority for the whole company and no expense will be spared in trying to make it a breakthrough.

But I do think that fewer people are getting a shot now. I think that as the companies consolidate, you know, the budgets that they have to sign and develop new artists are going to shrink. And so that means that there are going to be fewer people like Sarah who are going to have an opportunity at a major label, because they're not going to be willing to put out the money for that many new people to have their opportunity.

Guns N' Roses, Stone Temple Pilots, [their former members] form a corporate merger of their own into Velvet Revolver. A lot of people behind these guys, including Clive Davis. What's the business story associated with these guys and this album? At the rollout in May what's at stake? What kind of money are we talking about?

I think that's a really interesting situation. I was a fan of both of those bands, and so I'm looking forward to hearing what the new album sounds like. And I can tell you there was a tremendous amount of competition within the record business to sign that [group]. There was a bidding war. And I think that that was partly fueled by almost a nostalgia on the part of some of the record executives, because they think back to the era when Guns N' Roses was a big band, it was one of the biggest bands in the world. It goes back to when Stone Temple Pilots is really a powerful force and was selling millions and millions of albums. And they're thinking "Wow, if we can somehow recapture the momentum from the early '90s, we'd be in really good shape."

I think that they're probably right. I think there's going to be a market among people who were big Guns N' Roses fans, or big Stone Temple Pilots fans who will at least give them a chance. It's certainly not a sure thing, but I think that they're making a bet that there's an existing audience for that that they can use as a starting point.

And so because those are proven rock stars, they're going to obviously command a lot more money when it comes to marketing and promotion. And the record company will probably be willing to go out a little bit further on the limb to try to make that work.

But, it will be an interesting thing to observe too, of course, because it's a new reality. I mean, these guys all got started in the late '80s, early '90s. Completely different economics. They were telling us stories about million-dollar recording sessions. Now it's half a million bucks to record this album. [Then it was] 727s filled with coke and girls. Now, a much different orientation. The marketing is very different. They're worried about the Web, worried about how they're [going to get on the radio,] Clear Channel's [stations]. That's the new reality.

It's definitely going to be tough in some ways because the audience that existed for those bands when they were really popular has grown up a little bit. The challenge for them will be to see if they decide to go the route of trying to make it a new sensation among the youngest fans and the teens and so forth.

Like I said, I don't think they're going to have a lot of problems attracting the audience that will be curious, that will say, "I was a big Gun N' Roses fan, I was a big Stone Temple Pilots fan, I want to check this out." But those people are 30, 35, and in that sort of range. They can't market it like it's the newest rapper to come up from the streets. And so I think that's going to be their challenge.

They talk about this with a kind of revolutionary fervor. "We're going to change the music business." You know, buccaneers, swashbuckling, "Rock is back, goodbye hip-hop, or at least make way for us. We're going to open a wedge inside the top 10 again."

Right. It seems to me that pretty much every two years or so, like Rolling Stone or Spin or someone else declares that rock is back. I think every couple of years there are some great rock bands that come out. The Hives, I think last year created a big sensation. Didn't sell that many records, but had people declaring them, "rock is back."

The White Stripes are another example where people say, "Wow, there's really a big change going on here." And the White Stripes did have a lot of success on the charts this past year. But I don't think that rock now can be what it was in the '60s or '70s. I just think the culture has changed too much. And it's not going to be the sort of revolutionary force that it was.

Why?

When rock was new it was a way for an entire generation of people to embrace it and say, "This is our sound, this is our thing. And this is the way that we want to live. And this is going to be our revolution."

I think that can only happen once. And it happened. And it's over. Now people have to find a new kind of music, or a new set of bands or rappers or singers to grab onto as their own generation's most powerful cultural force. ...

Aren't the labels basically -- especially if the Internet model actually comes to pass, in whatever form it is -- aren't they dinosaurs? What are they really? They're just marketing divisions. I mean, they're banks and they're marketers.

... There was a point when the Internet first emerged that the artist community thought that the major labels were going to disappear very rapidly. They were going to become dinosaurs because they figured "Hey, I don't need physical distribution anymore because I can just sell downloads through the Internet. The way that digital technology is developing, it's not that expensive anymore to make a recording, or to press the CDs, so I can probably get a loan from my buddy, or borrow from my mom and finance that myself."

So, some of those functions you thought for a minute they were going to be eroded. And it's true, there are a couple examples of bands who are doing much better for themselves, selling a relatively limited number of records through the Internet and using the Internet as their own marketing for some of the people who are independent and who had success like that. But, there hasn't been an arc that broke open in the mainstream through the Internet exclusively. And certainly I don't think it's right to say the functions of the major labels have no use or meaning.

They will always be with us?

I think they will always be with us. I think that as long as music is a force in the mainstream culture, you're always going to have companies that want to be in that business. And you're always going to have artists want to be big stars, and they're going to need companies like that to help them do it. ...

Help me with the economics at the most basic level of how a recoupment [works] and how an artist gets paid to make a record, and how long it takes to get to that, and how you make your money?

As an artist when you sign a deal with a major record company, you're given a proposition. The proposition is "Okay, you don't have any money, you want to be a big star. We, the record company, are going to advance you the money that you need to record your album, produce a video, travel and try to basically make something of yourself, become a star."

Typically a million dollars, a hundred thousand dollars?

It really depends on what kind of act it is. But, sure, there are plenty of acts that ultimately give investment of about a million dollars to start with between recording budgets and everything else. And then the proposition is, "We're going to advance you that money, and before you make any money selling records, we need to recoup what we've bet on you. And so you're going to be given a royalty rate, and it will be a percentage of whatever your CD price" -- let's say it's 12 percent to start. And, say it's a dollar a record. "For every record we sell, your percentage, that 12 percent, is going to count toward the debt essentially that you've accrued by making a record, and making a video and traveling and all that sort of stuff."

And so it's tough for a lot of artists because something like nine out of 10 records don't really sell enough to recoup. The artist never sees a royalty check. And what's very common in the industry is that, even though when you become successful, your account might be un-recouped. And so what savvy artists are able to do is re-negotiate their initial artist contracts. Usually negotiate another cash advance, and maybe a higher royalty rate. And so the artist might live, buy houses and cars and so forth on that advance. And then make the next record and do the next video and not really ever worry about recouping.

A lot of big industry lawyers and big artists will say they're never going to recoup, but they're not worried about it because they just renegotiate every time and get a bigger advance. And artists' lawyers will say that's what they have to do because they believe that the industry's accounting and the way it works means that, even if they try to keep their expenses low, they wouldn't recoup anyway, because their royalties are ultimately very low, they believe, and so they're never going to recoup.

[Explain recoupment.]

Most record companies take deductions out of your royalties before they pay. The standard has been that you take a deduction for packaging, which is the cost of the CD packaging itself. You got a deduction for new technology, the idea being that we, the record company, spent a lot of money to build these CD plants and all this technology a long time ago, we need to recoup that investment as well, so we're going to take a percentage for that.

Still?

Yeah. That's why part of the artists' movement has become so strong, because artists feel like a lot of these deductions don't have a place anymore. And that's really only going to get worse as the digital world takes off, because artists are going to say, "How can you charge me for packaging when this is a digital download, it's going from one computer to another. How can you charge me for new technology, you know, on CD, and we're not really selling it on CD anymore?"

The same thing is going to happen internationally. And the record business is hoping that the digital business is going to become a global phenomenon, and they're going to be able to sell digital downloads for money around the world. At the moment there's also provisions and contracts where artists usually receive lower royalties for foreign sales. And the argument is going to be, you know, again how can you charge me a lower royalty for foreign sales? It's not as though there's a sub-distributor or something that you have to work through in that other country; it's just a download from a computer.

So, there are going to be some pretty serious fights coming up between artists and record companies as they try to get this digital world together.

And if you spend a million dollars as a company on me, and I'm going to get a dollar for the CD that's working against what I owe you, I've got to sell a lot of CDs in order to get there.

You've got to sell a lot of CDs in order to get there. By the same token, with the level investment the record company makes, the record company's argument is going to be they also want to sell a lot of [CDs] to make their money back. In many cases, they'll say, "We essentially loaned you a million dollars. Your record didn't really sell, but you're free. So we gave you your shot. It was our money that was sort of wasted. Not yours." They feel like they got a tough end of the bargain too. But they feel like they did their part by giving you a shot.

And as an artist, if you're dropped from that record company, you walk away with that debt essentially, you know, left unpaid, and it doesn't have to be repaid. ...

[Who's running the record business now?]

I actually think this is a time when, probably more so than at any other time in history, the fans are in control. The fans are the ones who can go on the Internet and find whatever they want, and pay for it or not pay for it. The fans are able to go to places like launch.com on the Internet and find any music video they want, whether MTV is playing it or not.

The fans can go and find their iPods and go to the Internet and fill an iPod with any music that they want. Take it with them in their car when they travel or whatever. In many ways, it's a really good time to be a music fan because you've got a lot of freedom.

But, do you have the diversity of artists? My impression of the industry is the funnel has gotten tighter and tighter and tighter, and the available artists--

In the major label system I think that's true. I think that the pipeline has gotten narrower. But for music fans that want to just surf around and find the new rapper from Japan, or the new opera singer from Germany, it's a great time.

How did this happen?

The radio business, in the early '90s, had really started to suffer. There were lots of stations that were doing poorly financially, and the broadcast lobby, which is a very powerful lobby in Washington, successfully lobbied Congress to raise the limits on station ownership. So, whereas before a company would be limited to owning roughly 40 stations nationwide, and when this 1996 legislation was passed, there was suddenly no limit of what you could [own]. Thousands of radio stations changed hands. And companies that wanted to really get on radio were able to pull up some enormous multi-billion dollar mergers. And suddenly a company that once owned three dozen stations could suddenly own a thousand.

And so you just had forces emerge that couldn't have legally existed before because of this change, and that's really revolutionized the music business.

The effect has been?

... All of a sudden you have these companies emerge where they controlled every station in that city. Or they controlled a small station that you used to be able to hold sway over. But they also have a huge station that held sway over you and they can use that to leverage the record companies. So the bounds of power really shifted toward the radio conglomerates.

And this idea of 20-song playlists, you're talking about a funnel being narrowed?

Right I think it's difficult to measure exactly what the effect on playlists has been. But I think there's statistics that show at least at the top of the playlist, there are fewer new songs that are getting the heaviest rotations. So what you're seeing is essentially a trend where in most radio formats there's a small number of songs that get played over and over and over again. And the number of songs that get that opportunity has definitely shrunk.

And so if you are someone who believes, as a lot of record executives do, that radio is the most powerful promotional tool that you have, and a big part of your week is spent trying to get spins on radio stations, that's a big problem. Because now you've got few opportunities to get into that pipeline where exposures would seem to translate to record sales.

Is it a good time to be a young person going into the record business, at least for the majors?

I think it's a tough time to be getting into the record business. I think that there's a lot of uncertainty surrounding the future of these companies. There's a merger that may or may not pass this year that's going to be yet more consolidation. It's a good time to get in the music business if you are someone who is open minded, and someone who's ready to really try to find new ways to market music and to promote it.

But I think that the technological changes and the cultural changes have really clouded the future of the major corporations. ...

Does it matter that we're not developing artists? Does it matter that it's harder to make money? Does it matter that a Velvet Revolver may not work out, or that Sarah Hudson may not become Madonna?

I think it does matter. I think that we have to remember that this is a business that is about turning stars into global sensations. For the nation, this is one of our biggest exports. It's part of the way that America, and its culture, influences the rest of the world. And so when that business goes away, I think there is an impact on that. I think gradually -- and this is a trend that's already begun -- companies in other parts of the world develop their own sort of local repertoire in their own sort of countries.

And I think that there's obviously an impact also in a very real way for the thousands of people that have lost their jobs in the last couple of years because of the consolidation of our business.

The symptom of Tower Records down the street, or the symbol and the symptom, closing down a thousand record outlets in America last year, what does it mean?

Tower Records had some sort of unique men involved that contributed to its downfall. But, ultimately, I think it's going to be a symbol of what was once a very powerful retailer crumbling because it just couldn't make it in the new world. There are hundreds, if not thousands of stores that are closed over the last several years because ultimately they have the same problem.

The damage to the record companies has been that these traditional music-focused stores, where they used to sell a lot of catalogue material, are gone. Again, part of the machine is no, they don't have the outlet they used to have. Catalogue is a very important thing for the record companies because it's the most profitable segment. If you were to go out today and buy that 10-year-old Metallica album, that's essentially all profit to the record company because they're haven't put any money behind it lately. They're not still marketing it and promoting it and that kind of thing.

So to have your most profitable segment go away is a really damaging thing to the companies. The [big labels] saw that this was coming, and so a lot of the record companies have shifted their emphasis to dealing with Best Buy and Wal-Mart and bigger retailers. But I think that one thing that's interesting about that is that those big stores make their money elsewhere; they don't make it on music. And so you've got stores that have become known as the place where you can buy a CD for $9.99 or $8.99. I think that's played a role in a devaluation that's happened in the music business. I think part of the reason that consumers have started to feel like prices were getting too high, part of the reason that people felt a certain freedom to essentially steal music was because they felt like it really should be eight bucks or nine bucks. And any higher than that seems like a rip off.

And so that's bad news for the record companies, because if they ever want to see prices rise, they're going to have to figure out another way to make that value proposition sort of worthwhile.

… Our guys at [Velvet Revolver] were sitting there stunned and literally thunder-struck that they have to go in and have clean versions of their songs if they want to run them at Wal-Mart.

There's no question that the big retailers like Wal-Mart and Target had a really significant impact on the way music is marketed and sold in this country. And again, they tend to carry a very sort of narrow selection, traditional, just sort of the top hits. And that's just a market contrast from the way Tower Records operates, or the way a warehouse operates or any of those sort of traditional stores that carried the sixth most popular album by AC/DC or whoever it is. And so that's another way that the whole sort of marketing machine has really sort of narrowed. ...

 

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posted may 27, 2004

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