So you have a rush of money coming into the labels because people are buying things that they already had on vinyl. They want to buy them on CD. And in a way, it's great for the industry, but it's not reflective of selling new artists. It's not reflective of record growth in terms of breaking new artists instead of in terms of artists sustaining. It's kind of a false indicator. I mean, it's money and it spins like money, but you can't really predicate your books on how long something like that's going to last and use it as a trendsetter.
So what happened as a result of that?
What happens as a result is you have a set amount of time, X amount of years, where you see a huge amount of sales being attributed to catalogue sales because people are buying Dark Side of the Moon on CD. They've had it on vinyl; they've worn it out. They're buying Steely Dan on CD. They're buying their favorite records in this new configuration. So what happens is you see a bubble of where catalogue sales take up a certain percentage of sales higher than they normally would. Because catalogue's always a high percentage of sales, and God bless catalogue. But what you see is something that only happens when a new configuration comes along.
So the industry is always looking for a new configuration so they can get someone to buy their sixth version of an album that would have been maybe on vinyl first, on CD, they tried mini-disc, that didn't work. Now SACD or DVD audio, so you may end up buying several copies of the exact same music, but just in a different format that's supposedly been improved.
And the guys who are running the record companies during that time, do they know they're in the middle of a bubble or are they kidding themselves that they are geniuses?
Well, they know they're in the middle of a bubble. You know, the thing that they think they're going to be geniuses about is when they're signing new talent that they're actually seeing explode. Like what happened at Geffen Records with an act like Guns N' Roses. So they understand the business. They're savvy enough to know, hey, X percent of our sales are coming from conversion in the '80s. The conversion from vinyl to CD. And we know that's not going to last forever. We can actually time this out from how other configurations have worked. They can look at this and see how long it's going to last. But they also know that nothing is going to help you as much as breaking new artists is going to help you.
And when the big companies came and started to buy up these very attractive cash-rich businesses, what happened?
It really changed the whole complexion of the record industry. What you had were these people who had been tremendous entrepreneurs, like the guys who ran A&M, like a Herb Alpert and Jerry Moss bought up by a multi-conglomerate. And it just changes the complexion. The whole way you're having to make decisions is based on a different model. You're having to make decisions based on shareholders, on stock prices, on quarterly results as opposed to when is the record actually ready? That's probably one of the actually biggest things that has changed how the record company is run in the last decade. I'm sure you've had everyone put that up to you.
And do you have a good example? Can you remember, think of an example of how the heavy hand of the corporation [was evident]?
Well, one of the things that you see every year is that there's a rush of releases for the fourth quarter. Not every record group has a calendar fiscal year, but they all know that they have got to get heavy hitters out during the fourth quarter because that's the Christmas buying season, very, very heavy buying season. And for the ones that are on a calendar fiscal year, that's their last rush to make money.
So we see albums that come out then that don't do particularly well and you don't know, were they rushed and they weren't ready and the label had went back to the artist and said, "Ma'am, can you move it along a little bit? Can you get it out a little earlier than you necessarily would have? We'll promise you that we'll do all the right pricing position of retail, we'll do this, we'll do that so it doesn't get lost at Christmas. But we need you to help us." And you see a lot of that, and sometimes it works and sometimes it doesn't. But what you see are label heads having to be very conscious of things much more than just the music.
… Everybody's telling us it's the "perfect storm" moment of consolidation, radio, corporations, downloading, burning CDs. Do you see a perfect storm? Do you believe in this perfect storm idea right now?
It does seem like the industry's being hit really with just a confluence of events right now that will force them to completely change how they do business in terms of digital piracy, in terms of monetizing, legalizing downloading; in terms of we're looking at more corporate mergers, you know, with Sony and BMG merging. We're looking at Warner's having a new parent. You're looking at the other companies still being ripe for takeover. And so what you do see is that how it looks right now in 2004 is not at all how most of us think it will look in 2007 or 2008.
It's a big moment?
It's a big moment in terms of you really just have everything seeming in some ways to break down at once. Who knows if retail's still going to exist in a couple of years in the way that we're seeing it? It would seem not to. You've had hundreds, if not thousands, of stores close in the past year. You've got others teetering on bankruptcy. How we're doing business now just is clearly not working. And it has to change.
There's never been more of a demand for music. People want music. You can tell that from downloading activity, you can tell that from how records by top-selling artists are still selling. They're not in the numbers that they used to [get]. What's happened though is how they're getting it is different and how they're hearing about it is different. The industry has to react to that in a better form or fashion if it's going to survive.
And the profits just aren't nearly what they used to be I gather?
Well, sales have fallen. For example, sales have fallen from $40 billion to $28 billion in the last three years, which is staggering. There are several things that are attributable to that. The easiest target is illegal downloading. That's what most people think caused it. You also have had a couple of years where there have not been more than a handful of artists putting out records that people have really responded to. And so you have both the downloading issue and then you have just kind of a general malaise in the market, that we haven't had someone who's really come through and unified people.
We've had 50 Cent who did fantastic, sold over 6 million in the U.S. You know, Beyoncé's doing very well. Evanescence is doing very well. Norah Jones is doing well. But we used to have several acts that would surpass several million each year, and now we're lucky to have just a few.
Because they're just not grabbing people's attention. There is so much demand for people's attention, whether it be video games, whether it be DVD, whether it be theatrical movies, whether it be anything else that can grab them, it does.
And maybe they just aren't as good. I keep asking this question. I mean, now we're listening to the Rolling Stones, we still listen to Elton John, Madonna, acts from the '70s and the '80s. 35 years from now whom are we going to be listening to?
You can't answer that because that's a question that only time can answer. You know? Are we going to be listening to Britney in 35 years? I don't know, probably not. Are we going to be listening to Norah Jones in 35 years? Probably. There are plenty of artists out there who are absolutely great. I've never bought into the "there's not good music now." I've never bought into that theory. You may have to struggle to find it a little bit, but I have no trouble finding records that I really, really enjoy. People just have to realize they may have to look a little bit harder, but there is really great music out there.
You told me that there were, I think it was, 34 different number one songs maybe last year?
Number one albums.
Or number one albums, I'm sorry. What does that tell you?
What we're seeing is a very rapid rate of turnover on the Billboard 200, which is our top-selling albums chart, in terms of the number one slot. So what you're seeing is that acts by and large are not getting traction with their audiences. They're coming in at a high number and then dropping off quickly. There's not any kind of sustaining power. For example, we used to have acts that would stay 17 weeks at number one. We're really not seeing that anymore.
So there's something where people's tastes have changed, where they're just on to the next, or these artists are not gaining traction with the audience for other than a short blip.
And the effect of that on the companies is what?
The effect of that on the companies is they have several different routes they can go. They can throw more money at a superstar who is coming in at the top and see what they can do to sustain that. Or they can be throwing more money, really just trying to get the next big thing, the next artist that's going to sell 6 million, the next artist that's going to sell 3 million. And they have to decide what's the best investment for them. Because you never know.
You know, 10 percent of the records make 90 percent of the money in the music industry. It is a crapshoot. You are dealing with the public. You can make the best record in the world, but you really don't know what's going to happen with it until you get it out in the marketplace and then you really don't have a lot of control.
We're following artists who are trying to make it. Give me the road that's ahead for these people in your experience. The young woman named Sarah Hudson who has a label, S-Curve, has a song, girl singer. Is a little Alanis, little bit of everything. Kind of angry but happy message. Because his father's Mark Hudson with the Hudson Brothers, people like Steven Tyler and Ringo played on the album. She's a singer/songwriter. The album will be released in [July] and then she'll do some radio tours and all that stuff. What's ahead for her? What does she face as an obstacle?
Well, what's ahead for someone like a Sarah Hudson is really having to build a career step by step. If you're a singer/songwriter, you really have to just go out and hone your craft. You need to be on the road, and that means what you try to build are just really small steps. Like maybe you play a 200-seat club in a town. And then the next month, the next couple of months, you come back and if you fill that, that's great. You move to a 300-seat club. It's really incremental, step-by-step process at that level.
She comes in with a bit of legacy in that her father's a very well-known songwriter, he's written hits for a lot of people. That could help her; that could also hurt her. That isn't necessarily going to be an entrée for her in any way. It's a footnote in her bio more than anything else. What she has to do is just steadily build a story, just like any artist does these days. And you have a short shelf life. You might not have enough time to do that before the label says, "We're on to the next. We've invested as much as we can. Sorry."
What are the odds, if you handicapped?
For any new young artist, the odds are almost insurmountable. I think if they knew the odds, they would never get in it in the first place. You know, the vast, vast majority of records go absolutely nowhere. There are about 30,000 albums released a year. There are maybe 100 that are hits, are certified hits. Now, that includes all the indie labels. It's not, you know, major labels. The vast majority of those are indie labels. But the chances of you having a hit are just almost infinitesimal.
And the marketers for Sarah, what will they do to create Sarah?
They'll try to find some kind of angle. They'll try to find some kind of hook. For example, that label has another really strong singer on it, a woman named Joss Stone, who's 16, 17, a British woman who sounds like a black soul belter from the '60s. And they've done a wonderful job of emphasizing her talent, but also a, "Can you believe it? You hear this voice and the voice and how she looks are absolutely nothing like what you would expect." So they found a hook there that tied into the music. It was very organic. It wasn't some forced thing. Like there's not been some kind of Joss Stone scandal.
And the best thing they could do is they could find something like that for Sarah where it does just build and where it's organic as opposed to just plying on the father's name.
And how long normally -- I know this is a generalization -- will they stay with her? You know, will they push her out, will they spend money on her? Generally speaking, how soon will they know that it's not going to take long?
Well, I would answer that one in a general way because S-Curve is different. It's a small, boutique label so they're signing acts that they really feel committed to. They're not signing acts that they're just going to throw up against the wall and if that record doesn't work, next.
But in general for the larger majors, you have a very short shelf life. If they don't start to see some kind of action, like if you're not breaking out of a city, if you're not getting airplay somewhere, if you're not touring and starting to see some kind of action, they generally aren't going to have you make a second record. There has to be a compelling reason these days for you to make a second record.
And it's not always based on sales, by any means. It could be based on critical acclaim, it could be here's a record that tons of critics liked and we feel like we've built enough of a press story. It didn't sell much, we haven't made back any of the money that we spent. We're still very much at a deficit. But we think we have an artist that we can build here. So it really depends upon the deal the artist's lawyer made; where the label is in terms of how much capital it has to put into new artists; what the commitment is to the artist; if the people who signed the artist are still there, which in many cases is not very likely a lot of the time; and really just the general feeling about the artist and the artist's long-term prospects.
She also gives us an opportunity to talk about one other thing, which is this impulse to get a single. A single going, get it out to the radio, get it out to wherever it is, find a single on the album. … Tell me a little bit about that.
We've moved back to a very single-oriented process here. Part of that is just the last time the boy band explosion came through with Backstreet Boys and 'NSYNC, the listeners were very single-oriented. There was no loyalty built up for most acts. And that happened across the board. It's not just a boy band phenomenon, but that's something that's happened in the last several years where just because you had a hit last time, there's no guarantee that your fans will follow you to the next single or that radio will say, "You know, this last single worked great for us. So even if the phones aren't great on the second single, we're going to stick with it for awhile." You have a very short amount of time.
And also, that's something else that downloading has really affected, and that people can just go in and cherry pick any song they want. So they aren't necessarily looking for the whole 10-, 12-song experience. You know, they are looking to hear the song that they heard on the radio that they like, or the song that their friend is talking about. The whole concept of listening to an album from start to finish really started to go out with the CD. Because you really could just cherry pick the tracks without having to go over and pick up a needle. So it started with that and has only increased to where there's talk that people might not even make albums anymore. Maybe they just make singles.
And the effect of that? I mean, so what?
It depends upon how you get your music. For some people it's okay, this is how I experience music now. You know, for a lot of artists they'll still make albums, but in a lot of ways it can be seen as a very, very good thing. Say someone like Sheryl Crow gets very inspired, goes into the studio, writes what she thinks is a smash and doesn't want to wait until she has 10 more songs to go. That goes up on Apple iTunes the next day.
So what you're going to see is the kind of immediacy that we haven't seen in a very long time. And so it's not necessarily a good or a bad thing, it's just reflective of people's taste and the industry has to find a way to monetize that. Because singles for years have not been something they've made money off of. A lot of labels quit putting out singles.
And in fact, there's the whole argument to be made that that's how illegal downloading got so pervasive. It wasn't that people wouldn't pay for a single if they could get it, so they couldn't get it. The label simply wanted to drive people to buy an album because that's where they made their money. So if there was one song that you loved on an artist, you couldn't walk into a record store and pay $3.99 and walk out with that one song, you know, re-mixed on the other side or some other song. You had to buy the whole album for $17.98 and you weren't willing to make that commitment. You'd heard one song, you had no idea if you liked the other songs.
And in fact, the other songs were probably lousy in a lot of ways.
It could be, maybe not. But the point was the labels quit giving you any mechanism -- they forgot about the consumer. They forgot about who their audience was. So when it became possible to get this song, whether you pay for it or not, and in the beginning it was you didn't pay for it, they were like, "Why not? You won't give me what I want. I would gladly pay for it if you'd give me what I want, but you won't give it to me. What other choice do I have?"
So finish Sarah. If I'm watching Sarah and I'm taking the temperature of her likely success and her album is released in early March, what am I watching for?
You're watching for some kind of action. For example, Billboard has a chart called Heat Seekers, which is for artists who their sales fall below the top half of our Billboard 200. So there's kind of a low barrier of entry, but it is an indicator of artists that there's an excitement about them somewhere around the country. You know, the regional charts that people can access.
So if you're Sarah, what you're hoping for is that somehow there's some kind of incremental growth and that you're creating excitement somehow. That a disc jockey is getting excited about you, maybe a chain is getting excited about you, even better, you know, and decides that chain-wide they'll add you to the appropriate format of stations. That maybe you can get an opening slot on a big tour where you're going to be exposed to thousands of people in one shot.
So by August, you better hope something has happened. Again, S-Curve is a very small label. They take a lot more time with their artists, but you want to see that there is some kind of story building.
The next group that we're going to be talking about is a group that I call the genetically-engineered rock band. This is Velvet Revolver, a combination of three players from Guns N' Roses and Stone Temple Pilots. … Tell me where they fit in the world of music now.
Well, the pressure's on for a group like Velvet Revolver because the members come from such pedigrees in terms of Guns N' Roses and in terms of Stone Temple Pilots. So in some ways, they are probably not going to get any love from critics at all because critics are going to think this is a manufactured match made solely to make some money.
But then you have a very compelling story in Scott Weiland the front man, who is probably one of rock's strongest front men in the last decade. He's an incredibly compelling live performer, regardless of what you may think of his music, whether his solo stuff or his STP stuff or the Velvet Revolver stuff, he is tremendously compelling. And then he has the whole drug issue, so you kind of never know when he's going to implode. You never know if they've booked a gig, if he's going to show up or if he's going to get arrested two hours before. So there's a certain whole rock 'n' roll drama that he adds to the picture.
But they have a tough, tough road ahead of them in that they're not going to get any doors opened for them because of their past. Instead, it will be like "wow, you know, they've already had their success" or "we want the next new thing, not the next manufactured thing." So it's going to be tough. I haven't heard the new album. The first single, which was from The Hulk, didn't light fires for them like they had hoped it would. It was a little bit of an event record, and it was the first thing we heard from them. But not the sustained hit that people would have wanted it to be. And it could be that the movie absolutely tanked. So that could have hurt it, but the movie just came and went.
But it's more like people waiting to hear the record and really see, OK, does this really combine the best of both of the bands? And in some ways, you know, is it just going to be Guns N' Roses with a different lead singer? Or is it going to be Stone Temple Pilots with a different band? Is the sum going to be greater than the whole of its parts? Are you going to sit there and go, "Wow, this just makes me miss Stone Temple Pilots," or, "Gosh, this just makes me miss Guns N' Roses?"
Doesn't sound like you'd want to buy stock in this company?
I would not say that. First off, there is a plus with fans in that there's a built-in fan base for this kind of music. They aren't starting fresh. You know, the label can go to radio and say, "Listen, you guys loved Stone Temple Pilots, you loved Guns N' Roses, God only knows when the next Guns N' Roses is coming out. Axl has been working on it for a decade. Here's something for you. Here is rock that has such a pedigree that you can't deny it." There are fans who will go crazy for this because of their love either for Guns N' Roses or for Stone Temple Pilots or both. So what has going for it is somewhat a built-in fan base, even though critics might not necessarily jump on it, there'll be tons of press on it because these are names, these are names that can probably sell magazines.
So you can't count it out at all. And given that there was a bidding war for them, the label has a strong investment in wanting to make it break. You don't want to be the label that paid X amount for Velvet Revolver and couldn't make them break. …
Is there an appetite for rock?
Sure, there's always an appetite for rock. There's always an appetite for everything if it's done well. There are so many different tastes out there, people want to hear music done well. So yes, there's an appetite for everything.
So this idea that their demographic is sort of 35- to 45-year-old men and no teenagers yet or why would teenagers listen to this? And their notion of what they're going to do is wake up a whole new generation of people to rock 'n' roll, that they're going to blow hip-hop out of the way?
I would not say that their audience starts at 35. And the label better hope that it doesn't start at 35. They're very eager to get teen and college-age males. And that's where they're going to have to find some traction. This is also a band that does have female appeal. This isn't just a male-dominated rock band, which several of them are, where the audience is just male. You know, that's not the case here. Scott Weiland is considered something of a sex symbol in rock circles. The Stone Temple Pilots fans skewed male, they're definitely female fans for that. So if they're just shooting for 35 and up, that's not what they want. They clearly want half that age and up.
So if you're handicapping … when will we know if they're making it or not making it?
What you're watching for, for a band like Velvet Revolver where there's already such anticipation, is if it's going to live up to the hype. You are going to look immediately for radio success out of the box. You're going to look to see how many stations, what different formats add it. Now, the label may say, "Okay, we're going to start at modern rock and some time later in the summer start to cross it over to the Top 40." You don't normally go to all formats at once. But you're going to look for some kind of action. In a band like this, you're not looking for a slow build. As much as the label will say this is a new artist and we have to treat it like a new artist, you're looking for some kind of really big indicator that the public cares that members of these two huge groups have come together and are making what they consider this new hybrid of music. And you need that pretty fast. I would say if you don't have something by the second single, it's not going to catch fire.
They're also coming into this new environment, even for them. They used to make an album for a couple of million bucks. They go into a studio session. They made this for less than $500,000 in the studio. The drummer was going over the balance sheets, right? And these guys own their masters, or at least a bit piece of the masters. They're very interested in the singles and which singles to drop and how to drop it. They learned just the other day that they had to have clean versions and explicit versions for Wal-Mart and Best Buy. They are in a funny way a test of the old world meets the new world, right?
They came from a time when there was a great deal of rock excess, not like in the '70s, but there was a new wave of rock excess in the late '80s, early '90s that they were part of, where they were selling records like they fell off the back of the truck. I mean, they were really doing very, very well. They're coming back into this in a completely different economy. They're also coming back into it older and probably a lot smarter. They're probably wondering if they sold X million records, how come they only have X in their bank accounts? And so this time, they're going to be much smarter. They realize that the label gets to recoup a lot of the money that they're spending, so they want to watch what they're spending. They're just much smarter about every stage of it right now.
And it is a different stage. And they're very smart, if they're realizing that and they're looking at the budgets, they're looking at things and going, "You know, maybe we needed a catering budget of X in 1991; now we're all doing Atkins, we don't need that. We're all watching our waist lines, we only need X." You know, so there's a certain prudence in a lot of cases that has come in just because of the sheer reality of the economics of it now that they wouldn't have faced last time they were doing this. But it sounds like they're very aware of that and are very smart about it. …
Now everybody's telling me with the Rod Stewart album, and James Taylor's got an album out now … there seems to be a kind of impulse that maybe older people will go buy CDs of these stars. Yes?
Well, the great fallacy is that [older] people don't buy CDs. And when we're saying older, we're saying 30 on up. Of course they buy CDs. They have tremendous disposable income, much, much more than someone under 30 has. Half the time, you know, they might be buying it for their kids, but they're buying CDs. What's happened is that in many ways, the labels were so focused on getting the college kid that they ignored this older audience. And what we've seen, especially on our charts, is we have artists like Jimmy Buffet, James Taylor, Barry Manilow, coming in on the chart, highest numbers ever, which shows you there is an audience for this. Radio ignores this kind of music. The labels realize there's an audience for it but also know in some sad ways they're hemmed in. They're not going to get an MTV video play. They're not going to get VH1. But there's an audience for this.
And what the labels have to figure out is how to harness that. Because even better, this audience doesn't download. They didn't grow up, you know, that computer savvy. They came to computers later on, college or whenever. They don't download. And they are more than willing to go plunk down $15 for a CD. The labels have got to find a way -- and they're doing a better job of that -- they've got to find a way to keep appealing to these consumers, because you can't reach them through the traditional means. …
How nervous are the people who work [in the music industry] right now?
They're cats on hot tin roofs. I mean, everybody's extremely nervous. I've had managers saying to me that they feel like they can't get their records set up adequately because while these people are doing as good a job as they can, the people at the labels are going, "Am I even going to be here when this record comes out?" You know? They're so concerned. What is it, analysis paralysis? That they're just so worried about everything that they're hearing and they're trying to read the tea leaves and they're trying to figure out if the company will be there for them tomorrow, will they have a place tomorrow, that they're scared to make a move. In some ways, you just want to keep your head down, you know, so the bean counters won't notice you as they're walking through deciding who has to get cut.
And that's not how you put out records. You have to be willing to go out on a limb. You have to at least try something different like the OutKast album. You have to be willing to shake things up. Even take "American Idol," love it or hate it, it's shaking things up. And a lot of people at labels today are just so concerned about keeping their job that they're scared to try anything that may be the best thing ever and may usher in a new wave. Because if it fails, it's like they've painted a bull's-eye on the back. …