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the corporatization of the music industry
How has the consolidation of record labels changed the industry's business model? Here are the views of Danny Goldberg, chairman and CEO of Artemis Records; Melinda Newman of Billboard Magazine; singer/songwriter David Crosby; Michael "Blue" Williams, the manager of OutKast; Touré, contributing editor of Rolling Stone; Harold Vogel, media analyst for Vogel Capital Management; and Jay Boberg, the former president of MCA Records.

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Danny goldberg
Chairman and CEO, Artemis Records

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The record business starting in the late '60s became part of big business, and in particular it was a huge part of the growth of Warner Communication. Steve Ross recognized that the music business could throw off huge amounts of cash, and [he] used the cash, after he acquired Atlantic and Elektra, and built up Warner Bros. Records and created what was then the biggest record company in the world, Warner Music Group. That helped fund the growth of the whole creation of the Warner Cable System, and helped fund all sorts of other businesses. And Warner Communications became a very influential corporation in the business world that had this stock that went way up, and he was considered one of the great geniuses.

Big corporations from that moment on were interested in record companies from the late '60s up until about five or six years ago. And so you have Sony buying the CBS Music Group from CBS, and you have BMG buying the RCA record company from NBC. And it becomes one of the things on the multimedia corporate merger agenda.

And that did change somewhat the environment that record companies worked in. Especially when they were part of public companies and had to focus on quarterly profit members, instead of the long-term growth of the assets.

The effect being?

Well the effect of looking at quarterly numbers is to think quarterly. And the cycle of a musical career doesn't happen in 90 days. You have to record the record, and put it out, and then it has to be marketed, and then it sells. If you have a new artist it may take two or three years for that to become valuable, even if it's a pretty fast-moving artist. Not two or three months.

So you end up with a dissonance between the real asset growth of developing artists and catalogues, and the short-term requirement to hit your numbers, if you're going to keep your job in a public company. So that's caused a certain amount of tension in record companies. But it's never been perfect, I mean it's not like record companies in the '50s and '60s were these paragons of artistic virtue like the Medicis. They also had some real moral and business flaws to them.

But the public companies owning record companies has, combined with a slowdown and decline in sales, has definitely caused more short-term thinking and less long-term thinking. And that's hurt some artists.

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Melinda Newman
West Coast Bureau Chief, Billboard Magazine

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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.

Do you have a good example? Can you remember, think of an example of how the heavy hand of the corporation?

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.

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David crosby
Singer/Songwriter

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When it all started, record companies -- and there were many of them, and this was a good thing -- were run by people who loved records, people like Ahmet Ertegun, who ran Atlantic Records, who were record collectors. They got in it because they loved music. …

Now record companies are run by lawyers and accountants. The shift from the one to the other was definitely related to when the takes started to get big. Somebody [in] a forensic accounting job could probably establish the exact moment at which it reached the level that brought in the sharks. …

How did you know they were there?

Change in attitude, change in management, new management. You'd just be dealing with different people. You know, you'd go to a meeting with a record company and it wouldn't be a guy there who knew that you had written a new song and thought that was cool. It would be a guy who knew that he had moved 40,000 pieces out of Dallas this month, and he had no idea, pieces of what? None.

It actually happened that way?

Yes. The people who run record companies now wouldn't know a song if it flew up their nose and died. They haven't a clue, and they don't care. You tell them that, and they go, "Yeah? So, your point is?" Because they don't give a sh--. They don't care. They're actually sort of proud that they don't care.

Look at it this way. A couple of years ago, somewhere between a fourth and a third of the record business was owned by a whiskey company, who shall remain nameless, but were notably inept at running a record company. And they sold it to a French water company, who shall also remain nameless, but knew even less. Now, those guys haven't a clue! [laughter] They haven't a clue. And they don't care about having a clue. They are trying to run it as if they're selling widgets, plastic-wrapped widgets that they can sell more of. And they want easily definable, easily accessible, easily creatable, controllable product that has a built-in die-out, so that they can create some more.

By that, I mean, "Get me a lead singer. He's got sort of an androgynous blonde hair, very pretty. We need a guitar player, sort of hatchet-faced, wears a hat, plays very fast, very dramatic. He must be very dramatic. Get me a pound of bass player, pound of drummer. I don't think he needs keyboards; I think we look good. And we'll call them the Bosco Bombers! No. The Bad Dogs, that's good! I like that!" And then you sell it. You sell the hell out of it. You spend $500,000 on record promoting, and they make a lot more. But they're making little cardboard cutouts.

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michael 'blue' williams
Manager, OutKast

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We're run by corporations now. We have accountants running two of the four majors right now and they don't get it. It's a numbers game. And music has always been a feelings game. And I think until they get back to a place where they're like, "Yeah I'll run it on the feelings again, but don't go over the top, keep the numbers under control," it's going to be hard.

You can't tell an accountant that, "This record feels good to me. I need to stay after it for a minute until it breaks." He doesn't get it. Because he's looking, "Well the charts say, or the numbers say it just doesn't make any sense. We're going to lose money. It's going to be diminished returns." And he definitely doesn't get it when you go, "You know what, we didn't get it on this record, but it feels good, I need another $600,000 to go make another one. Because I'm telling you I think we're going to have it on the next one."

There's so many bands that have become successful, in their second, third or fourth project, that would never get to that point. And that's the problem we're having right now, is that labels are being run in such an accounting firm way, there's going to be a lot of bands that never get to the opportunity to have a second, or to get on the road, or to shoot a video, get a visual, get that one crack that they need at it. And it's not good for the game.

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Michael toure
Contributing Editor, Rolling Stone

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The record business is about: Send an artist into the studio, let him spend a lot of money in the studio, and do his genius, and when he's ready come back to us with some music we can sell.

But in the '80s and the '90s when the record business was making a lot of money, the international conglomerates swoop in and they say, "Hey, you guys are making a lot of money, and there's a lot of turnover here. We're going to buy you."

But you have to be profitable, quarterly, just like every other business. So what does that mean? That means that we can't just give Mick Jagger $500,000 dollars and tell him come back when you're done. You've got to have this record done, by this day, so that we can get it out by this day, so we can have, you know, most of your earnings in our second quarterly statement, so that we don't get fired when the Germans call and say, "How much did you make this semester?"

Mick Jagger does not want to finish his album by Aug. 12. He is inspired. Or Kurt Cobain, or Eminem, or whoever. But if he's racing to finish it by Aug. 12 because they're told that they have to, is that going to make for good art?

Is it?

I mean clearly it's not.

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harold vogel
Media Analyst, Vogel Capital Management

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All of these creative industries … follow option principles. And you go to a certain point in the development and then you say, "OK, has this worked or not worked?" It's a decision tree. And you reach a decision point and you say, "Yes we go further," or "No that's the end of the road, go to another record company, go out of the business, whatever it is."

But they have to do that because that's the nature of these businesses. You can't let it run wild and it does have a tendency, in plush times, to get out of control. There are shareholders, there are people who demand a return on investment. So basically there has to be a disciplinarian. And I'm not saying that the record companies are always right about this. They make their share of mistakes. They cut off people who shouldn't be cut. They indulge people who shouldn't be indulged.

But by and large it's a measured risk and you have to say, at this point, "are we going to throw more good money after what we've already spent, or not?" So they make a commitment, up to a point, and then they decide what to do after that.

And the people who say, "In that environment, in this world where Bertelsmann and accountants and bean counters in Berlin make decisions -- in that world Bob Dylan never would've grown up. Bon Jovi, which took three albums wouldn't exist, and how many countless Bon Jovis don't exist because of it? And what are we really losing when the music dies like this?" You say?

I say: These things happen in an evolutionary sense. In nature, in all kinds of businesses, what if such and such a gizmo was developed and it was stifled in the laboratory? A drug at a drug company, let's say, pharmaceutical, some of them survive tests, some don't. What happens if a movie is green lighted or not green lighted? Same kind of decision. And you will lose some. That's inevitable.

But I would maintain that music is so powerful to artists, the creative people, that they would probably make the music for free. Because they enjoy it. They would compose it for their own enjoyment. And then if it's really good, chances are -- it's not guaranteed that this would happen every time -- but chances are that if it's really good, it would probably be heard, and signed, and be distributed.

Doesn't guarantee anything, no one has a way to predict this, but it happens in nature that some things just go by the wayside even though they were worthwhile. And you lose that, but that's the way things work in this world. So it's unfortunate, but I would say that all of the top creative people get a pleasure out of doing what they're doing. Creating the music, listening to it, going to concerts, hearing other artists, or writing it, whatever. And they would probably do a lot of this even if there weren't a giant record deal standing next door to them. It might not be heard by a lot of people, but they get their own satisfaction out of it.

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Jay boberg
Former president, MCA Records

Do you think the music has suffered because of the consolidation of the companies or the labels?

No, I don't. Because it's kind of like a balloon or something where if you press it from one side, it comes out the other side. So all that's happening now, frankly, is a transfer of artists and music and the process from which music is both created and introduced to the public, is moving from big companies back into more independent, localized, entrepreneurial entities. The music is not suffering at all, I don't believe. It's just maybe a lot more of the music is a little bit more underground at this point, but it will absolutely pop up.


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posted may 27, 2004

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