The music industry: a view from the inside

A very good friend of mine from college, Alan Kennedy, worked until recently in the music industry. It’s very common these days to read uninformed bloggy prognostications about the music business by people like me who have no real direct experience with it. I’m extremely happy, therefore, to report that Alan has volunteered to go on the record with his opinions about the industry he loves and worked in for many years, thereby giving this website that most remarkable of gifts, original commentary by someone who knows what the hell he’s talking about.

I’ll let him take over from here, but it is interesting to observe that, of his list of the three most important things that are poisoning the music industry right now, stealing music ranks last. What are one and two? Here’s Alan with the rest of the story…

The music industry: a view from the inside

by Alan Kennedy

When I was hired by Atlantic Records in 1991, in their international department, it was the culmination of a two-year process of trying to break into the music industry, and a very happy day for me. The music industry in the U.S. was a huge, thriving, high-profile business dominated by six companies – Warner Music, MCA (the Music Corporation of America), Capitol-EMI, Sony Music, Polygram, and BMG (Bertlesman Music Group). 1991 was the year that sales of CD’s eclipsed cassette sales for the first time, and the phenomenon of “re-buying” the records you already by replacing them with CD format was fueling a boom in sales. Each of the “Big Six” companies, as we called them, was comprised of many different labels. The Atlantic label was part of the Warner Music Group, and one of its shining stars. They had chart-toppers contributing to its success in those heady early-nineties days like Winger and Skid Row. It had around 400 employees, and offices in New York, Los Angeles, London and Nashville.

Today, Atlantic has merged with another Warner Music label, Elektra, to form the Atlantic Records Group; the London and Nashville offices have closed down, the staff has shrunk to around a fourth of its former size, and the company – like all of the other “major labels” – struggles to maintain an acceptable share of a shrinking pie. There are now four major music companies, with the imminent threat of a further consolidation to three. MCA and Polygram merged in 1998 to form Universal Music Group (UMG); Sony and BMG merged last year to form Sony-BMG, and many music industry observers expect that Warner will explore a merger with EMI in the near future.

In the four years between 1999 and 2003, overall sales of recorded music declined by a staggering one third. Think about that – a huge industry, selling something which is a part of the daily life of many, if not most people, losing a third of its business in 4 years. By the early 2000’s, those of us still working in the industry would joke that it was like working for a typewriter company – you could see that people were buying less and less of your product, so you clung to your job for dear life and tried to ignore the writing on the wall. Postings to music industry chat board The Velvet Rope talked about the streets of New York and Los Angeles being littered with the bodies of former record company staffers – people who simply could not find work in the industry they loved. Some were having to re-invent themselves professionally, others were watching by the sidelines, morose and bitter, musing over what happened.

The downward sales trend continues. According to the music industry organization IPFI, global music sales fell overall by 7.6% in 2003. 2004 sales were claimed to be “flat”, but sales of physical formats (CDs, cassettes, music DVD’s) did continue to fall, and were offset by the increase in sales of digital music. This was thanks in part to lawsuits mounted by the major labels to stop individual internet music theft, and the deliberate flooding of online music file-swapping networks with bogus files. So far for 2005, according to the New York Times, the U.S. music industry has experienced an 8% decline in sales. An April 17th article by Jeff Leeds discussed the “beleaguered music industry”, noting that every major music company in the U.S. is “grappling with rampant piracy” and “shifting consumer habits” which have contributed to the demise of the industry’s profitability and size.

We can go back to my previous employer, Warner Music Group, and take them as an example. In the last year they’ve fired over 1,000 employees, dropped 30% of the artists on their roster, instituted salary cuts across the company and cut their budget for signing new artists and songwriters. Edgar Bronfman, the company’s head, insists that technological advances in music listening and purchasing will eventually benefit the industry and that the piracy problem will be tamed; that “the proliferation of new devices like the iPod and next-generation cellphones will soon raise the value of recorded music”. This all remains to be seen, however – and anyway it’s not strictly internet piracy which is the problem.

So what did happen? The answer I’d give is based on a combination of reading media coverage, discussions with music industry colleagues, and anecdotal evidence and observations I have collected in daily life. Put bluntly, I’d say this:

1. Recorded music is worse than it used to be.
2. Young people have other things that interest them which compete with recorded music for their attention and money.
3. Yes, it is easy to steal music files off the internet and most young music fans know exactly how to do it.

As for number one: Alain Levy, head of EMI Music, admitted to Billboard magazine last year that too many current music acts have been one-hit wonders and that the industry is not developing durable artists. Many others in the industry are quick to blame internet theft for the sales decline, but I think Levy is on to something and we must consider that maybe the industry is simply doing worse than before at selling something that people are excited about. A recent poll by Rolling Stone magazine found that music consumers believe that relatively few “great” albums have been produced recently, as compared with the past. I’d wager that the popularity of Apple’s i-Tunes is partly to blame here – now that it is easy and cheap to buy just one song by an artist (99 cents) it encourages the labels to focus on signing artists who can create that one saleable song. In real world terms this means that the mediocre garage band with one catchy hit gets a label deal over the brilliant new singer-songwriter – a potential Bob Dylan or Joni Mitchell – with a catalogue of breathtaking songs but no obvious “single”. The landscape at American radio is part of this cycle as well. As radio stations become more and more risk-averse, more reliant on market research to develop narrow playlists of recognizable hits so they can sell more advertising, the idea of the hit single driving the whole industry
is perpetuated. Where are the new U2’s, the REM’s, and Aerosmiths? All I can see, quite frankly, is a bunch of bands with one or two good songs who are lucky if their career lasts beyond 3 years – literally. This is not just true of rock music – look at the pop world. Who are the new Bee Gees? Who is the new Madonna? Those artists have had decade-spanning careers, and hit singles in their forties. Who is on the pop charts today who will have a hit single in their forties? No one, I’d wager. Part and parcel of this is an increasing lack of “artist loyalty” among teen-agers, who still make up about 70% of recorded music sales in this country. When I was a teen-ager, I eagerly awaited every new album by Billy Joel, knowing I would buy it the day it came out, no matter what was on it. Have you spoken to a teen-ager about music recently? Speaking to my fellow over-thirtys, I hate to tell you, folks, but those days are gone with the wind. Nowadays you’ll hear kids say things like “yeah, they’re a good band but I already have an album by them, so I don’t need the new one” (an actual quote from my friend’s nephew).

Music simply does not mean to today’s young people what it meant for my generation. It does not occupy that central place in their lives – as a means of rebellion, of self-identity, or even as a leisure option. Moving to number two on my list of explanations, we have to look at all the things that now compete with buying and playing music for young people’s time and money – things that did not even exist 20 years ago like gameboys, X-Boxes, Play Stations, cellphones, text messaging, and even just surfing the internet. When I was 15, if I was in my room and not sleeping, reading or doing homework, I was playing a record. Period. Talk about “those days are gone”…to a 15 year-old of today, that probably seems like Little House on the Prairie. Yes, we now have the very popular iPod which kids can take with them throughout the day – but again, you no longer have to buy a whole album or even a 2-song single to hear an artist you like – it’s one song for 99 cents, baby, that’s it – that is, if you decide to pay for it.

This brings us to number three, and we certainly do have to acknowledge the role of the digital revolution in music. Recordings can now be turned into files of digital information which can be bought, sold, sent, or taken for free via that great morass known as the world wide web, if you know how. By all rights, any music that a record company has ownership of should only be obtainable as a music file buy purchasing it from said company, at the price they have set. When stealing music from the internet – “internet piracy” became rife in the 2000’s, mostly through “peer-to-peer” networks like Napster,
the labels fought back by identifying and suing individual offenders. This did seem to cause a noticeable slow-down in 2004, as did the practice previously mentioned of deliberately placing fake files so that users who try to steal end up with something they did not want. The hope is that these people decide to save themselves the trouble by just coughing up the money to buy legally. Nevertheless, the idea that music can, or should, be free greatly harmed the perceived value of the music industry’s commodity among young people. How can you convince someone to pay 15 dollars for something which they feel should be free? In addition, you might think that the emergence of companies who sell music digitally, on behalf of the labels, has created a whole new avenue for
work in the music industry – but so far, this sector has been dominated by a select few
like Apple and Rhapsody whose hegemony edges out fledgling outfits that want to work with the labels.

If you ask those working in the music industry today what the future holds, chances are you won’t get the same answer from any two people. Maybe the industry will bounce back, as Edgar Bronfman posits; maybe it will continue to shrink and ultimately rest at some smaller plateau level for a while; maybe the industry as we know it will disappear altogether someday. I’ll tell you one thing, though – I am not likely to be a part of it. I left Atlantic Records in 2004 and worked briefly with a UK-based internet music company who found competition with i-Tunes and the others so daunting that they had to close down their U.S. office after only four months. Now I am looking for work outside the “incredible shrinking industry”, and have become yet another casualty of the industry, looking for a professional re-invention of some kind.

Someone told me Smith-Corona might be hiring….