Hit charade.

Hit charade.

Hit charade.

Moneybox
Commentary about business and finance.
Aug. 20 2002 11:19 AM

Hit Charade

The music industry's self-inflicted wounds.

2001 may not be the year the music died, but the pop biz did develop a nagging headache, and it's not going away. The recorded-music industry's first slump in more than two decades continues this year; the number of discs sold is slipping and so is the appeal of last year's stars. Britney Spears' latest album has moved 4 million copies—a big number, but less than half what its predecessor did.

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The Recording Industry Association of America, which represents the five major labels that dominate CD retailing, would like to blame much of the slide on Internet music-file swapping. Yet there are many other causes, including the fact that the big five are all units of troubled multinationals—AOL Time Warner, Vivendi Universal, BMG, EMI, and Sony—that are focused on short-term gain and have no particular interest in the music biz. There's also been a recession, of course, and resistance to CD prices that have grown much faster than the inflation rate. Perhaps the most important factor, however, is the major labels' very success in dominating the market, which has squelched musical innovation.

In 2001, U.S. CD sales declined 6.4 percent. Sales have continued downward this year, and a Forrester Research study released last week projects a 6 percent decline in 2003 as well. Yet the report disputes the RIAA's assertion that the now-bankrupt Napster and its successors are responsible for the downturn. More than two-thirds of CDs bought in the United States sell to consumers who rarely or never download music files from the Web, Forrester concludes. Another market research company, Ipsos-Reid, reported in June that 81 percent of music downloaders buy as many or more CDs than they did before they started getting tunes from the Internet.

The RIAA, of course, has studies that say otherwise. But anyone who rewinds to the last major music-biz slump will find some interesting parallels. In 1978, record sales began to fall, and the major labels blamed a larcenous new technology: cassette tapes. The international industry even had an outraged official slogan: "Home taping is killing music." The idea was that music fans—ingrates that they are—would rather pirate songs than pay for them, and that sharing favorite songs was a crime against hard-working musicians (rather than great word-of-mouth advertising). Cassettes were so anathema to the biz that Sex Pistols Svengali Malcolm McLaren could think of no more provocative way to launch his new band, Bow Wow Wow, than with a ode to home taping, "C30, C60, C90, Go!''

By the time Bow Wow Wow bowed in 1980, however, the crisis was almost over. It turned out that home taping had not killed music. Instead, the central problem was the collapsing popularity of dance-pop—lively, sexy, but personality-free music whose appeal was broad but thin. They called it disco back then, and the name has never recovered from the era's backlash. Although usually termed teen-pop, the music of 'N Sync and Britney Spears is not unlike disco: Both are intellectually underachieving, cookie-cutter styles that have made stars of performers not known primarily for their skills as singers, songwriters, or musicians.

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In addition to cassettes, late-'70s industry apologists blamed video games for undercutting record sales. There may have been something to that, and the biz faces even more multimedia rivals today: cable TV, the Internet, and DVDs, as well as much more sophisticated video games. Perhaps more important, younger consumers live in a world where popular music is ubiquitous (and therefore less precious) than in the '60s and '70s, when rock was rationed, semi-subterranean, and generation-specific. Some older music fans may hate hip-hop, nu-metal, or techno, yet in general rock today defines parents as much as (or more than) their kids.

The major labels have snubbed older music fans in recent years, yet over-40s now constitute 44 percent of the CD market, up from 19.6 percent in 1992, according to the RIAA's 2001 annual consumer profile. Unfortunately for the majors, the tastes of graying Beatles and Stones fans have fragmented, making them difficult to reach via mass-marketing. These consumers help support the many smaller labels that market alt-rock, world music, new age, reissues, jazz, folk, bluegrass, post-minimalism, and other niche genres.

Meanwhile, younger fans lose interest quickly and often don't develop strong loyalties. They're less likely to investigate a breakthrough act's previous albums or buy its next one. The genres that appeal to under-25 music fans continue to sell, but individual performers fade quickly.

This is a huge problem for the big labels, who still base their marketing on long-term stars who release multimillion-copy blockbusters. One album that sells 10 million copies is more lucrative than 10 that sell 1 million, because once a CD takes off, the only fixed costs are manufacturing and shipping, which are trivial compared to production and marketing. And long-term careers make each album less of a risk, since the most loyal fans will buy everything an artist releases and profits are high on back catalogs that keep selling.

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Yet maintaining superstars is hard and getting harder. They require large advances, high royalty rates, and massive production and marketing money. And they keep demanding such things even when their careers tank (notable recent examples: Michael Jackson and Mariah Carey). The risk that a contemporary superstar's latest album will bomb is high, since attempts to reach the widest possible audience can easily lead to banality and overexposure.

In 1980, when the same sort of listener burnout bedeviled the biz and its superstars, salvation came from an unexpected source: MTV, an upstart cable channel that began broadcasting clips by a new generation of British bands simply because the established U.S. performers weren't yet making video clips. Groups like Culture Club, Duran Duran, and the Clash—whose label didn't even release the original version of its first album in the United States till 2000—broke through to a novelty-starved audience. Suddenly, home taping wasn't an issue anymore.

This is just the sort of shock that the music industry needs—and labors so hard to prevent. Since 1980, the mainstream music industry has only consolidated: Five companies control CD sales, MTV owns a multi-channel music-TV franchise, and a single company, Clear Channel, dominates both the concert business and Top 40 and rock radio. Ironically, if unsurprisingly, the biz has suffered from its near-monopolistic control. Short-sighted labels and tightly programmed radio have bolstered the success of certain styles and performers but prevented anything fresh from breaking through.

In the past, there were many ways to crack the biz: local radio stations, strong indie labels, regional clubs and promoters. Today, there are only a variety of separate-but-unequal circuits (alt-rock being the biggest) whose performers rarely break into the big time. (Of course, many of them don't want to, and some are major-label refugees with no intention of going back.) In erecting bulwarks around their domains, the major music businesses have left no entrance for the serendipity that kept the pop industry lively (and profitable) for decades. Yet the barbarians at those padlocked gates are the only people who can save the major labels' dwindling empires.