The Record Industry: An Orrery of Errors
A review of Steve Knopper’s Appetite for Self-Destruction: The Spectacular Crash of the Record Industry in the Digital Age
The record industry has fallen on hard times. No stranger to adversity, the industry has for many years been plagued with small issues that highlight a larger problem. The difficulty is mostly attributed to the inability of major record companies to see where trends are headed, where people want music to be, and what consumers want to hear. This is the underlying theme of Steve Knopper’s fascinating book, Appetite for Self-Destruction: The Spectacular Crash of the Record Industry in the Digital Age, which highlights the industry’s unwillingness to change its business model, and how its current behavior will lead to the same self-destructive path that got it here in the first place. By giving us a strong, detailed history of how the record industry has evolved from 1979 until the present, Knopper provides us with an understanding and better picture of why things happened the way they did.
The book is laid out logically. It presents a chronological list of events leading the reader up to the present, and then, at the end, provides some speculation about the future. However, the objective, detailed accounts of history take a back seat to the many horrendous mistakes these record companies made. Knopper’s use of history throughout the book helps the reader gain a glimpse of the real inner workings of the industry so that she can understand why we are where we are today. The business strategies outlined in this book will occasionally make you laugh, but will more often leave you scratching your head.
The first of the 8 mistakes Knopper calls “Big Music’s Big Mistakes” is the CD longbox. You may remember the long cardboard box with the CD in it. This was a plan by technology execs at Sony and Phillips to convince the labels to switch from LPs to CD’s. The boxes fit perfectly 2 to1 in place of the old LP racks, and because of its obnoxiously large size, it gave record companies a reason for large packaging deductions. However, the packaging was extremely wasteful. Many artists revolted. The battle finally ended when Jeff Gold, then-vice president of Warner Music, sat down and crunched the numbers, finding out how much longboxes cost in a given year. When he realized it cost $25 million (Warner was taking in about $90 million at the time), they stopped the longbox and gave half the savings to the record stores. It took nearly 13 years for longbox to finally disappear. Knopper’s most profound comment on this mistake comes at the end of the section when he says, “The fact that it took so long was symbolic of the decentralized record industry’s inability to do anything quickly. Anything, of course, except sign talent and sell CD’s.” p. 39
The next big problem was illegal activity, a scourge known to the record business quite intimately. Independent radio promotion is a practice with a long history of payola and bribery. Independent radio promoters, the middlemen, were paid millions of dollars to push radio directors to play the songs of the label so that, in turn, more records would be sold. Complicating the issue further were alleged ties to the mafia. When ties between then independent promoter Fred DiSipio and the mob came to light, record execs played dumb, using DiSipio as a scapegoat to play down their own involvement in the illegal transactions. The silver lining however, was that DiSipio’s misfortune gave the labels an opportunity to potentially draw down radio expenses. But predictably, the problem wasn’t solved. Independent radio promoters such as Bill Scull were still drawing up to $50,000 per week pushing songs. Knopper uses these statistics and repition of the phrase “like a drug” to underscore not only industry addiction to this soon-to-be outdated model, but also the amount of money that was being spent to get a song out. In the early 2000s, record companies finally decided they had seen enough of the pay-to-play, mob-saturated corruption, and they cut off the promoters. Then, any path back to the illegal model was torched by Attorney General Elliot Spitzer, who outlawed play-to-play. Suddenly without promoters, labels had no means of getting their songs played.
If you were in the know about music technology in the 1980s, you may remember DAT, or Digital Audio Tape. It was a clunky disc released by Sony to combat the threat of rampant cassette piracy that emerged in the 80s. It was also to be released along side the CD with the idea of making everyone twice as rich. However, with DAT players initially costing over $1,000, they weren’t terribly popular, and labels wouldn’t sign on to the DAT idea without some assurances. Hence, the birth of digital rights management. This early version was called the SCMS or Serial Copy Management System. It allowed you to copy the disk exactly once. The publishers, songwriters, and others who would lose royalties through this agreement sued Sony. They won, and Sony paid up. However, Knopper points out that Sony still didn’t understand the argument of the other side of the table. The songwriters and publishers losing money through this new technology were not isolated victims – and the affliction would someday come back to haunt the labels. Greed reigned supreme and manifested itself throughout all the major decisions of the era. One example is the death of the single. The single died with the advent of the CD. Traditionally, a successful 12-song album might’ve yielded two singles. By selling the other 10 tacks coupled with the 2 singles for $15 instead of $.99 per song, more money could be made.
As much as independent music fans adore the Newbury Comics of the world, it is Wal Mart and Best Buy that dominate record sales. With their size comes the ability to negotiate low prices, often offering CDs as mere loss-leaders, drawing in consumers to buy other, more profitable items such as vacuums, blenders, etc. This forced smaller stores to sell records at low-profit prices. The MAP, or Minimum Advertised Price was introduced to curb the practices of the larger chains. Many states sued the record companies for price-fixing. They settled and agreed to give $20 to anyone that bought a CDs bought between 1998 and 2000, a stupendous fee amounting to $75.5 million. In addition, they donated 5.5 million CDs to schools and libraries. The CDs they donated included, “Martha Stewart Living: Spooky Scary Sounds for Halloween, and Ricky Martin’s Sound Loaded.” This is yet another example of the record companies’ inability to recognize the effects of their actions on their customer base. Perhaps not surprisingly, donating ridiculous, bogus CDs and jacking up the price of albums filled with terrible songs turned out to be a bad plan. It further displayed the callous and arrogant nature of the industry.
Knopper discusses in depth the history of Napster, a simple but revolutionary computer program that rocked the record industry in several ways. For one, it brought back the idea of the single, because downloaders could now bypass ‘filler’ tracks. Second, and most importantly, it necessitated a new business model. The record industry failed to see the dire position they were in, and formulated a stubborn policy against Napster. Who could blame them? People were stealing product. However, their inability to move beyond this bitter stubbornness and engage business realities as they truly existed doomed them.
Napster proved a dagger through the industry’s heart, when ironically, it could have at one time been the industry’s best friend. The industry fought hard to dismantle peer-to-peer sites, seemingly blind to the fact that others would always pop up in replacement.
When the RIAA was out of options regarding rampant piracy, they began suing consumers for participation in peer-to-peer networks. They did so for hundreds of thousands of dollars. Downloaders could not afford to battle it out in the courts for long and so were forced to settle. The suing switched to college campuses due to the high speed of the Internet connection on the campuses. Only recently has the litigation stopped, due mostly to its inefficacy in stopping piracy, but also possibly because of work being done at the Berkman Center at Harvard Law School in Boston, MA. The last of Knopper’s list of “8 mistakes” is Sony/BMG’s decision to secretly add extended copy protection, or XCP, to CDs that would expose consumers’ computers to malicious programs and viruses. When news of this practice finally came to light, nobody was happy and Sony quickly removed it. One wonders why did they do it in the first place.
In the last section of the book, Knoper discusses the future. This section proves to be the most interesting of the entire book. He touches on the future of 360 deals, DRM, subscription services, independent promotion, and independent production. I offer one of the most poignant points Knopper makes in the book:
Everything has changed. Thriller won’t save the record business this time. Thinking differently will. And unless Doug Morris and this col leagues stop fiercely protecting the old model of selling pieces of vinyl or plastic to as many consumers as possible and start hiring digital music executives trained to build the next Napster or the next iTunes or the next Long Trail service or the next music-equipped cell pod or whatever particular shape the future might stick, the labels will become an anachronism p. 250.
Thinking outside of the box and supporting people that buy your product is the best course of action. For too long the record companies have abused their customers. Now in a position never before seen, consumers are able to demand what they want and how they want it. While it is valid to look at these new emerging models, I wish that Knopper had introduced something more unique. The book is great, but it sometimes reads more like a history lecture.
Personally, I don’t believe the downturn was entirely the fault of the labels. Knopper likes to rant and rave about the record industry’s failings regarding technology. While it is true that the record industry failed to see a larger, more important picture, so did a lot of people, possibly even Knopper himself. Hindsight is 20/20. All in all, Knopper manages to masterfully blend a strong, focused, and detailed history of the record business with a forward-looking approach to new ideas. We, as professionals in the music industry, can gain a lot from Knopper’s book. Hopefully, many of the industry’s major players will read this book. I believe that studying the record industry’s inglorious past will ultimately help us avoid repeating the same kind of catastrophic mistakes in the future.
by Michel Skauge