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Late July was a volatile period for the music industry. On the 29th, Bertelsmann CEO Thomas Middelhoff announced his resignation. The "young lion" who ushered the German media conglomerate into the Internet age—and into an ill-advised $100 million investment in now-forgotten Napster—apparently had a very different vision for the future of the company than does the Mohn family, which controls 75% of Bertelsmann stock. "Shareholders had mid- and long-term development prospects that were different from mine," Middelhoff told reporters. "In this context, I had no choice but to resign." Bertelsmann is parent company of BMG, the music giant.

Middelhoff had been campaigning to raise operating capital through an initial public offering of Bertelsmann shares, a potentiality seen as a threat by company insiders. His replacement is Gunter Thielen, head of Bertelsmann's publishing division, and a company manager since 1985. Thielen's appointment was seen by many as insuring control of the company by the "old guard" from traditional businesses, an event that may portend retrenchment from Internet ventures, which generally haven't proved to be as lucrative as was hoped just three years ago. Despite Middelhoff's differences with Bertelsmann's board of directors about a possible IPO, Thielen has stated that he could envision such an effort by 2005.

Middelhoff's departure follows, by just a few weeks, that of Jean-Marie Messier, former head of Vivendi Universal SA, the financially troubled French conglomerate and parent company of Universal Music. The management shuffle is a popular dance done at corporations with money troubles—a situation Forbes magazine reports not to be the case at Bertelsmann, which it described as "the least troubled media giant on earth." Middelhoff agreed with that assessment. "Bertelsmann is perfectly fine, it is the only media group that has no problems whatsoever," he stated.

One of the few big-conglomerate CEOs under the age of 50, the 49-year-old Middelhoff assumed the helm in 1998 and signed deals giving Bertelsmann control of European television company RTL and American publishing firm Random House. His foresight saved Bertelsmann the financial anguish now ravaging many companies that had been heavily invested in the technology sector. Middelhoff successfully pushed for the sale of much of its AOL Europe stock before the collapse of tech stocks, an effort that put $6.8 billion in Bertelsmann's coffers. In interviews, Middelhoff was upbeat about his future, hinting that he might accept a position outside Germany. Some sources have suggested that he may be in line for a top spot at America Online.

Vivendi, meanwhile, may seek to unload its American entertainment empire, which includes Universal Studios, Universal Music, and the Universal theme parks. On July 25, new chairman Jean-Rene Fourtou indicated that his company might eventually spin off its North American assets, which were part of an acquisition package when Vivendi, a former public utility, bought Montreal-based Seagram, Ltd. several years ago. Many reliable reports describe Vivendi as staggering under an enormous load of debt. The company's stock has dropped 70% this year. Although there are no specific plans for Vivendi's Universal units, Fourtou did allow that some divisions of its French television company Canal Plus might be sold. Vivendi may also unload Houghton-Mifflin, its American publishing company.

Royalties protest: In late July, Vivendi's international music division, Universal Music International Ltd., officially petitioned the European Union over music royalty rates, which the company claims are exorbitant. Universal has asked the commission to void a standard contract proposed by royalty collecting organizations. At 9.1% of the published price of recorded music, the EU's royalty rate is the highest in the world, and contributes to high prices for discs in Europe, music industry officials claim. (The second-highest rate is Australia's, at 8.7%; third is the UK's 8.5%. The US ranks 10th in the world, with a rate of 6.5%, according to figures published in the Wall Street Journal.) Music industry executives have asked the European Commission to lower the royalty rate to 6% to bring it in line with that for other intellectual products, such as books. "So-called mechanical reproduction rights for composers amount to around €600 million ($588.3 million) a year in the European Economic Area, which includes the EU and such countries as Switzerland and Norway," the Journal reported. Composers and songwriters, of course, are opposed to any reduction in the rate.

Sony Music Entertainment is also seeking ways to cut costs. On August 2, the company announced that it would cut approximately 100 employees from its 5000-strong US workforce. "Sony is redirecting its resources in order to maximize the efficiency of its operations and effectively meet the challenges of an evolving industry," said a Sony spokesperson quoted by Tamara Conniff of The Hollywood Reporter. Sony's layoffs are small-scale stuff compared to those at EMI, which recently cut approximately 1800 workers.

The ongoing search for a workable business model for music on the Internet has led Sony/Universal-backed pressplay to alter its service. To launch Thursday, August 8, the revised music subscription site will allow unlimited listening to downloaded songs, and the export of those downloads to CD-Rs. Previously, CD burning wasn't available, and downloaded songs expired after one month. A new fee structure will let subscribers pay $17.95 per month to stream or download an unlimited number of songs, with the option to burn or transfer ten of them—provided that they are among the 80% of pressplay's roster that have been cleared for such use. Pressplay will also offer "pre-packaged" songs in groups of 5, 10, or 20 that can be transferred to portable devices. The revision "signals a significant step forward in the legitimate online space," stated pressplay chief executive Michael Bebel.

Finally, LA Times writer Patrick Goldstein has a compelling theory on the music industry's prolonged sales slump. CD burners, Internet downloads, and widespread piracy aren't the problem, he claims. The real problem, he claims, is overwhelming competition from DVDs, which offer more entertainment than audio CDs at equal or lower prices. Given a choice between spending $18 on a well-made movie with interactive extra features, and spending the same amount on a CD with only one or two good tracks, what would any budget-conscious consumer do? Conversing by cell phone as he left the pig races at California's Mid-State Fair, Stereophile contributing editor and webmonkey Jon Iverson dismissed Goldstein's theory. "I know hogwash when I see it—in fact, I just have—and this is hogwash," Iverson commented. Better music at more accessible prices is the answer to what ails the music industry, said he. JI's off-the-cuff dismissal aside, Goldstein's essay is well worth reading. In his view, the music industry's worst enemy at the moment is the film industry, its longtime bosom buddy.