Big Music's Malaise

The most entertaining part of the 44th Annual Grammy Awards wasn't the "Lady Marmalade" production number that opened the show or Alicia Keys' awkward tango later. It was Recording Academy President Michael Greene's rant about the criminal enterprise of electronic music swapping, a phenomenon that, he warned, threatens the music industry's very existence.

After cursory praise for that night's winners of "Lifetime Achievement Awards," Greene segued into a riff so off the wall that it provoked hoots from some in the audience. Like George Bush, Sr. demonstrating the nation's drug problem with a bag of crack found across the street from the White House, Greene trotted out three typical college students, whom he claimed had downloaded approximately 6000 songs in two days. "That's three kids, folks," he said. "Now multiply that by millions of students and other computer users, and the problem comes into sharp focus. Songwriters, singers, musicians, labels, publishers. The entire music food-chain is at serious risk."

It would have been the perfect time for R.E.M. to have come onstage and sung "It's the End of the World as We Know It." As Greene pointed out, approximately 3.6 billion songs are downloaded by music fans worldwide each month. There is no hard evidence that anyone who does so would have been willing to pay for the tunes they got for free, however. There is plenty of evidence that the music industry is in fairly serious trouble. Sales are falling for the second year in a row, down by 5–10% this year, depending on which source is quoted. Last year, for the first time, unit sales of blank recordable CDs reportedly outsold pre-recorded music CDs. That trend will likely continue.

Greene's heartfelt concern for the songwriters and musicians he and his fellow executives depend on may have sounded a bit disingenuous to the songwriters and musicians in the audience. The night before the awards gala, the Recording Artists Coalition had sponsored four benefit concerts to raise money to fight a 1987 amendment to California labor law that specifically exempts musicians from a general seven-year limit on labor contracts.

The move is strongly opposed by the industry's upper management. During a news conference the day before the Grammys, the California Music Coalition—an industry organization believed by many to be a mouthpiece for the Recording Industry Association of America (RIAA)—held a press conference to vocalize its opposition to the recording artists' push for more equitable contracts. Miles Copeland, chairman of record label Ark 21, also emphasized that the price for re-signing established acts would be paid by aspiring artists. "If the megastars succeed with this effort, I feel strongly that it would be at the expense of those artists who have not made it yet," Copeland said.

Copeland's comments were particularly ironic in light of a front-page story that appeared the same day in the Wall Street Journal. In "Pop Singer Fails to Strike a Chord Despite the Millions Spent by MCA," Jennifer Ordonez details how the Universal Vivendi label spent millions grooming a teenage Irish singer for a career as a pop star. The label provided 18-year-old Carly Hennessey and her father with a car and a nice apartment in Marina Del Rey, plus a generous stipend for living expenses. MCA also piled on the vocal coaches, image consultants, songwriters, arrangers, producers, and promotional experts. Total investment, prior to the release of Ultimate High, Ms. Hennessey's debut album: in excess of $2.2 million. Total sales of the CD, as of February 25: 378. That's approximately $4900 at retail.

The Hennessey debacle is perhaps more typical than most music executives wish to admit. Industry rule-of-thumb has it that a typical big-label album must sell at least 500,000 copies to break even. Ordonez quotes SoundScan figures showing that of the 6455 new albums distributed by major labels in the US last year, only 112 sold that many. In the music industry, perhaps more than in any other, the winners pay for the losers. That's the real reason Greene and his colleagues want to keep their cash cows in the barn.

Nowhere in the discussions of the music industry's malaise has there been any mention of the fault lying with management, as in the case of Carly Hennessey. Nor has there been any suggestion that executive compensation might be part of the problem. The music industry is one whose top tier is particularly heavy with big titles and big packages. "A decade ago, people thought if you paid CEOs $5 million or $10 million, you could get them to work hard and smart, but now it has to be hundreds of millions of dollars," Harvard Business School professor Joseph Badaracco recently told WSJ editor Carol Hymowitz. "It's a very rare company where pay falls at the top when performance falls."