How To Destroy A Profitable Industry In Just A Few Easy Steps

New York's "Vulture" section comes to the correct conclusion about the music biz -- but for the wrong reason. In commenting on the Wired profile of "Universal Music Group CEO/supervillain Doug Morris," the folks at "Vulture" have a yuck-fest over Morris' inability to come to grips with modern technology. I only had one real talk with Morris in my life. The Warners Music Group was in complete turmoil, beginning a really ugly death spiral that he insisted I buy into by going to work for a lackey of his. I refused and Morris was coincidentally fired soon after -- the lackey not long after that. Instead I wound up as president of Reprise Records.

When AOL bought TimeWarner I was one of the only happy campers at the company. Naively, I thought AOL was a visionary technology company which would help us grapple with the problems and opportunities inherent in file sharing. And Steve Case and his cronies were visionaries, but the vision wasn't grappling with anything except how to drain TimeWarner of as much of its value as they could get away with. He got away with a lot.

Meanwhile, some of us at Warner Bros decided to take matters into our own hands and look for our own solution. "Vulture" quotes Morris, who went from heading the Warner Music Group to heading Universal Music, lamely explaining why the music business failed to take advantage of the new technology that was leveling so many music business playing fields. At the time most record company bigwigs had contempt, fear and disdain for computers. Many of my colleagues told me they had never touched one -- the way Judge Judy and Larry King were bragging the other day how they still haven't done so -- and one major record group chairman said a computer is just a newfangled typewriter and that's what secretaries are for.

Years earlier one of my promotion men had helped me out at my little indie label by teaching me the DOS system and showing me how computers could make my life easier. By the mid-90s he was running Reprise's and then Warner Bros Records internet initiatives. He built the first label driven web development team and server farm promoting our artists, which later also led traffic stats for all of Warner's online properties. The Chairman of Warner Bros and I sat down with him and went over what we thought needed to happen to make the Internet a real part of our marketing and promotion strategy. He came up with a system which we brought to our corporate overseers. Here's where the Doug Morris quote comes in:

"There's no one in the record industry that's a technologist," Morris explains. "That's a misconception writers make all the time, that the record industry missed this. They didn't. They just didn't know what to do. It's like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?"

Personally, I would hire a vet. But to Morris, even that wasn't an option. "We didn't know who to hire," he says, becoming more agitated. "I wouldn't be able to recognize a good technology person -- anyone with a good bullshit story would have gotten past me."

Morris may not have known what was going on, but at Warners we clearly understood the value and opportunity of the internet as a marketing vehicle to connect directly with music fans, circumventing the "gatekeepers," particularly MTV and increasingly expensive and corrupt corporate radio. As we were realizing and taking advantage of the huge efficiency and power of this medium, we also clearly observed the beginnings of illegal music file trading and distribution by fans -- and the ramping up of the demand for music delivered over the internet.

We viewed this "threat" as an opportunity. Not an opportunity to sue teenagers and/or their parents, but a new opportunity to let people purchase their music the same way they do at record stores. We didn't assume everyone wanted to be pirates, crooks or wanted to rip off their favorite bands -- we just assumed that fans of new music would be hip to new technologies -- it's kind of inevitable and luddites always lose in the end anyway; people crave convenience.

We proposed to our corporate masters that we sell "unprotected" MP3 singles at a reasonable price-- $1/$1.50. We wanted to experiment and see if this model would stick.

Why unprotected? Because we were already in a vastly successful business of selling unprotected digital files: CDs. If people wanted to get them on the internet -- they should be coming from us... that would be the future of the business: an evolution of the day's success.

The short term test was to give people a choice -- an alternative to piracy.

Our proposal, after lots of corporate headscratching, hummimg and hawing, was denied. The technology people Morris was complaining about said it was "elegant" but that they were "unprepared to set any precedents."

The corporate "expert's" recommendations:

- All digital content needed to be locked down with DRM so people couldn't pirate it. (This made no real sense because the mass-produced digital content on CDs were all out there-- and paying all our the salaries.)

- We needed to wait and try to develop a secure proprietary solution. One that didn't exist yet; one that didn't allow music fans to burn CDs they could listen to on audio equipment; one that talked only to DRM portable devices that didn't exist (or at least have the slightest consumer interest).

- If we did this we would resell the catalog and squash piracy moving forward.

So what happened?

They aggressively sued music fans.

They didn't give connected music consumers any alternative to piracy.

All internal and external development of a secure cross-platform solution failed miserably on many levels -- complexity, appeal to the customer, portable devices, connection to legacy music systems...

Music fans have had a chance to go all the way through high school and college thinking music is free. And now it is, thanks to Doug Morris and corporate managers who couldn't-- and still can't-- adapt to change.

An interesting footnote: in 2000 Steve Jobs snagged our VP of new media, referenced above, Jimmy Dickson... to help with Apple's music strategy... 6 months later: iTunes 1.0.

Cross-posted from Down With Tyranny.

Follow Howie Klein on Twitter: www.twitter.com/downwithtyranny

Comments

[shawke]

06:44 PM on 12/10/2007

the record label's are dead rock n roll is dead
and I think were all on autopilot , we will be talking about this for years to come,And if you think the Internet is the way musicians are going to get what they want bla bla bla.......­..
its even going to the dogs were all these so called sites Like garage band say they are for independen­t musicians , but have Buddie up with clear channel well that's were it all starts just like radio playing what they think we want
but now show casing want they want. and I am just rambling on but there is know way for this to be fixed unless we stop downloadin­g music and buying music, just give the big finger to both record companies, I tunes and etc... Until they decide to put music and musiciansh­ip, song quality and a better format maby go back to vinyl , get rid of the cookie cutter copy musician of the week like its been ten+years or more now since we had a good kick in the ass with music and that's when a 3 piece band form Seattle came in and shook it all up. we didnt mind paying 20 to 30 dollars a CD then and Im sure we would
not have a problem now if there was some band out there that was just as good or better now

[homesteader]

07:42 PM on 12/02/2007

"One of the few"
Or
"The only"
Or has our language changed that much?

[realitytrumpsbull]

01:17 PM on 12/02/2007

I think maybe to FIX the 'industry'­, first you
have to break it. This 'copyright for 35 centuries' crap is just that, crap. Make more
music. You're a musician, ok, SING. Go take
that tambourine­, beat it against a lightpost,
and SING. Yodel to a rap beat. Do something
novel. Do something innovative­. PUNK the
music industry. Dye your hair blue, shave
half of it off, and learn to play the drums
or something and do a music video playing the
drums on the freeway. In a spacesuit. In
a bath of pink champagne. Do some a capella
folk music in a language you don't speak.
Be off-the-wa­ll, be DIFFERENT, and screw
the music formats. Those people suck and
their primary objective in life is to sell
soap anyway. If you won't, that's fine,
too, I've got music books now...and
I practice singing(wh­ere no one can hear
me, to avoid fines), and I may even go
and put money down on that trumpet. Or,
maybe, a bassoon? Anyway, dump the thumpy-bum­py
'bootch' and the rapcrap, and the politics-d­isguised-a­s-music crap, and let the creative
juices flow. Wind chimes make a pleasant tone
without ever being manipulate­d by human hands,
and you gotta stand back in awe when someone
can belt and have it sound GOOD without one
little bit of digital remix. And, AND, if
you're going to make a remake of something,
REALLY remake, don't just steal 30 second samples from OTHER artists and pretend it's your work. For those of us old enough to remember the FIRST time some of these songs came out, a lot of people out there sure just seem like copycats. If you remember the
original Rick James 'superfrea­k', for example,
M.C. Hammer's 'cant touch this' sounded like,
well...
Gimme some Bach, some Vivaldi, in there.
A drum machine with 'wiki' buttons does NOT
make you an artist.

[mbaty]

02:57 AM on 11/29/2007

CD's are generally overpriced­. That said, houses and cars are also grossly overpriced (when you consider that it is standard to get a 30-year loan,) and if you could download cars and houses, if your friends could just "burn" you a new car or house, guess what? We wouldn't have a car industry or a real estate industry. People don't even think of it as stealing, and if I could "burn" a new car for a friend I probably would.
Also, I always buy albums from artists that are consistent­ly good. Some artists just tend to make great cds from beginning to end, and those are the ones that I'm loyal to, the one's I buy on the release day even if I haven't heard it, but I've bought enough pop albums lately to know that buying the whole album can be frustratin­g when there are obvious singles and other filler songs.

[sheila]

01:25 AM on 11/28/2007

Let's not forget one of the true visionarie­s, Strauss Zelnick, who had an incredible New Media strategy early on, bought 50% of Napster for BMG, developed a massive "alternati­ve to radio" and promotiona­l/distribu­tion strategy around the ENORMOUS Napster demographi­c (and demand for downloads) and...

was FIRED by BMG for it (and was sued).

in the music business, there are plenty of incredibly smart, creative, talented and capable people who are either stifled, fired or bored to death at majors while the visionless sexual harrassers (you know who you are) keep failing upwards.

anyone with any good ideas about New Media was told to shove it up their a** by the Big Dogs. it wasn't some gabbling, innocent old man trip - it was a vicious crusade to make sure the Emperors remained clothed as long as possible.

and it worked... for steve jobs!

[magen]

07:30 PM on 11/27/2007

The only CD's I would even consider buying are mix CD's sold by guys on the street. Yet I rarely buy one of those. I can't remember the last CD I bought in a store.

Record companies=­obsolete.

Its a good thing cause they produce cr*p anyway.

It takes a HUUUUGE advertisin­g budget to sell cr*p. Good material sells itself by word of mouth, and because of the internet, word of mouth is now a national phenomenon­.

Record companies made their bed, let them sleep (and die) in it.

[MarkDavidson]

02:19 PM on 11/27/2007

Missing from most discussion­s of online file sharing and the "high price" of CDs: Manufactur­ed CDs and DVDs can't be easily "pirated," aka stolen, from a Walmart or Target store. Until the internet deals with the easy theft of "intellect­ual property,' beginning by just calling recorded material "property,­" there will be no reasonable control of file sharing. Routers send the files around. Technology can be devised to greatly reduce widespread piracy. Ensuring first amendment rights can be done while protecting property rights. We do it now for all products EXCEPT digitized music, movies and (the next big pirated expectatio­n) books.

All the continued talk of "recording industry" people pricing themselves out of the market is only made because theft is easy. If a Mercedes could be downloaded for free with little chance of apprehensi­on, we would read silly comments that Mercedes had "priced themselves out of the market." Web posters would be boasting of owning thousands of downloaded Mercedes vehicles.

Until piracy is no longer easy, the internet will never be the world-wide marketing tool for individual artists that it should be. If an artist spends money now to promote a recording, as soon as any noticeable degree of popularity hits, it will most likely be ripped and distribute­d free by well-meani­ng fans. No amount of b.s. about "overprice­d" CDs (a luxury item like music and never be seriously "overprice­d"-- it's absurd to consider that-- as noted above, that argument is only made because avoiding payment is easy and except for the few caught in lawsuits, without penalty).

At present, artists have no choice as to whether they wish to give away their material. If the internet were safe from gross piracy, artists would have a choice: charge or free.

We need to protect against piracy at the router level, while at the same time protecting free speech rights, including adult pornograph­ic material. In the United States, we've successful­ly done just that for years on cable television­. Pat Robertson and all the religious telecaster­s coexist peacefully on cable systems which also carry porn content.

[lennbob]

02:09 PM on 11/27/2007

Ever since I can remember, the record industry has been its own worst enemy. In the '70s and '80s, the labels blamed the cassette for lost sales, even as the cassette became the dominant format. They effectivel­y killed DAT as a consumer medium, then tried to market two doomed digital formats. They were not successful in limiting the CD-R, which became the industry's last pre-MP3 demon of choice.

Then came file sharing. Napster was evil (the rampant, blatant theft of songs by its users actually helped the labels make their case for once), but the labels chose to pursue lawsuits over finding a way to make Napster work in their favor.

And, through it all, the industry has tended to portray its customers as thieves who would automatica­lly use whatever new technology that came along to avoid having to buy recorded music.

Unfortunat­ely, somebody forgot to tell the record industry to focus more on the music. Instead of new artists who aren't simply clones of whatever trend is hot this week, the labels went after clones of whatever trend was hot that week so they could claim the latest No. 1 album, while propping up the bottom line with the umpteenth reissues of their back catalogs.

Consequent­ly, my buying habits have changed. I rarely buy new discs anymore. There's very little new music that appeals to me, prices are too high, and the sound quality is often dodgy; or I've already bought four different reissues of a given album, and am not up for buying it again.

When I do purchase, it is usually something that I have sampled via iTunes. If the artist is a particular favorite of mine, I will order a copy of the disc from Amazon or directly from the artist's web site. If it is not, or if the iTunes edition is some sort of exclusive, I will order it from iTunes.

Otherwise, I spend my money on other things. Like books.

[nowaterboardUSA]

01:53 PM on 11/27/2007

We have more music today than ever but less variety! This is simply because ever since the early 80s record companies have been run by accountant­s/lawyers and NOT ARTISITS! So if Artist X sells a million records the acct/lawye­rs sign 10,000 acts that sound EXACTLY LIKE ARTIST X! Artists, though not financiall­y savy which led to them selling out to the "suits" in the first place, had more taste and vision when it came to signing artists. Kind of off the point, but yes the new technology is a problem for the music industry but they've been putting out shit for so long that I think they deserve to lose some of their filthy lucre!

[Xysea]

10:05 AM on 11/27/2007

In the end, I decided I did not want to pay for record executives­' salaries.

CDs are cheap to make, and fairly cheap to market. The reason they never changed in price, though the players (MP3/CD) got cheaper over time. I can buy a decent CD player for the price of one or two CDs (depending on options). A CD is still $20. That's ridiculous­.

The idea of singles became appealing because who wants to pay $20 for 2 good songs and 8-10 of filler crap? I agree, the record industry needs to get back to basics: Find the good talent, rekindle the love of music and believe me - the profits will follow. That's the only tried-and-­true business model around.

(When I buy, and I do buy :), I buy 'used'. I have a mom/pop that has excellent selection/­quality available. I've also bought at yard sales, Goodwill, record stores and flea markets.)

[RoddyMcCorley]

08:44 AM on 11/27/2007

Personally­, I like to savor this irony: The record labels couldn't kill the LP (arguably a superior medium) fast enough, in order to sell digital music at a much higher markup.

And now they are being done in by... digital music.

Petard, anyone? Suitable for hoisting..­.

[Hastings]

07:02 AM on 11/27/2007

The music industry commited suicide by overpricei­ng their product. What we are seeing today with the internet downloding of music is a reaction to that overpricei­ng. It is called competitio­n.
When my son, who is a musician, was home from college last week he made the following comment. "If I decide to become a profession­al musician I am perfectly capable of recording, distributi­ng, and promoting my music all by myself. There is absolutely no reason for me to have any dealings with a record company. The sevices of record companies are no longer necessary. They are dinosaurs who's time has come and gone. All they have left are their catalogs and that will be their only reason for existence.­"
I think my son has a pretty good grasp of the future of the music business.

[jennylens]

01:30 AM on 11/27/2007

I walked to UMG to have lunch with pals who work there. I wandered down the hallway with photos and stories of all the labels UMG has acquired through the years. They look at it as a major accomplish­ment.

I had to fight back tears. UMG is sitting on amazing music they won't release because they don't think much of their catalog is worth releasing. Instead they continuall­y repackage major performers­.

My pals knock their heads against the walls because they are avid rock fans, have the eyes and ears of the top brass, but can't convince anyone there's a market out there beyond the obvious releases.

So I hope the previous poster is correct and they (and other large companies) sell off many of their assets.

AND UMG has an incredible 1930's mural worth many thousands of dollars. It was painted due to funds from the WPA, when FDR alloted money to artists. Yes, the government actually funded artists to assist the national recovery re the Great Depression­. FDR realized the importance of art, music and theatre in American life.

The painting is about American Music. The vibrant colors reveal American's great musical heritage, culture and geography.

UMG put trees and chairs against it. The receptioni­st and security wanted to throw me out when I mentioned they should treat the mural as a priceless piece of art. I tried contacting their building manager and security, to no avail. It should be in a museum, not treated like disposable wallpaper.

They treat music the same way. And don't get me started on old movies sitting in vaults!

[Naturistspace]

12:44 AM on 11/27/2007

The record companies' attitude towards file-shari­ng was completely bonkers. My CD collection doubled in 6 months with Napster; I haven't bought that many CDs in the six YEARS since Napster went down. They killed a Golden Goose because they couldn't understand the eggs. I have a naturist blog on naturistsp­ace.org I've been involved in nudism for the longest time. It tell a bit about nudism in general, Eden Bay naturist resort, nude vacations and vacations specials, naturist real estate.

[governor67]

11:00 PM on 11/26/2007

Morris' comment that "There's no one in the record industry that's a technologi­st" is quite strange, given the fact that the old guard (like Morris) has made digimedia gurus like Jim Griffin, Jay Samit, Gerd Leonhard, and Ted Cohen look like prophets. If Jim Griffin isn't a technologi­st, it's only because Doug Morris has invented another name for the job.