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Howie Klein

Howie Klein

Posted: November 26, 2007 06:39 PM

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.

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