MySpace began in 2003 as an improvement on the early social networking website Friendster. Like YouTube, the website soon became an internet phenomenon, racking up more than 100 million accounts within three years. Although artists from middle-of-the-road pop singer Colbie Caillat to one-man band Secondhand Serenade would soon break after generating tons of publicity through their MySpace pages, major record labels initially reacted in a familiar way. In 2006, Universal Music sued the company, alleging it encouraged users to infringe their song and video copyrights by providing free music.
But label executives, seeing just how much publicity a familiar or unknown act can generate by providing free music on its MySpace page, changed their attitudes over the next few years. "We've had relationships with [the labels] since the beginning of MySpace, but we never came up with a concrete business plan that we could present to them that shows a big win for our users that also makes sense for the music business," Chris DeWolfe, one of the company's founders, said in early 2008. "We needed to create this utopian service in such a way that the music companies are starting to make money. That took a little while to do. Attitudes have definitely changed over the years, and music companies are wanting to experiment more. They're more daring and more creative." In April 2008, Universal dropped its lawsuit, and three of the four major labels partnered with MySpace Music later that year, selling downloads and streaming songs for free. At the time this book went to press, EMI Music, reeling from layoffs and a corporate takeover, was expected to join the partnership, too. In the social networking world, MySpace competitors like Facebook and Last.fm also relied heavily on music, and labels made deals with them, too. In spring 2008, venerable rock band R.E.M. released its comeback, Accelerate, Accelerate, for free via iLike, Facebook's music application. It sold 115,000 copies of the album (that's combined sales of CDs plus online albums) in its first week, hitting No. 2, R.E.M.'s highest chart debut since 1996. Later in 2008, iLike made a deal with the Rhapsody subscription service to stream millions of major-label-owned songs for free via Facebook. for free via iLike, Facebook's music application. It sold 115,000 copies of the album (that's combined sales of CDs plus online albums) in its first week, hitting No. 2, R.E.M.'s highest chart debut since 1996. Later in 2008, iLike made a deal with the Rhapsody subscription service to stream millions of major-label-owned songs for free via Facebook.
"When we started out in 2002, the major labels didn't take our calls-there was panic about anything having to do with the word MP3 or online music generally," says Martin Stiksel, cofounder of Last.fm, which CBS bought in 2007 for $280 million. "It took until about 2006 to see services like ours as something other than an enemy." In part, this was because the attitudes of major label executives changed, over time, as they saw CD sales dropping no matter how aggressively they tried to stop online piracy. But in part, it's because what Robin Bechtel, Syd Schwartz, Ty Braswell, and others were saying for years in meetings with their bosses about the importance of the internet finally started to catch on.
DURING THE 1990S- 1990S-THE heart of the CD boom-Sony Music Entertainment chairman Tommy Mottola built the most bulletproof hit machine in the record business. Sony sold more than 50 million of Mariah Carey's records in the US alone, and 11 million of Celine Dion's heart of the CD boom-Sony Music Entertainment chairman Tommy Mottola built the most bulletproof hit machine in the record business. Sony sold more than 50 million of Mariah Carey's records in the US alone, and 11 million of Celine Dion's Titanic Titanic soundtrack. With the help of Sony, little-known Seattle punk bands Pearl Jam and Alice in Chains turned into the world's biggest rock stars. The Sony team shared one overwhelming philosophy: It takes money to make money. "If a record wasn't selling, they would apply a little bit of muscle to get it in the front of a store-and it would start selling," says Randy Sosin, a longtime executive at competitor Interscope Records. "It was a little bit of old school." Sony routinely spent $1 million on a new artist, knowing full well that few of these artists would come close to making money. The ones that did paid for the ones that didn't-and Sony's team was masterful at boosting the odds. Like almost every other major label, Sony lost ground to Clive Calder's nimble Zomba Music Group in the era of boy bands and Britney. But as always, Mottola's team fought back: For singer Jessica Simpson's 2001 CD release, Mottola threw a swanky party on a yacht in the East River near New York City. "He did spend a ton of money," says Barbara O'Dair, party attendee and editor-in-chief of soundtrack. With the help of Sony, little-known Seattle punk bands Pearl Jam and Alice in Chains turned into the world's biggest rock stars. The Sony team shared one overwhelming philosophy: It takes money to make money. "If a record wasn't selling, they would apply a little bit of muscle to get it in the front of a store-and it would start selling," says Randy Sosin, a longtime executive at competitor Interscope Records. "It was a little bit of old school." Sony routinely spent $1 million on a new artist, knowing full well that few of these artists would come close to making money. The ones that did paid for the ones that didn't-and Sony's team was masterful at boosting the odds. Like almost every other major label, Sony lost ground to Clive Calder's nimble Zomba Music Group in the era of boy bands and Britney. But as always, Mottola's team fought back: For singer Jessica Simpson's 2001 CD release, Mottola threw a swanky party on a yacht in the East River near New York City. "He did spend a ton of money," says Barbara O'Dair, party attendee and editor-in-chief of Teen People Teen People. Simpson made a respectable third-place showing in the teen-diva arena, after Spears and Christina Aguilera.
However, the "It takes money to make money" philosophy works only if a company is making money. making money. After ripping and burning, Napster, online piracy, and the industry's hamhanded response to it all, US album sales were down 17 percent in 2002. By early 2003, Mottola's bottom line looked shockingly ordinary. Sony Music lost $132 million during the first half of that fiscal year. The label's American market share dropped from 16.6 percent in 1998 to 15.7 percent in 2002-and would fall to 13.7 percent in 2003. After ripping and burning, Napster, online piracy, and the industry's hamhanded response to it all, US album sales were down 17 percent in 2002. By early 2003, Mottola's bottom line looked shockingly ordinary. Sony Music lost $132 million during the first half of that fiscal year. The label's American market share dropped from 16.6 percent in 1998 to 15.7 percent in 2002-and would fall to 13.7 percent in 2003.
Ordinarily, none of this would have fazed Mottola. He had endured a similar sales dip in the early 1990s. The difference this time was that while Mottola had been so deft at manipulating Norio Ohga and other Sony Corp. executives to wrest power away from Walter Yetnikoff, by 2003 his heart just didn't seem into the politics. At age fifty-three, his attention was elsewhere. He'd survived a divorce from Mariah Carey after five years of marriage.* He remarried, to the golden-haired singer and Mexican soap-opera beauty Thalia, and built a $4 million villa for her in Miami. He remarried, to the golden-haired singer and Mexican soap-opera beauty Thalia, and built a $4 million villa for her in Miami.
By 2002, the tolerant Ohga had left the company. His replacement, Nobuyuki Idei, was not so easily impressed by flashy American record executives. Moreover, Mottola had an uneasy relationship with his direct boss at Sony Corp., CEO Sir Howard Stringer, a Welshman with a tough-minded business reputation. Stringer was an active hobnobber and skilled party host, remembering his guests' names and showering them with hugs. But just as Yetnikoff had referred to his superiors with crude bon mots like "the Jew Upstairs," Mottola's nickname for Stringer was "the Buffoon." He kept Stringer away from Sony stars, refusing to dole out good seats at concerts and never inviting him to Grammy Awards parties. "Tommy didn't 'manage up' well with regards to Howard Stringer. He didn't include him enough and operated independently. And he was just on a roll-for years and years, he couldn't be touched," says a major label source. "As soon as the company started losing money, they used that opportunity to get rid of him. [Mottola] didn't massage the relationship. If he had let Howard Stringer play in his sandbox, and had him up in the pictures with his artists and vetted him at awards shows, he'd still be there."
Stringer frequently complained to his brother, Rob, a Sony UK executive who'd risen through the ranks on his own, according to New York New York: "Why the fuck am I dealing with this guy? Why the fuck are we paying this guy? Tell me what this guy does. Tell me what this guy does. Tell me what this guy does Tell me what this guy does." Why, indeed? Mottola announced in 2002 he wanted a new contract, but got no response from his superiors. Idei stopped inviting him to Japan. Stringer started to make public hints that Sony would not renew Mottola's contract. Finally, not wanting Mottola to make an embarrassing public scene, as Clive Davis had done earlier in the decade with BMG, Sony bought out his five-year contract. Mottola's fall finally went public on January 9, 2003, in the form of a faxed press release.
The rest of the music business was shocked. "The Tommy-Donnie-Michele management structure was viewed by everybody, without question, as the most stable management structure in the business," says Jim Guerinot, a former A&M executive who manages Gwen Stefani, Nine Inch Nails, and others. "They got a lot of momentum and strength from that stability. Those guys had been in place a long time. Nobody seemed more invulnerable. They really appeared omnipotent." And then Mottola was gone.
Within a day, his replacement had been named-and it wasn't Donnie Ienner, his heir apparent. Stringer went outside the company, to an old friend who'd worked with him at CBS, making documentary films in the 1970s: Andrew Lack, fifty-five-year-old president of NBC. Lack had no experience whatsoever in the music business, a fact that was even more conspicuous at a major like Sony, where for decades the powers-that-be had artist-centered pedigrees stretching back to Hall and Oates, Blood, Sweat and Tears, even Elvis. As a bone to the Mottola-team remnants, Stringer made Ienner president of Sony Music US. Frustrated with his high responsibility but low autonomy and prestige, Ienner turned around and created some politics of his own. Within months, the longtime Columbia exec indulged his rivalry with sibling label Epic and purged many of its holdover employees, sources say.
The power shift was symbolic. Tommy Mottola represented the heart of the spend-money-to-make-money CD boom. That's not to say there were no CEOs left with this philosophy-the music industry's grand old man, Clive Davis, was still spending lavishly at BMG.* Antonio "LA" Reid jumped from Arista to Island Def Jam, taking his private jets and legendary artist payouts with him. (Reid's son Aaron was a star of MTV's Antonio "LA" Reid jumped from Arista to Island Def Jam, taking his private jets and legendary artist payouts with him. (Reid's son Aaron was a star of MTV's My Super Sweet 16, My Super Sweet 16, throwing a lavish party including a concert from hot Island Def Jam rapper Kanye West and an appearance by Diddy. His invitations to guests came via MP3 player.) But in the post-Napster world, these old-school record men started to give way to new-school cost cutting-layoffs, dropping artists, even the dreaded scaling back of expense accounts. Sony Music had already started shrinking, from 17,700 employees in 2000 to 13,400 in 2003. And Tommy Mottola wouldn't be around to ride the hydrogen bomb down to the ground, like Slim Pickens in throwing a lavish party including a concert from hot Island Def Jam rapper Kanye West and an appearance by Diddy. His invitations to guests came via MP3 player.) But in the post-Napster world, these old-school record men started to give way to new-school cost cutting-layoffs, dropping artists, even the dreaded scaling back of expense accounts. Sony Music had already started shrinking, from 17,700 employees in 2000 to 13,400 in 2003. And Tommy Mottola wouldn't be around to ride the hydrogen bomb down to the ground, like Slim Pickens in Dr. Strangelove. Dr. Strangelove. In a press release, Stringer called him "an icon of the music industry" and referred to his "legacy to be envied." Mottola would restart a record label with a familiar name-Casablanca, the disco label whose excesses almost killed the entire industry in the late 1970s. Casablanca signed actress Lindsey Lohan and had a few hits, but as of this writing, Mottola's career as a hit maker is over. "It was the end of an era," says a record company source. There was no longer enough money left in the record business to support Tommy Mottola. In a press release, Stringer called him "an icon of the music industry" and referred to his "legacy to be envied." Mottola would restart a record label with a familiar name-Casablanca, the disco label whose excesses almost killed the entire industry in the late 1970s. Casablanca signed actress Lindsey Lohan and had a few hits, but as of this writing, Mottola's career as a hit maker is over. "It was the end of an era," says a record company source. There was no longer enough money left in the record business to support Tommy Mottola.
One of the first things Andrew Lack did as head of Sony Music was something his predecessor almost certainly would have never done: He started a friendship with a rival. Rolf Schmidt-Holtz was chairman of BMG, which, not so long ago, had fought like a prize fighter against Sony and the other major labels. Schmidt-Holtz had been a journalist and political talk-show host before becoming a media executive in Germany. Lack had been president of NBC, overseeing Today Today and and NBC Nightly News NBC Nightly News. Both were outsiders, shifting from TV to music. Both were cutting costs from their record labels at a time when online piracy and CD ripping and burning had ravaged a gigantic business. "We speak the same language," Schmidt-Holtz told the Wall Street Journal. Wall Street Journal. "Personal trust allowed us to overcome a number of obstacles." "Personal trust allowed us to overcome a number of obstacles."
Bertelsmann, the German publishing company that owned BMG, had survived its misadventures with Thomas Middelhoff and Napster, but just barely. Teen pop, its music mainstay in the late 1990s, was over. Reeling from a drop in CD sales, Bertelsmann was merger-happy. In 2003, its executives approached AOL Time Warner, whose own merger was on the verge of catastrophe, and offered a 5050 deal to combine BMG with Warner Music. Warner was interested, but both sides immediately grew stubborn. AOL Time Warner insisted its catalog of Madonna, Frank Sinatra, and Led Zeppelin tunes was far more valuable than BMG's catalog of Elvis Presley and the Dave Matthews Band. Bertelsmann's offer was $100 million, but Warner demanded an extra $150 million-too much for the German company. That's when Schmidt-Holtz and his superiors turned to Sony, using Lack as their initial connection and conduit. After weeks of talks, Schmidt-Holtz met with Sony's Nobuyuki Idei and Sir Howard Stringer and Bertelsmann chief executive Gunter Thielen for ninety minutes at a New York airport in October 2003 and hashed out a merger. Regulators were concerned Sony BMG would form a cartel and violate international antitrust laws. But they ultimately agreed Big Music wasn't so big anymore and the major labels didn't control as much money as they used to. They approved the deal in July 2004.
On paper, the new Sony BMG looked like a powerhouse. They had Bruce Springsteen and and Britney Spears, Barbra Streisand Britney Spears, Barbra Streisand and and Elvis Presley. Combined, their market share, at least in the US, added up to around 30 percent, a few points above even dominant Universal Music. The only bad news was a few thousand layoffs, but that's the price of making two companies stronger, right? But the executives miscalculated. Sony's Lack and BMG's Schmidt-Holtz may have been pals, but in the ranks underneath them, some of the fiercest competitors in music industry history were suddenly partners, conducting business with tight smiles. Clive Davis, who had started his career nurturing Bob Dylan and Streisand at Columbia and had discovered Whitney Houston with Arista Records in the 1980s, was the head of BMG. Don Ienner, a Sony Music company man who had been one of Tommy Mottola's loudest and most cutthroat loyalists, was in charge of Columbia and Epic. Making matters worse, Ienner had worked for Davis in the early 1980s at Arista, and had no intention of taking a subservient role this time. Things were uneasy whenever they found themselves at meetings together. "One side of the room was Clive and his people. The other side was Donnie and his people," recalls Joe DiMuro, executive vice president of the merged company's strategic marketing group until he left in late 2006. "There was a level of cordiality, but you could tell there was a dividing line. It was palpable." Elvis Presley. Combined, their market share, at least in the US, added up to around 30 percent, a few points above even dominant Universal Music. The only bad news was a few thousand layoffs, but that's the price of making two companies stronger, right? But the executives miscalculated. Sony's Lack and BMG's Schmidt-Holtz may have been pals, but in the ranks underneath them, some of the fiercest competitors in music industry history were suddenly partners, conducting business with tight smiles. Clive Davis, who had started his career nurturing Bob Dylan and Streisand at Columbia and had discovered Whitney Houston with Arista Records in the 1980s, was the head of BMG. Don Ienner, a Sony Music company man who had been one of Tommy Mottola's loudest and most cutthroat loyalists, was in charge of Columbia and Epic. Making matters worse, Ienner had worked for Davis in the early 1980s at Arista, and had no intention of taking a subservient role this time. Things were uneasy whenever they found themselves at meetings together. "One side of the room was Clive and his people. The other side was Donnie and his people," recalls Joe DiMuro, executive vice president of the merged company's strategic marketing group until he left in late 2006. "There was a level of cordiality, but you could tell there was a dividing line. It was palpable."
Lack, who had been appointed boss of the newly merged company, found himself in a no-win position smack in the middle of these two suspicious cultures. He might have made it work if he'd had the clout and charisma of a Davis or a Mottola, but his lack of record business experience rankled the more seasoned executives below him. One of those was Michael Smellie, a BMG executive since the mid-1990s who'd worked his way up to chief operating officer in the merged company. "The two of them, in many cases, were like oil and water," DiMuro says. "Michael, at times, was reporting to Andy, and Michael became frustrated and disenchanted. There was a level of noncommunication. They shut down at times." (Some on the Sony side believed the competitive Smellie did everything he could to set up Lack for a fall.) Lack was no technology expert-his comments before Congress likening peer-to-peer services to child pornographers weren't exactly forward-thinking-but he was smart enough to grasp that technology represented the future of the business. For a time around 2003, Lack developed an interest in selling songs through those very same peer-to-peer services-this time using "fingerprinting" technology that could separate the customers from the pirates. He started contacting people who knew about this kind of technology-Talmon Marco, head of iMesh, which the RIAA had sued in 2003; Vance Ikezoye of Audible Magic; and Wayne Rosso, the cigar-smoking record-business veteran who, as head of Grokster, had likened record executives to Josef Stalin. Rosso spent some time with Lack, introducing him to the key players and acting as a go-between for meetings with Sony executives. "Andy was the key mover and shaker in loosening things up," Rosso says. "He was trying to do the right thing. He met with resistance all the way through." Lack's efforts failed, as did his other clumsy high-tech innovations. He flooded stores with new releases using the CD-plus-DVD DualDisc format. They didn't help sales, and the format basically disappeared. What cut off his head at Sony, though, was a very traditional decision-Lack resigned Bruce Springsteen, who was inarguably past his prime in selling new albums-for $100 million.
Lack could have been the greatest record executive in the world, and he still wouldn't have been able to pump up Sony BMG's bottom line as piracy and iTunes cannibalized CD sales. He kept cutting costs, which stopped the bleeding somewhat but didn't exactly improve employees' spirits. Publicists, for example, watched budgets for artist photo sessions drop from $25,000 to $5,000 in just two or three years. No longer could they spend more than $5,000 to fly an artist to New York or Los Angeles for a prominent late-night TV appearance. Instead of giving away thirty tickets to a concert, they could give away eight. And their coworkers kept losing their jobs, day after day. Sony's US market share dropped from 30 percent to 27 percent in 2005. Finally, Sir Howard Stringer decided he'd had enough.
In early 2006, he switched the jobs of Schmidt-Holtz and Lack, giving Schmidt-Holtz chief executive power over the entire company, and turning Lack into a "nonexecutive chairman" with relatively little power. Although he remained with the company, Lack was, for all intents and purposes, done as a record mogul. By summer, so were Don Ienner and Michele Anthony, the two primary holdovers from the Tommy Mottola era, who couldn't stand it anymore and left. Their replacement was Stringer's younger brother, Rob. Within a few short years, the Mottola team of experienced, hard-nosed music executives was gone. Some in the business mourned the departure of the classic record men. Others wondered why it took so long to get rid of Tommy Mottola's team, which was about as far as the record industry could get from technology gurus.*
THEN THINGS GOT really bad. really bad.
In the iTunes era, old-school distribution and manufacturing were suddenly relics. Since the early 1970s, record-making plants had been cash cows for major labels. So had complex shipping networks of warehouses and branch offices around the world. But in 2004, EMI closed CD-manufacturing plants in Jacksonville, Illinois, and Uden, in the Netherlands, and laid off 900 workers. Around that time, AOL Time Warner sold the company's once-mighty CD-distribution arm, WEA, to a Canadian company called Cinram International for $1.05 billion-analysts called it a steal, until CD sales dropped 15 percent in 2007. Later, with backing from a wireless company called Glenayre Technologies, former Warner and Island Def Jam executive Jim Caparro formed the Entertainment Distribution Company and bought what was left of Universal Music's plants and warehouses, plus the employees who worked in them, for $122 million. The deal worked great for a few years, until the company posted a net loss of $11.4 million, forcing Caparro to step down in 2008. "Darwinian evolution took hold," Caparro says of the record industry, which he lambastes for not embracing digital music quickly enough. "Things changed." As for CD-manufacturing plants, some remain open, including Sony's pioneering one in Terre Haute, Indiana. It survives not on CDs but DVDs. But maybe not for long. Even US DVD sales dropped 3.6 percent in 2007-although Sony executives have said the movie industry's adoption of the Blu-ray format in February 2008 may lead to expansion of the 1,200-employee Terre Haute plant.
Old-school marketing fell just as hard. For as long as anybody in the business could remember, labels relied on MTV, radio, and record stores for exposure. Push the gatekeepers at those places aggressively enough-in some cases, bribe them-and you've got a hit. The first to go was MTV. Beginning in the late 1990s, the channel's executives realized they could snag higher ratings with self-produced reality shows like The Real World The Real World and and Road Rules Road Rules than by actually playing music videos. Labels went from spending $1 million on a typical video for an MTV-worthy artist in the early 2000s to $100,000 or $200,000 in 2007. "It's a very precarious and somewhat unfortunate development," says Randy Sosin, Interscope's senior vice president of music video production until he lost his job in late 2007. "The cost of making a film has gone up, but the dollars that they're spending have gone down." MTV still breaks artists like emo-pop band Paramore and rapper Common, but often through tiny commercial snippets in the middle of shows like than by actually playing music videos. Labels went from spending $1 million on a typical video for an MTV-worthy artist in the early 2000s to $100,000 or $200,000 in 2007. "It's a very precarious and somewhat unfortunate development," says Randy Sosin, Interscope's senior vice president of music video production until he lost his job in late 2007. "The cost of making a film has gone up, but the dollars that they're spending have gone down." MTV still breaks artists like emo-pop band Paramore and rapper Common, but often through tiny commercial snippets in the middle of shows like A Shot at Love with Tila Tequila A Shot at Love with Tila Tequila.
Then the major labels' long-standing relationship with radio stations hit a cataclysmic snag. For decades, they relied on independent promoters to "persuade" radio programmers to add their singles to their playlists. By the 1990s, the big indies were corporate, clean-image types like Bill Scull and Jeff McClusky, who figured out they could make the most money by hooking up with one big radio company, like Clear Channel or Entercom. By 2001, the mathematics of indie promotion looked like this, according to Eric Boehlert of Salon.com: Of 10,000 commercial US radio stations, 1,000 were the tastemakers that broke hits and moved CDs; those stations added roughly three new songs per week; labels paid indies like Scull and McClusky between $1,000 and $8,000 to add a song to a station's playlist. So the top indies, a handful of entrepreneurs including Scull, McClusky, and Bill McGathy, received roughly $3 million every week every week.
This lucrative relationship lasted as long as major labels had that kind of money to spend. But in the early 2000s, as McClusky remembers, "Costs start becoming more of a consideration." They stopped wanting to pay independent promoters-for real this time. It helped that senators such as Democrat Russ Feingold started to look into "legal payola," finding it uncomfortably close to actual actual payola. Congress pressured the big media companies, like Clear Channel Communications, which owned 1,225 stations and received millions of dollars a year from major labels through indie promoters. In 2003, just before the Federal Communications Commission voted on a measure to relax rules for radio, payola. Congress pressured the big media companies, like Clear Channel Communications, which owned 1,225 stations and received millions of dollars a year from major labels through indie promoters. In 2003, just before the Federal Communications Commission voted on a measure to relax rules for radio,* the San Antonio company turned against indie promo. Most of the other big radio companies followed. Thus did onetime power players like Scull and McClusky resign themselves to, well, making less than millions of dollars per week. "We were too greedy," Scull says today, with resignation. the San Antonio company turned against indie promo. Most of the other big radio companies followed. Thus did onetime power players like Scull and McClusky resign themselves to, well, making less than millions of dollars per week. "We were too greedy," Scull says today, with resignation.
It was nice, for the bean counters at major labels, to give up a budget item of millions of dollars every year. It was not so nice for label promotion departments with singles to break. They decided to keep up the pressure on radio programmers-only without the middlemen who knew what they were doing. They went back to $50 handshakes or their modern equivalents. At one point, an Epic Records executive spent $5,000 on New YorktoMiami trips to get rock bands Franz Ferdinand and Good Charlotte on the air. Another time, two Epic executives wrote a memo to programmers listing "fixed billing rates" of $500 to $1,000 for 75 or more airings of a record, or "spins," on a station. One especially indiscreet Epic promotions director asked a Clear Channel radio station employee in an email: "WHAT DO I HAVE TO DO TO GET AUDIOSLAVE ON WKSS THIS WEEK?!!? Whatever you can dream up, I can make it happen!!!" In another email, a Top 40 program director for a Rochester, NY, station wrote: "I'm a whore this week. What can I say?" Some labels paid radio programmers thousands of dollars in cash, Las Vegas airline tickets, laptops, and Walkmans to push artists from Audioslave to J. Lo into heavy rotation. Whatever you can dream up, I can make it happen!!!" In another email, a Top 40 program director for a Rochester, NY, station wrote: "I'm a whore this week. What can I say?" Some labels paid radio programmers thousands of dollars in cash, Las Vegas airline tickets, laptops, and Walkmans to push artists from Audioslave to J. Lo into heavy rotation.
This bald-faced bribery continued until Eliot Spitzer, attorney general of New York, found himself a new campaign issue. A Democrat who had successfully crusaded against investment-banking researchers over their Wall Street conflicts of interest, Spitzer was on the path to becoming governor, and payola was the perfect issue for him. It was secret and widespread, fit snugly into headlines, and made important people like FCC commissioners and US senators good and angry. Spitzer subpoenaed all of New York's major record labels, as well as the big radio companies. He demanded emails and documents, and they complied. His staff interviewed tons of people. His evidence was enough to strong-arm the major labels. They settled. Sony BMG was first, coughing up $10 million in July 2005. Sony Music's top executives, Don Ienner and Charlie Walk, fired sacrificial lamb Joel Klaiman, head of radio promotions for Epic Records, allowing Spitzer to say he drew blood from the record business. But shortly after Spitzer's investigation became public, the Los Angeles Times Los Angeles Times broke an extraordinary story based on anonymous sources, reporting that Walk and Ienner "condoned or participated in pay-to-play." One source claimed to the paper: "Donnie would tell you: 'Do whatever it takes. Get the song played.'" Another source added that Ienner would say, "I've approved $50,000 this year for that [program director], and when we're developing this baby band, we get nothing. Tell him if we don't get spins, we're cutting his support." Ienner and Walk denied the allegations to the broke an extraordinary story based on anonymous sources, reporting that Walk and Ienner "condoned or participated in pay-to-play." One source claimed to the paper: "Donnie would tell you: 'Do whatever it takes. Get the song played.'" Another source added that Ienner would say, "I've approved $50,000 this year for that [program director], and when we're developing this baby band, we get nothing. Tell him if we don't get spins, we're cutting his support." Ienner and Walk denied the allegations to the Times Times and did not respond to interview requests for this book. In any case, after the Sony BMG settlement came Warner, later that year, paying $5 million; EMI, Universal, and several big radio companies added more millions later to New York charities devoted to music education. and did not respond to interview requests for this book. In any case, after the Sony BMG settlement came Warner, later that year, paying $5 million; EMI, Universal, and several big radio companies added more millions later to New York charities devoted to music education.
Spitzer, of course, would bring a few secrets of his own to the governor's mansion in New York. As most of the world knows by now, this crusader against corruption was disgraced in early 2008 when he was caught paying for a high-priced prostitute. Ironically, the woman, Ashley Alexandra Dupre, was an aspiring singer-songwriter, and after the Spitzer scandal broke, she received more than 7 million hits on her MySpace page. The resulting 98-cent song downloads, according to the New York Daily News New York Daily News, added up to more than $206,000 in pure profit.
But hookers and political scandals aside, the Spitzer-led payola settlements suddenly left major labels without a crucial radio tool beginning in 2005. Soon, promotion executives at labels noticed stations around the US were becoming more conservative, adding fewer new singles, repeating more of the old, popular ones, and keeping their label contacts at arm's length. For the first half of 2006, Radio & Records, Radio & Records, a trade magazine that uses computers to study airplay, noticed newly added radio singles were dramatically down-in most of the big formats, from rock to hip-hop to country to adult contemporary. Spitzer's investigation made programmers paranoid. Radio companies made their vice presidents of operations sign a form whenever a programmer received a box of CDs. "Songs aren't just getting on the radio as quickly as they did before," says Doug Podell, operations manager for Detroit rock station WRIF, adding that the bands Flyleaf, Powerman 5000, and Army of Anyone were victims of this new conservatism. "The labels are scrambling," a source at a major label said at the time, "and we're all freaking out." Radio was still the most reliable way to break an international hit-hard-rock band Flyleaf, R&B star Chris Brown, and pop acts James Blunt and Maroon 5 broke on the air over time-but this key promotional outlet was no longer a sure thing for big-spending major labels like it had been in the 1980s and 1990s. a trade magazine that uses computers to study airplay, noticed newly added radio singles were dramatically down-in most of the big formats, from rock to hip-hop to country to adult contemporary. Spitzer's investigation made programmers paranoid. Radio companies made their vice presidents of operations sign a form whenever a programmer received a box of CDs. "Songs aren't just getting on the radio as quickly as they did before," says Doug Podell, operations manager for Detroit rock station WRIF, adding that the bands Flyleaf, Powerman 5000, and Army of Anyone were victims of this new conservatism. "The labels are scrambling," a source at a major label said at the time, "and we're all freaking out." Radio was still the most reliable way to break an international hit-hard-rock band Flyleaf, R&B star Chris Brown, and pop acts James Blunt and Maroon 5 broke on the air over time-but this key promotional outlet was no longer a sure thing for big-spending major labels like it had been in the 1980s and 1990s.
With MTV and radio changing, only one huge, reliable promotional outlet remained: record stores. Surely, thought label executives, chains like Tower, Wherehouse, and Sam Goody would push new music like they had since the 1940s. Unfortunately, during the CD boom, labels had shifted their resources away from these steady music-only chains and towards mega-sellers such as Best Buy, Wal-Mart, and Target-which were in the mood to slash prices and cut CD shelf space. Hundreds of record stores went out of business. In January 2006, Musicland went bankrupt, taking the venerable Sam Goody chain with it into anachronistic oblivion.
And then came the fall of Tower Records, the red-and-yellow chain that had become an institution. Founder Russ Solomon, a big music fan, first began selling records in 1941 in the back of his father's drugstore in Sacramento. He opened his first store in Sacramento in 1960, and emphasized deeper catalogs than his competitors. He started branching into other cities in the late 1960s, notably San Francisco, where he stumbled onto a Fisherman's Wharf "for rent" sign while nursing a hangover. He leased the space, opened a store, and turned it into a hangout for Haight-Ashbury musicians such as Carlos Santana, Steve Miller, and members of Jefferson Airplane. Its most famous location, on the Sunset Strip in Los Angeles, opened in 1970, and it became a local music centerpiece-Axl Rose of Guns N'Roses once worked there as a night manager, and the store opened early for Michael Jackson to shop by himself during the Thriller Thriller era. Elton John and the Beach Boys' Brian Wilson were among the best-known customers, and the Hollywood location took on its own mythology. Rose's onetime bandmate Slash has a childhood photo of himself in the store, begging his record-collecting parents for certain albums in the aisle. A few years later, he was arrested for stealing cassettes. Still later, he worked with a crew of big-haired metalheads at the video store across the street. "We happened to be funny-looking, but met the right requirements," he recalls. "It was something they should have made a movie out of, like era. Elton John and the Beach Boys' Brian Wilson were among the best-known customers, and the Hollywood location took on its own mythology. Rose's onetime bandmate Slash has a childhood photo of himself in the store, begging his record-collecting parents for certain albums in the aisle. A few years later, he was arrested for stealing cassettes. Still later, he worked with a crew of big-haired metalheads at the video store across the street. "We happened to be funny-looking, but met the right requirements," he recalls. "It was something they should have made a movie out of, like Clerks Clerks, but a little bit more rock 'n' roll and a little bit more mayhem."
Like the rest of the music industry, Tower boomed in the 1980s and 1990s, as music fans replaced their LPs with CDs. But at the peak, in the mid-1990s, Solomon expanded a bit too aggressively-by his own recollection-opening stores in expensive retail spaces all over the world. "I lost a lot of money in Argentina and Mexico, even England and Taiwan and Hong Kong," he says. Like a lot of people in the record business, Solomon figured the good times would last forever. But Tower filed for bankruptcy in 2004. Solomon and his family lost their controlling stake. A new CEO, Allen Rodriguez, rubbed Solomon and other longtime Tower employees the wrong way. "What these cuckoo, MBA-style managers did-they tried to turn Tower into a chain store," Solomon says. "Every single inch of space [in the store] is taken up by who's paying for it-price and position and signs and shit. Everything was wrong." For years, the company worked on a prototype for an iTunes-style online retailer, but that never went anywhere. "Russ Solomon didn't believe in digital music," recalls Lisa Amore, who handled publicity for Tower for many years. In 2006, the company finally succumbed, holding going-out-of-business sales, closing its 89 stores, and laying off 3,000 employees.
Executives at the major labels had unwittingly planted the seeds for Tower's demise. They could only watch helplessly as Tower fell. The following year, in 2007, US CD sales dropped almost 15 percent. All year, label sources promised blockbusters for the all-important holiday shopping season-Eminem! U2! Madonna! Green Day! Metallica! None of them materialized, save one from R&B singer Alicia Keys, a heavily hyped album-release rivalry between rappers Kanye West and 50 Cent, and the first new studio album in twenty-eight years from the Eagles, who bypassed record labels completely and sold Long Road Out of Eden Long Road Out of Eden exclusively through Wal-Mart. In 2007, Wal-Mart reduced its shelf space by 20 percent, dropping the number of music titles at the chain's biggest stores to about 4,000, and Best Buy cut its music space as well. The following year, sources at major labels predicted Wal-Mart would cut back another 20 percent on music titles. exclusively through Wal-Mart. In 2007, Wal-Mart reduced its shelf space by 20 percent, dropping the number of music titles at the chain's biggest stores to about 4,000, and Best Buy cut its music space as well. The following year, sources at major labels predicted Wal-Mart would cut back another 20 percent on music titles.
That meant more pain. EMI Music, owner of the lucrative Beatles and Beach Boys catalogs, took the brunt of it. A British equity firm, Terra Firma, bought the company for $5 billion in May 2007 with the intent of cutting costs and turning things around. But by September, Terra Firma's chief executive officer, Guy Hands, was calling the major label "the worst business...in the most challenged sector." One source who does business with EMI predicted a "bloodbath" for the label in 2008. The famous EMI-owned Capitol Records tower in LA, shaped like a stack of records and built in 1956 as a testament to the vibrancy of the record industry, was sold to a New York condominium developer in late 2006, although what was left of Capitol's staff continued to work there.
Also reeling was Warner Music, which for decades had been the ideal record label, with well-respected top executives from Ahmet Ertegun to Joe Smith to Mo Ostin signing career megastars like Neil Young, Jimi Hendrix, Prince, R.E.M., and Metallica. When Time and Warner merged in the early 1990s, Warner Music was generating tons of money and was an industry powerhouse. After a series of corporate changes and post-Napster malaise, the music division had grown into exactly the opposite. The sad fact was Warner Music never really recovered from the AOL Time Warner merger in 2000. By the time the merger imploded in 2003, and Time Warner reestablished control of the company, the music division was in trouble. Time Warner spent months trying to dump its music division.
Finally, Edgar Bronfman Jr. led a group of investors to buy the label. He was coming off problems of his own. Having purchased MCA and PolyGram and created Universal Music in the late 1990s, the Seagram Co. heir sold Seagram's stock for $42 billion in shares in media giant Vivendi International in 2000. At the time, the head of Vivendi was Frenchman Jean-Marie Messier, who quickly ran the company into the ground. Bronfman's family fortune dropped from $6.5 billion to $3 billion, and he resigned as a Vivendi director. He tried and failed to buy Vivendi Universal, and failed to hang on to the company's US entertainment assets. But he recovered. "I remember my mother saying as I was a kid, 'It's not a question of being thrown from the horse-it's whether you get back on,'" Bronfman said in a 2007 interview. "And I think that's true in life as well. The question is, Are you going to climb up on another horse?"
Still enamored of the record business, Bronfman found a new horse. He put together a group of investors who bought Warner Music for $2.8 billion in 2004. As he'd done at Universal during better times, he assembled a halfway decent team-including Lyor Cohen, who had started out as Run-D.M.C.'s road manager and risen through the music industry to become head of Island Def Jam Records. Warner's new brain trust refashioned themselves as futurists, pushing employees at every level of the company to think digitally. At first, it almost worked-the Red Hot Chili Peppers gave fans a chance to preorder concert tickets after downloading their double-CD Stadium Arcadium Stadium Arcadium via iTunes in 2006, and stars from rockers Green Day to rapper T.I. created custom ringtones to go with their latest CDs. Bronfman also cut costs and took the company public, and its stock price initially went up. "Technology allows more people to get more music in more places than ever before-I just have no question in my mind that that bodes positively for the content businesses," Bronfman said. "I just think you take a snapshot of the business in 2000, and take a snapshot in 2010, you'll see a picture of a healthy business. In between, it's not so great." via iTunes in 2006, and stars from rockers Green Day to rapper T.I. created custom ringtones to go with their latest CDs. Bronfman also cut costs and took the company public, and its stock price initially went up. "Technology allows more people to get more music in more places than ever before-I just have no question in my mind that that bodes positively for the content businesses," Bronfman said. "I just think you take a snapshot of the business in 2000, and take a snapshot in 2010, you'll see a picture of a healthy business. In between, it's not so great."
"Not so great" is exactly how investors would describe some of Warner's business decisions after Bronfman bought the company. Warner wrote off $18 million in 2007 for an investment in Bulldog Entertainment Group, which put on $3,000-a-ticket summer concerts in the Hamptons by Billy Joel, Prince, Tom Petty, and others. The company also paid $73 million to buy hard-rock hitmaker Nickelback's independent label, Roadrunner Records, just to inherit the two or three albums the band had left on its contract-and watch the band sign with concert promoter Live Nation in mid-2008. Warner's stock dropped more than 50 percent in 2007, to a little more than $8 a share, and the company reported a $37 million loss in the second quarter of 2008. The label spent 2007 laying off 400 employees, including talented A&R people like Atlantic's Leigh Lust, who signed Jet and many other hit acts over the course of his seventeen-year career. "This industry is like George W. Bush getting elected to a third term," says Steve Gottlieb, president of independent label TVT Records, which broke Lil Jon and other hip-hop stars before succumbing to legal problems of its own in early 2008 and filing for Chapter 11 bankruptcy. "We can't undo past mistakes without the industry's current administration getting voted out." Yet Bronfman and other top Warner executives continue to pay themselves exceedingly well. Bronfman's earnings in fiscal year 2007 were $1 million in salary and $2.4 million in stock dividends; Lyor Cohen drew a $1.5 million salary, $1.5 million in bonuses, and almost $1.4 million in stock. These lavish salaries and bonuses may explain why the top executives at major labels have taken so long to develop a new business model.
FOR A LONG time, one major record label escaped the carnage: the Universal Music Group. time, one major record label escaped the carnage: the Universal Music Group.
The company's success began with Bronfman, who bought MCA and PolyGram and merged them into one superlabel in the late 1990s. He had no music business experience other than his own small songwriting successes, but he turned out to be good at finding executives to do the dirty work. He made two smart decisions right away.
The first was hiring chairman and chief executive officer Doug Morris, who had a lifelong track record of building hits, from writing the Chiffons' "Sweet Talkin' Guy" in 1966 to working with the Rolling Stones and Led Zeppelin as the head of Atlantic and Warner.
The second was buying Interscope, the hip-hop record label that flourished in the 1990s thanks to gangsta rap. Interscope was available to Bronfman because its previous owner, Warner Music, had certain image issues. In the wake of the Ice-T "Cop Killer" controversy, Time Warner shareholders railed that too much hip-hop was profane. C. DeLores Tucker, head of the National Political Congress of Black Women, made it a personal crusade to prevent Interscope's next album, Tha Dogg Pound's Dogg Food, Dogg Food, from coming out. (It was actually quite a tame album, by gangsta rap standards, although it did contain a song subtitled "Bitch Azz Niggaz.") Bob Dole, then a US senator and Republican presidential candidate, accused Time Warner of putting out musical "nightmares of depravity." Time Warner caved. It divested from Interscope. from coming out. (It was actually quite a tame album, by gangsta rap standards, although it did contain a song subtitled "Bitch Azz Niggaz.") Bob Dole, then a US senator and Republican presidential candidate, accused Time Warner of putting out musical "nightmares of depravity." Time Warner caved. It divested from Interscope.
That left Interscope on the free market, and Bronfman's company scooped it up. Bronfman got lucky. The head of Interscope was Jimmy Iovine. Born in Brooklyn, Iovine was the son of a longshoreman. He'd started his career in the music business at age nineteen, as a gofer in a Times Square studio-and was fortunate enough to befriend John Lennon early on. "If you bring somebody tea one hundred times and get it right each time, they get to like you," Iovine liked to say. He used his connections to get close to Jon Landau, Bruce Springsteen's well-connected manager. Iovine was a hardworking engineer for a demanding singer in the process of agonizing over his classic 1975 album Born to Run Born to Run. Iovine survived the experience and parlayed it into important studio gigs with U2, Tom Petty and the Heartbreakers, and Dire Straits. Iovine talked fast, tough, and funny. When members of Interscope band U2 told him one day the band wanted to make house music, he responded, "You don't want to make house music house music. You want to make music to buy a house with buy a house with."
In the 1980s, Iovine had befriended Ted Field, heir to the Marshall Field family, who had moved to Hollywood to open a film production company. With an initial stake of $15 million from Field, the pair founded Interscope Records in 1990. Two fortuitous events made Interscope a player: Marion "Suge" Knight founded Death Row Records, and he recruited Andre "Dr. Dre" Young from the Compton, California, gangsta rap group N.W.A. Knight was pure muscle. In order to release Dr. Dre from his contract with his old label, N.W.A. member Eric "Eazy-E" Wright's Ruthless Records, Knight and some friends allegedly showed up at the Ruthless offices with pipes and bats. (Knight has denied this.) Later, in September 1996, video cameras in a Las Vegas hotel lobby captured Knight and one of his artists, megastar rapper Tupac Shakur, beating a rival from another gang. (Shakur was not a gang member; Knight had been affiliated with a sect of the Bloods dating to his roots in Compton.) About two hours after the beating, in an incident that may or may not have been related, Shakur was shot and mortally wounded in the passenger seat of a BMW sedan. (Knight was driving.) Knight's assault, a parole violation, ultimately landed him in prison for five years.
In the early days of Interscope, nobody wanted to touch Knight's label, even though it was about to release a sure hit, Dre's solo debut The Chronic The Chronic. But Iovine entered into a distribution agreement with Death Row. Of course, Iovine himself never engaged in Suge Knight's questionable business practices, but there's no question he made a lot of money off them. "He did a deal with the devil," says a music business source. Ultimately, the Death RowInterscope connection gave Iovine a working relationship-and lifelong friendship-with Dr. Dre, who turned out to be a hip-hop production genius and talent scout extraordinaire. Thanks to Dre, Iovine signed Eminem, 50 Cent, G-Unit, and D12 to his Aftermath label, whose products were distributed by Interscope. By 2005, these artists had sold a combined 61.6 million albums in the United States.
Universal was the House That Dre Built, and it was a big house. In the post-iTunes era, when almost everybody else was reeling, the label became the hit machine Warner, Sony BMG, and EMI had once been and were unlikely to be again. Its market share hovered around 30 percent in the US, more than double that of its competitors-although Sony and BMG came close to catching up after the merger. "Many people say these [record] companies are a bunch of ugly ducklings," Doug Morris said in 2005, less than a year after his company released holiday season blockbusters by Eminem, U2, Gwen Stefani, and Shania Twain. "I don't feel that way. I feel our company is a Tiffany company."
Universal was the most obvious and widespread success in the post-iTunes era, but there were others. Fox's hit reality show American Idol American Idol was a starmaking machine, turning unknowns like Kelly Clarkson, Clay Aiken, Carrie Underwood, and Daughtry into CD-sales juggernauts for Clive Davis's J and Arista labels. Disney took a page from Lou Pearlman's book and created a new wave of teen pop superstars, building the was a starmaking machine, turning unknowns like Kelly Clarkson, Clay Aiken, Carrie Underwood, and Daughtry into CD-sales juggernauts for Clive Davis's J and Arista labels. Disney took a page from Lou Pearlman's book and created a new wave of teen pop superstars, building the High School Musical High School Musical soundtrack into 2006's best-selling CD and following up with recording stars such as Ashley Tisdale of soundtrack into 2006's best-selling CD and following up with recording stars such as Ashley Tisdale of High School Musical High School Musical, Miley Cyrus of Hannah Montana, Hannah Montana, and the Jonas Brothers. And it turned out the internet, despite its unfortunate tendency to enable worldwide piracy, was a pretty good marketing tool. YouTube and MySpace broke numerous artists, including OK Go, for EMI, and pop singer Colbie Caillat, for Universal. TV commercials-taboo for pop and rock musicians for years until Sting sat in a Jaguar in the late 1990s-started to pay off. Newer acts can make roughly $2,500 per TV or movie license, while veterans routinely pull in as much as $3,000 for TV shows, $100,000 for movies, and $25,000 for commercials. Video games from and the Jonas Brothers. And it turned out the internet, despite its unfortunate tendency to enable worldwide piracy, was a pretty good marketing tool. YouTube and MySpace broke numerous artists, including OK Go, for EMI, and pop singer Colbie Caillat, for Universal. TV commercials-taboo for pop and rock musicians for years until Sting sat in a Jaguar in the late 1990s-started to pay off. Newer acts can make roughly $2,500 per TV or movie license, while veterans routinely pull in as much as $3,000 for TV shows, $100,000 for movies, and $25,000 for commercials. Video games from Madden NFL Madden NFL to to Guitar Hero Guitar Hero generate the same kinds of paydays, with a promise of even greater exposure, since players can listen to these same songs a collective 1 billion times or more. generate the same kinds of paydays, with a promise of even greater exposure, since players can listen to these same songs a collective 1 billion times or more. Guitar Hero Guitar Hero and and Rock Band Rock Band sold a combined 14.8 million copies in 2008. Fans have paid two dollars each to download roughly 44 million songs, by artists from Aerosmith to Motley Crue, during the brief history of those games. Universal's partnership with Apple Computer led to publicity via iPod and iTunes ads and extra sales for U2, the Black Eyed Peas, and Mary J. Blige. sold a combined 14.8 million copies in 2008. Fans have paid two dollars each to download roughly 44 million songs, by artists from Aerosmith to Motley Crue, during the brief history of those games. Universal's partnership with Apple Computer led to publicity via iPod and iTunes ads and extra sales for U2, the Black Eyed Peas, and Mary J. Blige.
If these opportunities were good news during a dismal time, ringtones were extraordinarily good news. With cell phone users all around the world using customized snippets of music as fashion accessories, worldwide ringtone revenues jumped from $3.2 billion in 2004 to $4 billion in 2005, according to Juniper Research. Crazy Frog's "Axel F" hit No. 1 on the British music charts-as a ringtone.
But the malaise finally caught up to Universal. Eminem retired. Jay-Z retired. Then he came back, but without the same sales power. (Jay-Z stepped down in early 2008 from his post as president of Universal's Def Jam Records; according to the New York Times, New York Times, the label did not want to boost his previous salary, which had amounted to a total of $10 million.) Watching the the label did not want to boost his previous salary, which had amounted to a total of $10 million.) Watching the Billboard Billboard pop charts every week started to feel like counting the dead. An album thought to have smash-hit potential would make a strong first-week debut, then plunge the following week-such as Alicia Keys's pop charts every week started to feel like counting the dead. An album thought to have smash-hit potential would make a strong first-week debut, then plunge the following week-such as Alicia Keys's As I Am As I Am, which hit record stores before Thanksgiving 2007, sold 742,000 copies in its first week, then dropped by 53 percent the following week. And when there were no Alicia-level hits? Well, those weeks were just ugly.* In one week in January 2007, the In one week in January 2007, the Dreamgirls Dreamgirls soundtrack sold 66,000 copies, the lowest for a No. 1 album since SoundScan started keeping track of these things in 1991. For Universal, Christmas 2007 was a disaster. Expected hits from Eminem, the Pussycat Dolls' Nicole Scherzinger, and Mariah Carey (who by now had relocated from her postTommy Mottola label, EMI, to Antonio "LA" Reid's Island Def Jam) failed to materialize. soundtrack sold 66,000 copies, the lowest for a No. 1 album since SoundScan started keeping track of these things in 1991. For Universal, Christmas 2007 was a disaster. Expected hits from Eminem, the Pussycat Dolls' Nicole Scherzinger, and Mariah Carey (who by now had relocated from her postTommy Mottola label, EMI, to Antonio "LA" Reid's Island Def Jam) failed to materialize.
Labels began to drop their facade of sunny optimism. In a late 2007 conference call announcing that Warner Music Group's fourth-quarter profits had plunged an astonishing 58 percent, Bronfman declared it "a year of real challenge in the recorded music industry" and announced CD sales were rough and digital sales were slower than expected.
Universal laid off more employees after that. Island Def Jam Records fired a dozen or so people, including a onetime rock savant, A&R man Rob Stevenson, who had signed hit bands like Fall Out Boy and the Killers, which suffered through sophomore slumps during a critical business period in 2007. Geffen, Interscope, and Sony BMG followed with dozens more layoffs. And as of this writing, EMI was rumored to be hacking dozens more employees. "Going into a major record label is like you've just boarded a plane where the pilot is at 30,000 feet and announces you're going to be making a water landing. And everybody has their heads between their knees," says Jamie Kitman, manager of OK Go, which records for the EMI-owned label Capitol Records. "I mean, it's grim." From 2000 to 2007, the music business laid off 5,000 employees.
Many have adapted to this carnage. Simon Baeyertz lost his job as head of international affairs for V2 Records when the company restructured in 2007; today he and his wife are building El Blok, a 22-room hotel and bar in Vieques, an island off Puerto Rico. Robert Wieger was vice president of marketing for Atlantic Records until he was downsized in the AOL Time Warner merger in 2001; as door captain at the Bacara Resort & Spa, in Santa Barbara, California, he occasionally encounters hotel guests he used to work with, such as singer Barry Manilow. Barry Feldman, who used to oversee blues and jazz reissues at record labels from Verve to Columbia, perceived no future in the music business after the 2004 Sony-BMG merger and quit to become a full-time financial adviser.
Then there's Debbie Southwood-Smith, whose indoctrination into the record business began when she was a promotional secretary at MCA Records in the 1980s. She moved up the old-fashioned way-scouring dingy New York City nightclubs for the best talent, finding a few worthy candidates, and turning them into hits. One of them-Blessid Union of Souls, a Cincinnati rock band-caught on when its hit "I Believe" dominated radio playlists in the early 1990s. The success gave her a golden ticket for A&R jobs at major record labels. She was good at finding and nurturing bands, and over a twenty-year career with EMI, A&M, and Interscope, she worked with Uncle Tupelo, the Yeah Yeah Yeahs, Queens of the Stone Age, and Monster Magnet. She loved it, holding court at concerts in her spiky blond hairdos, Chuck Taylors poking out from underneath her dresses. It was what she was meant to do.
One of the last things Southwood-Smith did as an A&R executive at Interscope was sign TV on the Radio, a spacey, experimental, electronic rock band she was always convinced could turn into the next R.E.M. given time, resources, and patience. She never got to finish the project, though, because her boss, A&R executive Mark Williams, badgered her to meet with him one day in November 2005. When they finally sat down in her office, he closed the door and said, "We have to talk." She rolled her eyes and said, "Now what?" He laid her off. "Rock records aren't selling," he said, "so we're firing rock A&R people." By December 2007, Williams was gone, too. "I was a woman who could find, like, art art artists and make them commercially viable," Southwood-Smith says. "And there wasn't room for that too much anymore." artists and make them commercially viable," Southwood-Smith says. "And there wasn't room for that too much anymore."
So what do you do when you work for the record business and the record business collapses? "If you spent twenty years in the music business, like I did-I started as a kid, and I'm forty-four now-we're not trained in anything else. That's our skill set," she says. "But I'm lucky. I only have an English professor boyfriend, and we only have, like, cats and dogs."
Southwood-Smith enrolled at Fairleigh-Dickinson University to get her education degree and, in September 2008, was to become an English teacher at Ferris High School in Jersey City, New Jersey. It turns out even a forty-four-year-old woman can speak to teenagers if she has spent her adult life signing bands that appeal to teenagers. "Maybe something will come along in the entertainment field that will speak to me," she says. "But if that happens or not, I still need something to fall back on."
Big Music's Big Mistakes, Part 8Sony BMG's RootkitThe Bad Plus, a jazz trio that turns rock and pop hits like Nirvana's "Smells Like Teen Spirit" into bebop workouts, never planned to sign to a major record label. But when a Columbia Records scout caught a concert at the Village Vanguard in 2002 and offered a contract, the band went for it. At first, the deal went perfectly. The Bad Plus's Columbia debut sold 53,000 copies. The follow-up did a respectable 34,000. In 2005, the band released what it regarded as its best record, Suspicious Activity? Suspicious Activity?, and hit a very hard wall.That wall was called a rootkit, rootkit, a series of files that would infiltrate a computer's registry, the internal brain that allows Windows to operate a computer. A rootkit, according to a series of files that would infiltrate a computer's registry, the internal brain that allows Windows to operate a computer. A rootkit, according to Technology Review, Technology Review, is "software that tricks an operating system into overlooking worms, viruses, and any other files a hacker might want to conceal inside a user's computer." When rootkit files work successfully, they provide a passageway for outside hackers to install viruses and other malicious programs onto somebody else's system. To the shock of the Bad Plus-as well as other artists such as veteran singer-songwriters Neil Diamond and Burt Bacharach, Trey Anastasio of Phish, and Southern rockers Van Zant-Sony BMG released 4.7 million CDs containing rootkits between January and November 2005. Many of these problematic discs actually allowed malicious programs, like a Trojan horse called Troj/Stinx-E, to hide themselves on computers. But most computers merely slowed down, crashed, or wound up with unworkable CD drives. is "software that tricks an operating system into overlooking worms, viruses, and any other files a hacker might want to conceal inside a user's computer." When rootkit files work successfully, they provide a passageway for outside hackers to install viruses and other malicious programs onto somebody else's system. To the shock of the Bad Plus-as well as other artists such as veteran singer-songwriters Neil Diamond and Burt Bacharach, Trey Anastasio of Phish, and Southern rockers Van Zant-Sony BMG released 4.7 million CDs containing rootkits between January and November 2005. Many of these problematic discs actually allowed malicious programs, like a Trojan horse called Troj/Stinx-E, to hide themselves on computers. But most computers merely slowed down, crashed, or wound up with unworkable CD drives.How could Sony BMG have let this happen? The simple answer is that the label's high-tech executives wanted to limit illegal copying and online piracy. The newly merged label's tech executives had hired two companies, First 4 Internet and SunnComm, to install copy protection on fifty-two CD titles so consumers who tried to pirate them or make excessive copies would hit a speed bump. First 4 Internet, a British company, achieved this with a program called extended Copy Protection, or XCP. This was the heart of the issue: XCP installed the rootkit without informing users first.At first, when the CDs came out in record stores, few noticed the software's presence. But Mark Russinovich, a computer security expert in Austin, Texas, realized his computer was performing oddly, dug up the files from deep within the registry, and posted reports on his blog. Thanks to the tech-news website Slashdot, Sony BMG's use of rootkits quickly blew up in the company's face. Hundreds of consumers posted complaints on Amazon message boards, many of which reflected this sentiment from a Neil Diamond fan: "My sister and I will no longer buy any Sony products because of this blatant abuse of her trust. Neil, she's not buying any more of your music, either, unless you switch companies." Taken by surprise, Sony BMG's top executives handled the crucial early damage control exactly wrong. Thomas Hesse, president of the label's global digital business, said in a National Public Radio interview: "Most people, I think, don't even know what a rootkit is, so why should they care about it?" Because it damages our computers! Because it damages our computers! thousands of CD buyers must have said to themselves. This lack of empathy reinforced Napster-era beliefs that the music industry was more interested in suing and punishing its customers than catering to them. Sony BMG stars like the Dave Matthews Band and Foo Fighters rushed to decry the rootkit-infected CDs on their websites, and Johnny Van Zant and Switchfoot bassist Tim Foreman expressed their hurt and confusion in media interviews. thousands of CD buyers must have said to themselves. This lack of empathy reinforced Napster-era beliefs that the music industry was more interested in suing and punishing its customers than catering to them. Sony BMG stars like the Dave Matthews Band and Foo Fighters rushed to decry the rootkit-infected CDs on their websites, and Johnny Van Zant and Switchfoot bassist Tim Foreman expressed their hurt and confusion in media interviews.Eventually, Sony BMG backed off from Hesse's smug position, apologizing and issuing a patch for users to fix the problem. But the damage had been done. Music fans distanced themselves from the rootkit-infected titles, wreaking havoc on their sales figures. Neil Diamond's 12 Songs 12 Songs had made its debut on the pop charts at No. 4 the week before the rootkit story broke, and its sales never recovered. "It was the highest debut of Neil's career, off to a great start. But Columbia-it was some kind of corporate thing-had put spyware on the CD," the album's producer, Rick Rubin, who later became Columbia's president, told the had made its debut on the pop charts at No. 4 the week before the rootkit story broke, and its sales never recovered. "It was the highest debut of Neil's career, off to a great start. But Columbia-it was some kind of corporate thing-had put spyware on the CD," the album's producer, Rick Rubin, who later became Columbia's president, told the New York Times Magazine New York Times Magazine "We came out on a Tuesday, by the following week the CD was not available. Columbia released it again in a month, but we never recovered. Neil was furious." "We came out on a Tuesday, by the following week the CD was not available. Columbia released it again in a month, but we never recovered. Neil was furious.""It seemed to us that the record was just tainted on some basic level," adds Ethan Iverson, pianist for the Bad Plus, which has since left Columbia. "We expected some of the attention paid to our previous two releases to be paid to it and instead it just had this patent of evil to it. The record company didn't push it at all. How could they, really?"To really understand why Sony BMG allowed the rootkit debacle to happen, you have to understand the history of copy protection itself. Since Napster, major labels had spent countless amounts of money trying to prevent fans from bootlegging their CDs. "If you shed a tear for every dollar spent, you could fill the Pacific," says Talal Shamoon, head of a digital rights management company called Intertrust, which once worked closely with labels on copy protection. The labels' first few attempts were failures-a Celine Dion CD crashed in 2002 whenever fans tried to load it into their computer drives, and some hackers later claimed they could overcome a certain copy protection by drawing on the disc with a marker. So technologists on Sony BMG's staff felt pressured to do an even better job. "That's why the technology was used," says a source familiar with the situation. "Anything less than that could be defeated by a marker and the companies look stupid." When they hired the British company First 4 Internet, Sony BMG executives hadn't intended to go as far as rootkit, but they did want to use "something deep," according to the source. It's not clear exactly who at Sony BMG authorized the rootkit-and it's not clear whether First 4 Internet installed the hidden files on purpose. The company's job was simply to equip the CDs with copy protection. Security experts quoted in Technology Review Technology Review, however, insist the company's programmers had to have known what they were doing.Bill Whitmore, chief executive officer at SunnComm at the time, later said his company worked with new-media staffers at BMG (before its merger with Sony) to arrange a workable copy-protection technology called MediaMax. SunnComm, Whitmore argued, did thorough testing and due diligence, ensuring nothing would go wrong on consumers' computers once MediaMax came out. Then came the Sony-BMG merger, in 2004, and suddenly the two technology departments started competing with each other. In Whitmore's recollection, certain Sony employees, acting arrogant and competitive, rushed to make an alternative deal with First 4 Internet. Whitmore insisted that's what caused the problems, but his theory is somewhat disingenuous. While he was correct that the SunnComm CDs did not employ a rootkit, per se, MediaMax did install other potentially harmful software on users' computers even if they clicked "no" on a licensing agreement. These files, while not as damaging, behaved similarly to the rootkit, potentially allowing hackers to take over computers. Anyway, regardless of the differences between the two types of software, the rootkit fiasco lumped SunnComm and First 4 Internet together in the eyes of copy-protection opponents. "It took our revenue stream right out from under us and [made us susceptible] to the media barrage," Whitmore said. "We got sucked into this vortex."Whereas Whitmore laid the fault with Sony employees, a music industry source blamed BMG-side executives such as Thomas Hesse and thenchief operating officer Michael Smellie, who took the copy-protection issues out of the label's hands and executed them at the top, within the merged company's new Global Digital Business department. "When we found out the Neil Diamond record had rootkit technology and was being pulled out of stores, we were devastated and upset-and wanted to know who was responsible," added Steve Greenberg, then president of Sony BMG-owned Columbia Records. "It wasn't like we we did it." Neither Smellie nor Hesse responded to interview requests; Sony BMG spokespeople refused to comment, and First 4 Internet did not return calls or emails. did it." Neither Smellie nor Hesse responded to interview requests; Sony BMG spokespeople refused to comment, and First 4 Internet did not return calls or emails.Even Sony BMG insiders came to realize the rootkit aftershock was devastating to the company, and the industry at large. In the short term, Sony BMG recalled a total of 4.7 million CDs, costing the company $2 million to $4 million. In the long term, the company wound up settling fifteen class actions, costing the company another $50 million. And in the even longer term, CD copy protection, which had been a central part of major labels' digital strategies since before Napster, was suddenly dead, tainted with the stink of rootkit. "They don't do it anymore," Greenberg says. "I would actually point to that as the beginning of the mind-shift that led to the abandonment of digital rights management." At the very least, label execs stopped tossing dollars into the ocean of copy protection, and started thinking about how to profit from music with no copy protection. It was a good change, but much too late.
Chapter 7.
The Future How Can the Record Labels Return to the Boom Times? Hint: Not by Stonewalling New High-tech Models and Locking Up the Content THE REST of the record business thought Eric Nicoli was nuts. And maybe he was. Or maybe he just had nothing to lose. The chief executive officer of EMI Group, the seventy-six-year-old major label that was home to pop superstars from the Beatles to Radiohead, called an April 2, 2007, press conference at his company headquarters in London. Wearing an open-necked light-pink shirt tucked into his slacks, Nicoli sat in an atrium with Steve Jobs, chief executive officer of Apple Computer, at his side in his trademark black turtleneck and jeans. A British band, the Good, the Bad, and the Queen, performed two songs. Employees crowded onto glass balconies overlooking the stage. Nicoli then announced that after almost a decade of doing everything it could think of to lock up songs so consumers couldn't rip them into MP3s or trade them over the internet, the smallest of the four major labels would release most of its catalog online with no copyright protection whatsoever. These songs would be available via Jobs's iTunes Music Store at a slightly higher price-$1.29 rather than the standard 99 cents-allowing consumers to play them on a Microsoft Zune, Creative Labs Zen, or whatever instead of just an iPod. "In all of our research, consumers tell us overwhelmingly that they would be prepared to pay a higher price for a digital music file that they could use on any player," Nicoli declared. "It's clear to us that interoperability is important to music buyers and is the key to unlocking and energizing the digital business." of the record business thought Eric Nicoli was nuts. And maybe he was. Or maybe he just had nothing to lose. The chief executive officer of EMI Group, the seventy-six-year-old major label that was home to pop superstars from the Beatles to Radiohead, called an April 2, 2007, press conference at his company headquarters in London. Wearing an open-necked light-pink shirt tucked into his slacks, Nicoli sat in an atrium with Steve Jobs, chief executive officer of Apple Computer, at his side in his trademark black turtleneck and jeans. A British band, the Good, the Bad, and the Queen, performed two songs. Employees crowded onto glass balconies overlooking the stage. Nicoli then announced that after almost a decade of doing everything it could think of to lock up songs so consumers couldn't rip them into MP3s or trade them over the internet, the smallest of the four major labels would release most of its catalog online with no copyright protection whatsoever. These songs would be available via Jobs's iTunes Music Store at a slightly higher price-$1.29 rather than the standard 99 cents-allowing consumers to play them on a Microsoft Zune, Creative Labs Zen, or whatever instead of just an iPod. "In all of our research, consumers tell us overwhelmingly that they would be prepared to pay a higher price for a digital music file that they could use on any player," Nicoli declared. "It's clear to us that interoperability is important to music buyers and is the key to unlocking and energizing the digital business."
Nicoli, fifty-six at the time, had a reputation for shaking up major industries. He began his career as a physicist, then shifted to the food service industry in England in the early 1970s. As a twenty-six-year-old marketer for British confectioner Rowntree's, he noticed a niche in the chocolate marketplace and invented the Yorkie and the Lion Bar, both of which turned into best-sellers. But Nicoli was merely the figurehead for EMI's decision to sell MP3s. The person behind the scenes was Barney Wragg, who started his career booking Happy Mondays shows in Manchester, England, in the late 1980s. He worked for a while as an A&R man but shifted to a microprocessor company because the pay was better, and he wound up making music-business contacts at SDMI meetings. With this double-barreled background, he became a senior vice president for digital music at Universal Music in 2001.
For a time, Wragg bought into the record industry's conventional wisdom. He went along as the industry attempted to upgrade from the CD format to difficult-to-pirate, high-audio-quality SACD or DVD-Audio albums. When that didn't work, Wragg went along with digital rights management, the copyright protection allowing consumers to buy a song online but play it only on certain devices or stereos. Yet he watched helplessly as music fans, despite the industry's efforts to stop them, continued to rip CDs and download MP3s by the millions.
Wragg left Universal in 2005, spent a half year thinking and came up with this conclusion: "I realized that as an industry we'd kind of been smoking crack." Wragg was hardly the first in the business to think this way. After almost eight years of stonewalling MP3s and Napster, major label employees gradually accepted the fact that freely selling digital music was the blueprint for survival. EMI's decision to sell MP3s was a step in this direction-as would be Amazon's MP3 Store, MySpace Music, and the Radiohead model of giving away music online. But labels were still a long way from overcoming their outdated ideas. They clung stubbornly to long-held beliefs that selling millions of pieces of plastic would return them to massive profits.
With this in mind, in summer 2006, Wragg took a job as head of digital for EMI. Storied history aside, EMI had been struggling since 2001. That was the year Mariah Carey, who'd escaped Tommy Mottola and Sony Music and landed with EMI-owned Virgin Records, put out her catastrophic movie Glitter, Glitter, then withdrew from public view with what she called a nervous breakdown. Carey's antics shell-shocked Virgin to the extent that the label handed her $28 million just to leave. Not only that, one of the label's most promising artists, R&B and movie star Aaliyah, died in a plane crash, taking with her several label executives who'd been her traveling companions. More than any other label, EMI seemed bedeviled by piracy and the lack of a profitable internet business model. then withdrew from public view with what she called a nervous breakdown. Carey's antics shell-shocked Virgin to the extent that the label handed her $28 million just to leave. Not only that, one of the label's most promising artists, R&B and movie star Aaliyah, died in a plane crash, taking with her several label executives who'd been her traveling companions. More than any other label, EMI seemed bedeviled by piracy and the lack of a profitable internet business model.
But unlike at Universal, EMI's executive staff was small and nimble enough to change its long-standing digital-music policies. Wragg went to work. He did research and conducted studies about consumers' preferences, started a partnership with Apple and spoke regularly with Steve Jobs and iTunes executive Eddy Cue, made deals with digital retailers, and finally presented his plan to EMI's board. The board quickly agreed.
EMI's big announcement may not have seemed like much to fans of online music. What was the big deal? Napster had taught an entire generation of kids to rip the digital music from their totally unprotected compact discs and swap the resulting MP3s for free online. But within the record industry, EMI's decision was like dropping a bomb. Until that point, the most forward-thinking top record executive had been Edgar Bronfman Jr. of Warner Music, and his speeches at the time were filled with phrases like "there is no logical reason to abandon DRM," or digital rights management. If the movie industry could protect DVDs from sailing willy-nilly over the internet, so, then, could the record labels, Bronfman argued. Many of his colleagues privately agreed. "In a moment of desperation, [EMI] enabled the eight-hundred-pound gorilla that really didn't need enabling," declared a source at another major label.
In fact, the results of the MP3 decision weren't very impressive. EMI's digital album sales went up less than 1 percent from 2006 to 2007, according to Nielsen SoundScan, and its digital song sales dropped by roughly the same amount. Industry-wide, digital sales rose 46 percent in 2007, a big jump, but not if you consider they went up 65 percent the previous year. Less than four months after Eric Nicoli's big announcement, the British equity firm Terra Firma bought EMI for almost $5 billion. Nicoli was out, accepting a buyout package of almost $6 million. Terra Firma's Guy Hands, a specialist in buying failing companies and turning them around, was in. After he took over, Hands circulated a memo to investors accusing Nicoli of being the most flamboyant kind of old-school record executive. According to the memo, while Nicoli headed the company, he spent almost $12 million on a rarely used three-bedroom townhouse in Park Lane, London, as well as some $40,000 supplying his Los Angeles apartment with candles and flowers. The memo accused Nicoli of spending $400,000 annually on flowers and fruit for the company's London headquarters and said his management cost EMI roughly $200 million a year. (Both before and after he left, Nicoli refused requests for interviews.) Wragg was out, too, leaving the company in 2008 for reasons he wouldn't divulge.
Then a weird thing happened. The rest of the major labels joined joined EMI in doing the same thing they swore they would never do. Steve Jobs was responsible for their decision. EMI in doing the same thing they swore they would never do. Steve Jobs was responsible for their decision.
In early 2007, Apple controlled 70 percent of the digital music market through the iTunes Music Store. Jobs was still irritated, though, that labels had forced him into a digital rights management scheme when he'd made his first content deals five years earlier. What he didn't didn't say was that FairPlay-the copy protection that comes embedded in iTunes digital downloads, preventing users from playing their music on more than five computers and so forth-benefited Apple far more than it benefited the labels. It had the effect of locking iTunes customers into iPod portable music players; thanks to FairPlay, somebody who bought a Microsoft Zune or a Creative Labs Zen couldn't buy or store music on iTunes and transfer it to the foreign player. European regulators complained that Jobs was using this scheme to corner the digital music market unfairly. Jobs responded by blaming the labels. He posted an 1,800-word manifesto on apple.com, arguing for a music world free of DRM. "The music industry might experience an influx of new companies willing to invest in innovative new stores and players," Jobs wrote. "This can only be seen as a positive by the music companies." say was that FairPlay-the copy protection that comes embedded in iTunes digital downloads, preventing users from playing their music on more than five computers and so forth-benefited Apple far more than it benefited the labels. It had the effect of locking iTunes customers into iPod portable music players; thanks to FairPlay, somebody who bought a Microsoft Zune or a Creative Labs Zen couldn't buy or store music on iTunes and transfer it to the foreign player. European regulators complained that Jobs was using this scheme to corner the digital music market unfairly. Jobs responded by blaming the labels. He posted an 1,800-word manifesto on apple.com, arguing for a music world free of DRM. "The music industry might experience an influx of new companies willing to invest in innovative new stores and players," Jobs wrote. "This can only be seen as a positive by the music companies."
It took a while, but ultimately the labels took Jobs's advice and used it to create competition for iTunes. Jobs was rigid about certain things-99 cents for a single, no sales of songs bundled together-but he could get away with that only if he controlled the market. Labels wanted competing stores, like Amazon, to take some of Jobs's control away. Then they would have the clout, perhaps, to raise online prices or sell songs as bundles. In this spirit, Universal Music made a huge swath of its catalog, from U2 to Eminem to Motown, available with no digital rights management. When Universal's contract expired with iTunes, the company reupped, but only on a month-to-month basis. By summer 2007, the executives threw their support behind Amazon's new MP3 Store. Warner Music was next, announcing in late December 2007 that it would reverse course on DRM and make its entire catalog available, too, via Amazon. Within a few weeks, Sony BMG realized it had no choice and sent its catalog to the online bookseller as well. Suddenly, Amazon was in the digital music game, offering a one-of-a-kind retail experience-a store where 3 million MP3s, for 79 to 99 cents each, supplemented through-the-mail CD sales. And it had all the big names, from 50 Cent to Madonna. "My instinct is it will beef up the digital sales pretty significantly. I've used it a hell of a lot," says Ian Rogers, general manager of Yahoo! Music until he stepped down in early 2008. "I bought eight Zeppelin albums over the weekend and it took no time at all to drop eighty bucks. It just hasn't been that easy in the past. You have to ask yourself for the first time: 'Do I want to buy it or do I want to steal it?'"
Rogers is no fan of the iTunes Music Store, which he dismisses as a "spreadsheet that plays music." But Amazon's MP3 Store has given him newfound optimism, not just for the selling of digital music but also for a shift in long-standing major label behavior. "All the stuff we've been saying is going to happen, the last ten years, now is finally happening," he says. "The record companies are all realizing they're not in the CD business anymore. The fact that that's not a controversial thing for me to say anymore is incredible."
In June 2008, Rhapsody, the subscription service, also began selling MP3. Surreally, for high-tech experts who've been dealing with executives at major labels since Napster, the response they started getting in 2007 was no longer a simple, polite "No."
The overwhelming mantra at major labels has become digital. digital. "Digital isn't the future-it's today. And we're evolving very quickly because of it," said Tom Corson, general manager and executive vice president of the RCA Music Group, which puts out music by Alicia Keys, Christina Aguilera, and others. "People became very fluent in digital. As the industry contracted and the digital business grew, you have a situation where you're either a digital person or you're gone, on some level." As a result, when BMG released Keys's hit album "Digital isn't the future-it's today. And we're evolving very quickly because of it," said Tom Corson, general manager and executive vice president of the RCA Music Group, which puts out music by Alicia Keys, Christina Aguilera, and others. "People became very fluent in digital. As the industry contracted and the digital business grew, you have a situation where you're either a digital person or you're gone, on some level." As a result, when BMG released Keys's hit album As I Am As I Am in late 2007, it wasn't solely in the CD format-there were digital singles and albums for iTunes and Rhapsody, 30-second snippets for mobile phone ringtones, shorter snippets for ringbacks, images for background "wallpaper" on phone screens, and certain digital video tracks distributed both for free on YouTube and MySpace and for sale via iTunes. As of July 2008, in late 2007, it wasn't solely in the CD format-there were digital singles and albums for iTunes and Rhapsody, 30-second snippets for mobile phone ringtones, shorter snippets for ringbacks, images for background "wallpaper" on phone screens, and certain digital video tracks distributed both for free on YouTube and MySpace and for sale via iTunes. As of July 2008, As I Am As I Am had rebounded from its poor second week and sold more than 3.5 million copies (CDs and digital albums combined). had rebounded from its poor second week and sold more than 3.5 million copies (CDs and digital albums combined).
Warner's Bronfman, ever the optimist, gave frequent speeches playing up these new revenue streams. He sees huge potential for ringtone sales in underdeveloped markets like South Korea and Malaysia. He envisions a massive business in which music fans download entire songs, not just ringtones, onto iPhones, LG Shines, Samsung Juke U470s, or Nokia N81 Blues. In December 2007, Nokia announced an extraordinary partnership with Universal Music, something that would have been unthinkable just a year or two before. Subscribers to the cell phone carrier's "Comes with Music" program outside the US were to be able to download all the music they wanted, via certain types of mobile phones, for a year, beginning sometime in late 2008. (Sony BMG and Warner later joined Nokia's program.) The music would come with digital rights management, meaning it would be extremely difficult for users to transfer songs from their phones to an iPod or other device-or burn the music to a blank CD. But it's still a forward-thinking idea for a major label that had spent the past decade with extreme allergies to free online music.
For record labels, mobile music is a far less dangerous animal than online music. It's difficult, if not impossible, to hack a cell phone and liberate the copyrighted music inside for anyone to share. As a result, executives at record labels have become accustomed to big, easy profits from stuff people buy through their cell phones. At first, in the late 1990s, ringtones were a profit center exclusively for the song-publishing industry, which received a royalty every time a cell phone user bought one of those tinny-sounding, computerized tones. The major labels, which own most of the master recordings for familiar hit records, plunged into the market in the early 2000s. This was when the technology advanced to "real tones," or high-fidelity snippets of actual recordings. Over the last five or six years, labels' A&R departments have participated far more heavily in creating tones out of their song catalogs. This market initially seemed limitless. Ringtone revenues jumped from $68 million in 2003 to $600 million in 2006, according to BMI. "We see no sign of it slowing down right now, that's for sure," Rio Caraeff, vice president of Universal's US mobile division, said in late 2006. "The bottom line is the business is exploding day upon day, week upon week."
Thus, labels have spent the last few years sending their biggest artists into the studio to make generous side dishes of ringtones to go with what is still the main course-the compact disc. Green Day was among the first to make ringtones while working on its 2004 CD, American Idiot. American Idiot. 50 Cent, Paul Wall, and Pretty Ricky soon followed, with Mariah Carey and Mary J. Blige creating original ringtones as part of a 2006 Pepsi-Motorola promotion. Hip-hop has been especially ripe for ringtone exposure-Dem Franchize Boyz, Soulja Boy, and Hurricane Chris even co-opt tiny, ringtone-style hooks into their musical styles. Black Eyed Peas' "My Humps" has sold more than 2 million ringtones, helping the hip-hop band's 50 Cent, Paul Wall, and Pretty Ricky soon followed, with Mariah Carey and Mary J. Blige creating original ringtones as part of a 2006 Pepsi-Motorola promotion. Hip-hop has been especially ripe for ringtone exposure-Dem Franchize Boyz, Soulja Boy, and Hurricane Chris even co-opt tiny, ringtone-style hooks into their musical styles. Black Eyed Peas' "My Humps" has sold more than 2 million ringtones, helping the hip-hop band's Monkey Business Monkey Business CD reach 6.5 million copies; Dem Franchize Boyz started putting out tones in July 2006, selling 1.5 million not long before their CD CD reach 6.5 million copies; Dem Franchize Boyz started putting out tones in July 2006, selling 1.5 million not long before their CD On Top of Our Game On Top of Our Game debuted on the debuted on the Billboard Billboard charts at No. 5. The Zomba Record Group sold 2.3 million copies of R&B singer and rapper T-Pain's "Buy U A Drank" in 2007; the resulting publicity and cross-marketing helped his CD debut at No. 1 on the charts that year. Even longtime ringtone holdouts such as AC/DC, Led Zeppelin, and the Dave Matthews Band finally agreed to put out their music in this format in late 2007. charts at No. 5. The Zomba Record Group sold 2.3 million copies of R&B singer and rapper T-Pain's "Buy U A Drank" in 2007; the resulting publicity and cross-marketing helped his CD debut at No. 1 on the charts that year. Even longtime ringtone holdouts such as AC/DC, Led Zeppelin, and the Dave Matthews Band finally agreed to put out their music in this format in late 2007.
"You're doing it for the person who's in the mall and their phone rings. You have to be conscious about how to translate to a phone and how it translates to a melody in a clear way," says will.i.am, producer and frontman for Black Eyed Peas. "It's a new way for people to listen to music and appreciate it. It's another way for people to hear it."
Warner's Bronfman and others believe ringtones are one primary reason major labels will ultimately turn their business around. Ringtone sales are especially strong outside the United States, in countries such as South Korea, where Warner created a joint venture with the country's primary telecom service, SK Telecom, in 2006. One of the first celebrity guinea pigs for this experiment was South Korean pop star Baek Ji Young, who put out 416 separate digital products, from ringtones to album art. In countries like China, where the government ignores US copyright laws and looks the other way when people and companies engage in bootlegging and piracy, labels see potential for a huge expansion in the piracy-resistant ringtone market. And in countries like Brazil, where far more people use mobile phones than personal computers, labels see potential for selling even more ringtones. Puerto Rican pop star Ricky Martin took advantage of this market in early 2007 when his label, Sony BMG, offered his album for sale via memory card loaded onto a mobile phone just before he performed at sold-out stadiums throughout Latin America. Juanes offered his latest album, La Vida Es...Un Ratico La Vida Es...Un Ratico, a similar way, selling 6 million digital tracks (including ringtones and digital singles) the week before the official release hit stores. "It is a huge, huge, huge piece of the business and it's growing rapidly," says an industry source. "Any executive watching their stock and what they're selling is going to be completely all over this stuff."
But the explosive ringtone market carries the disturbing whiff of fad. Studies from Jupiter Research and M:Metrics indicate monthly purchases are down in both the US and Europe, and huge ringtone companies such as Berlin's Jamba and Paris's Musiwave have diversified into video games and graphics. "It doesn't seem like anything that's going to have a long-term sustained growth," says Peter Paterno, attorney for Metallica and Dr. Dre. "I mean, what's wrong with a [traditional] ring?" The idea of buying a 30-second snippet of a song for $2.99 when the entire song is available on iTunes for 99 cents has appealed to mobile-phone enthusiasts since roughly 2003. Can it last? "People say, 'Ringtones are fashion,'" says Mark Donovan, a senior analyst for M:Metrics. "That makes some sense, but it's not clear it will carry [record labels] into the future." Another big problem: Services like XingTone, which allow music fans to fashion their own tones out of digital songs rather than buying readymade ones, are getting easier and easier to use.
So why sell just snippets of songs over the phone? Why not sell the whole song? The iPhone was a blockbuster hit throughout 2007 and 2008, even though its music-playing capabilities weren't nearly as impressive as those of the iPod. In addition, Nokia and Sony Ericsson announced they would open mobile-music stores in 2008. Moreover, several phone devices have emerged on the market that sync with internet radio stations, and subscription services such as Napster and Rhapsody are available via mobile as well. Some in the music industry salivate over such massive potential-why even put up with Steve Jobs and his iThings when a record label can shift its mobile-music market to some of the 991 million portable phones sold worldwide in 2006? But much of this remains theoretical. "I don't think the research indicates, at least that I've seen, that people are using their mobile phones the way they're using their iPods or other music devices," says a major label source. "The number of mobile phones may greatly outweigh the number of iPods-but consumers may not care." This source adds that cell phones could conceivably take over the music market from the iPod, but labels and high-tech companies need to work out some thorny issues first-like the fact that an internet download sells for 99 cents while a full mobile song goes for $2 or $3. There's also the issue of changing consumer behavior-people like like their iTunes libraries. Why would they switch to a model where they'd have to buy new songs on the phone? For now, labels focus on ringtones, and new ideas like embedding music into wireless games. their iTunes libraries. Why would they switch to a model where they'd have to buy new songs on the phone? For now, labels focus on ringtones, and new ideas like embedding music into wireless games.
Here's another industry-saving sales model, at least according to people in the industry: subscriptions. But subscriptions aren't exactly a new idea. Rhapsody, Yahoo! Music, and others have for years offered some version of this type of service whereby music fans pay a monthly fee of anywhere from $9 to $16 for an unlimited number of songs, and pretty much anything they could ever want would be available. "It's mind-blowing-I'm listening to music constantly," Rick Rubin, the veteran producer who took over as Columbia Records president in early 2007, told Rolling Stone. Rolling Stone. (The article also included endorsements from U2 manager Paul McGuinness and Lollapalooza cofounder Marc Geiger.) "I had been talking about the subscription model based on theory, and now I will tell you that in practice it is even better." Rubin said he favored Rhapsody, which cost between $13 and $15 for a catalog of 4.5 million songs, as well as the Sonos service, which streamed music through speakers scattered throughout the house. "If you're a massive music fan, the 99-cent-per-song thing doesn't work, because it creates this barrier to discovery: 'Well, I might like that artist, but I'm going to have to pay 99 cents,'" added Ted Cohen, the influential former high-tech executive at EMI. "Whereas I'm a massive fan of Rhapsody and I think there'll be a better version: I want to hear Todd Rundgren (The article also included endorsements from U2 manager Paul McGuinness and Lollapalooza cofounder Marc Geiger.) "I had been talking about the subscription model based on theory, and now I will tell you that in practice it is even better." Rubin said he favored Rhapsody, which cost between $13 and $15 for a catalog of 4.5 million songs, as well as the Sonos service, which streamed music through speakers scattered throughout the house. "If you're a massive music fan, the 99-cent-per-song thing doesn't work, because it creates this barrier to discovery: 'Well, I might like that artist, but I'm going to have to pay 99 cents,'" added Ted Cohen, the influential former high-tech executive at EMI. "Whereas I'm a massive fan of Rhapsody and I think there'll be a better version: I want to hear Todd Rundgren right now, right now, I type in 'Todd Rundgren,' and get it I type in 'Todd Rundgren,' and get it right now right now. And based on that, it throws the New Radicals at me. It's about recommendations and filters and playlists and music being presented to me for my enjoyment continually. It's really about overserving me with music that I like." Universal is betting high on the idea; in late 2007, the company floated Total Music, a subscription plan in which the label would license music to other services and compete with Apple and iTunes. Universal executives were hoping to get hardware companies and cell phone carriers to absorb the cost of a $5 subscription, so customers wouldn't have to deal with the increase. Nokia's Comes with Music phones were to be part of this program, although neither Universal nor Nokia spokespeople would comment on the terms of the deal.
The catch: Subscription services, as they stand, are rental models. You can listen to the stuff you buy on certain cell phones or portable players, like Microsoft's Zune, but you can't transfer it to your permanent collection. That's a big hurdle for consumers, especially the old folks who grew up actually buying LPs and CDs in stores. Another huge minus is that Jobs has never been a fan, which means there's no subscription model that works on the iPod.*
The subscription service Rhapsody is Exhibit A in The Long Tail The Long Tail, the best-selling 2006 book by Wired Wired editor-in-chief Chris Anderson. In the book, Anderson envisions a snake-shaped vision of the market, with the "short head" containing editor-in-chief Chris Anderson. In the book, Anderson envisions a snake-shaped vision of the market, with the "short head" containing Thriller Thriller or the latest smash Justin Timberlake album. The long tail contains endless obscurities, serving every possible subculture and obsessive interest. Anderson outlines what will almost certainly be a profitable model for selling and marketing songs and records. But it's not what the record industry wants to hear. "I passed out twenty copies of Chris's book," said Erin Yasgar, who, when or the latest smash Justin Timberlake album. The long tail contains endless obscurities, serving every possible subculture and obsessive interest. Anderson outlines what will almost certainly be a profitable model for selling and marketing songs and records. But it's not what the record industry wants to hear. "I passed out twenty copies of Chris's book," said Erin Yasgar, who, when The Long Tail The Long Tail came out, was head of new media for Universal-owned Interscope Records. "Some of the people read it and said, 'That's not us. That's not our model.'" came out, was head of new media for Universal-owned Interscope Records. "Some of the people read it and said, 'That's not us. That's not our model.'"
Rather than clinging to Thriller Thriller-style hits beloved by everyone, Anderson suggested, the record industry ought to embrace a new idea: Music companies should profit by selling millions of small, niche items. In the digital world, huge hits, chained as they are to dwindling physical shelf space in stores like Wal-Mart, would become less important. Meanwhile, online services such as Rhapsody, Netflix, and Amazon carry countless millions of titles, all profitable with low-cost distribution.
Terry McBride, manager of Canadian stars Barenaked Ladies, Sarah McLachlan, and Avril Lavigne, has high hopes for this vision of the future. Digital sales, he insisted, are potentially far more profitable than CDs ever were. They carry almost no overhead expenses in warehouses, crates, or record stores; McBride predicted that once record labels allow their prices to drop even farther, to something like 25 cents, there will be another music business boom. "You want to take a record label profitable quickly? Don't sign any new artists. Just sell the catalog. You will be instantly profitable," he says. "Now it's much easier for someone to find something they basically want. It's not like the old days, where you had to talk to the person behind the counter at Tower with a Mohawk and you wanted to find a jazz album."
Five years ago, according to McBride, almost all the executives at major record labels refused to listen to such evil talk. Their goal was to protect the old model-what The Long Tail The Long Tail's Anderson calls "the tyranny of geography," in which consumers have access only to the limited shelf space within a few miles of their homes. In that economic model, a CD that costs $15 in a physical record store makes a nice profit. A digital track for 99 cents, whether it's by Timberlake or the late R&B singer and sax man Eddie "Clean Head" Vinson, does not. Napster could have been a perfect case study of Anderson's Long Tail Long Tail model. Had the labels taken over this kind of service, charging music fans $20 a month for, say, a maximum of 200 tracks, they could have owned the long-tail music model. Sure, fans would have purchased all the Led Zeppelin and Beyonce tracks they could find in their first few months, but within ten years, they would have dug down to the deepest corners of the major labels' most obscure catalog items. And, the theory goes, they would continue to find music to buy for all eternity. model. Had the labels taken over this kind of service, charging music fans $20 a month for, say, a maximum of 200 tracks, they could have owned the long-tail music model. Sure, fans would have purchased all the Led Zeppelin and Beyonce tracks they could find in their first few months, but within ten years, they would have dug down to the deepest corners of the major labels' most obscure catalog items. And, the theory goes, they would continue to find music to buy for all eternity.
Rhapsody offers this kind of Long Tail Long Tail promise-a user can stream an unlimited number from a pool of 2.5 million songs. But according to consumer research firm NPD in 2007, Rhapsody-style subscription services attract just 2.5 percent of music consumers. By comparison, iTunes's own-the-song model is at 17 percent. So far, at least, music fans still want to promise-a user can stream an unlimited number from a pool of 2.5 million songs. But according to consumer research firm NPD in 2007, Rhapsody-style subscription services attract just 2.5 percent of music consumers. By comparison, iTunes's own-the-song model is at 17 percent. So far, at least, music fans still want to collect collect music. That could change, as kids who grew up with hard drives stuffed with songs rather than shelves of records or CDs in their bedrooms start to dominate the marketplace. When that happens, many say, the record industry better be prepared for the shift. "It's getting better," McBride says. "Some of the senior execs get it, but some of the people who hold power within the corporation don't. They're still fighting it." music. That could change, as kids who grew up with hard drives stuffed with songs rather than shelves of records or CDs in their bedrooms start to dominate the marketplace. When that happens, many say, the record industry better be prepared for the shift. "It's getting better," McBride says. "Some of the senior execs get it, but some of the people who hold power within the corporation don't. They're still fighting it."
Today's version of a Napster-style ownership model, as opposed to a Rhapsody-style rental model, is BitTorrent, a peer-to-peer file-sharing service invented by reclusive Manhattan-born programmer Bram Cohen. His innovation was allowing users to share tiny pieces of music or movie files, which come together as a whole at the end of the download process. It's therefore more efficient and harder to track-and BitTorrent has grown into one of the most popular peer-to-peer services. But a strange thing happened with BitTorrent. Unlike Napster or Kazaa, it didn't receive legal summonses from major record labels or Hollywood studios. Instead, in early 2007, several big movie companies made a deal with BitTorrent to release their films online as a promotional tool. Ashwin Navin, a former Yahoo! executive who hooked up with Cohen to be a deal maker and media-friendly company spokesperson, then went to the labels to do the same with music. The answer was a 1999-style "No." "The music companies were just paralyzed. No one inside these companies was able to make distinctions between good and bad technology," Navin says. "We had one record label tell us, after probably a year of being at their doorstep, they had to wait for the courts to decide on the precedent of another peer-to-peer company before they could engage with us. They were very heavily dependent on litigation, rather than making decisions on their businesses that would allow them to thrive."
By early 2008, the death of the old music business model was almost impossible to miss. When the Nielsen SoundScan sales figures came out for 2007, almost every major number had dropped dramatically, but digital sales were a notable exception to that trend. The top album, Josh Groban's Noel Noel, sold just 3,699,000 CDs, about 20,000 fewer than the previous year's best-seller, the High School Musical 2 High School Musical 2 soundtrack. Album sales (including CDs and digital albums) were down 15 percent, with steep declines in every genre, from hip-hop to rock to alternative. And that was just the beginning. Tower Records is dead. Some 2,700 music retailers have closed since 2003. Best Buy and Wal-Mart are drastically reducing music shelf space. Virgin Megastore closed its outlet in West Hollywood, California, reducing its number of US stores to just ten. "We're trying to reposition the business," Simon Wright, the chain's chief executive officer in North America, told the Associated Press in late 2007, "and a lot of our stores are too big for the future, primarily due to the drop in music sales." soundtrack. Album sales (including CDs and digital albums) were down 15 percent, with steep declines in every genre, from hip-hop to rock to alternative. And that was just the beginning. Tower Records is dead. Some 2,700 music retailers have closed since 2003. Best Buy and Wal-Mart are drastically reducing music shelf space. Virgin Megastore closed its outlet in West Hollywood, California, reducing its number of US stores to just ten. "We're trying to reposition the business," Simon Wright, the chain's chief executive officer in North America, told the Associated Press in late 2007, "and a lot of our stores are too big for the future, primarily due to the drop in music sales."
Radio's future isn't quite as dire as that of record stores, but it's getting there. In the old days-with the help of independent promoters, of course-major labels could count on help from radio programmers to break a range of new artists and use the exposure to sell millions of records. But from fall 1998 to summer 2007, the average number of people listening to US radio has dropped by more than 18 percent, according to Arbitron, with especially precipitous declines in rock formats. Old-school label executives see this trend as crippling for any future model-especially one revolving around low-profit iTunes singles rather than CDs. "It's going to be difficult to make a lot of money off a singles market. You usually record a lot [of music] to get that single-what you usually record for an album. There are ten or nine cuts you paid for," says retired executive Joe Smith, who began his career accepting payola as a DJ in the 1950s before joining the record business and rising to the top of Warner, Elektra, and EMI.
In the end, digital revenue streams and pie-in-the-sky high-tech ideas are unlikely to bring the industry back to its CD-based profit margins of a decade ago. So in 2007, desperate label executives began talking about something called a 360-degree deal 360-degree deal. In this new contractual mode,* rather than just putting out an artist's CD, a label would partner with the artist and take a cut of touring, merchandise, publishing, and maybe even something like a perfume company, if the artist happens to be Gwen Stefani or Madonna. One of the first guinea pigs for this newfangled type of record deal was Paramore. When the emo-pop band from Franklin, Tennessee, was ready to sign a big-time contract with Atlantic Records in 2005, Paramore had two choices. It could make like just about every other band in the world and share a portion of CD sales with the label, while keeping the profits from concert tickets, tour sponsorship, T-shirt sales, and song publishing purely for itself. Or the band could share everything with Atlantic, so even if CD sales continued to drop, the label would still make money off the band-and still have an incentive to push its singles to radio stations and shell out marketing money. Paramore signed the second kind of deal with Atlantic as well as its longtime partner, Fueled by Ramen, an innovative independent label that sets up successful online merchandise stores and other profitable ventures for its acts. "You have to sacrifice to get somewhere. You have to give up pieces of something to get back something from your work," says singer Hayley Williams. "We've been lucky. It really does feel like a great partnership." In the two and a half years after the band signed its 360-degree deal, Paramore grew into one of the hottest young rock bands in America, playing the Warped main stage in summer 2007, getting MTV airplay at a time when MTV barely ever plays videos, and selling more than 350,000 copies of its rather than just putting out an artist's CD, a label would partner with the artist and take a cut of touring, merchandise, publishing, and maybe even something like a perfume company, if the artist happens to be Gwen Stefani or Madonna. One of the first guinea pigs for this newfangled type of record deal was Paramore. When the emo-pop band from Franklin, Tennessee, was ready to sign a big-time contract with Atlantic Records in 2005, Paramore had two choices. It could make like just about every other band in the world and share a portion of CD sales with the label, while keeping the profits from concert tickets, tour sponsorship, T-shirt sales, and song publishing purely for itself. Or the band could share everything with Atlantic, so even if CD sales continued to drop, the label would still make money off the band-and still have an incentive to push its singles to radio stations and shell out marketing money. Paramore signed the second kind of deal with Atlantic as well as its longtime partner, Fueled by Ramen, an innovative independent label that sets up successful online merchandise stores and other profitable ventures for its acts. "You have to sacrifice to get somewhere. You have to give up pieces of something to get back something from your work," says singer Hayley Williams. "We've been lucky. It really does feel like a great partnership." In the two and a half years after the band signed its 360-degree deal, Paramore grew into one of the hottest young rock bands in America, playing the Warped main stage in summer 2007, getting MTV airplay at a time when MTV barely ever plays videos, and selling more than 350,000 copies of its Riot! Riot! CD. CD.
Lawyers for major labels were thrilled about this new development. They rewrote standard contracts to take a piece of these revenue streams. "Say I was considering being the sole investor in a new Italian restaurant being opened by a talented chef," says Steve Greenberg, a former Columbia Records president who today runs Fountains of Wayne's label, S-Curve Records. "And suppose the chef told me that in exchange for putting up all the money and doing all the work marketing the restaurant, he'd share with me the revenue from pizza sales-but not the revenue from sales of pasta, meat, fish, beverages, or anything else on the menu. I can't imagine anyone investing under those terms."
Some artists plunged into 360-degree deals-young bands like Cartel, Cinder Road, American Bang, and Operator figured it was their best shot to make it while major labels still had the clout to influence big-time radio stations and retail stores. "It gives the label more incentive to work hard," says Chris Black, manager of Cartel, which signed with Epic Records. "It gives you that peace of mind to know the label's behind you for financial reasons." Bigger stars started to take this approach as well, only they had more leverage for bigger advances-in 2005, metal stars Korn partnered with EMI and, later, the concert promotion company Live Nation-and received a $25 million payment for a 30 percent stake in all profits. Some in the music business are absolutely convinced this model will float the major record labels for the foreseeable future. "They're going to have to use 360 deals to maintain their status," says Chris Lighty, a longtime hip-hop manager who represents superstars such as 50 Cent, Missy Elliott, and Busta Rhymes. Lighty predicts that, as ever, the record label will be a base for which major music stars will build their brands, using sponsorship deals and appearances in movies and commercials to keep making the big money. To make it in the music business, Lighty says, "You have to have the mind of a record company, the heart of a manager, and almost the soul of an advertiser. It can't just be 'I'm a record man, through and through.' The days of just being a record man aren't putting food on the table."
But the 360-degree model rests on the idea that artists and labels trust each other in a broad, revenue-sharing partnership. And after years of the labels taking mysterious packaged-goods deductions from artists' CD sales and abandoning promising acts that don't make it after the first or second album, artists and their managers are a wee bit mistrustful. The most suspicious ones, such as singer-songwriter Aimee Mann, who has complained to reporters for years about her bad deals from major labels, are going it alone. These days, Mann uses recording technology that is cheaper than ever and makes licensing deals with major distribution companies simply to put her records in stores and post them on iTunes. She gets to keep control of her master recordings and makes every creative decision about what does and doesn't go on the record. "A lot of artists don't realize how much money they could make by retaining ownership and licensing directly," her manager, Michael Hausman, told exTalking Head David Byrne in Wired Wired. "If it's done properly, you get paid quickly, and you get paid again and again. That's a great source of income."
Thus do many stars, including outspoken Dixie Chicks singer Natalie Maines, scoff at 360-degree deals. Jamie Kitman, manager of OK Go, says one of his acts, Ann Arbor, Michigan, indie-pop band Tally Hall, turned down such an offer from a major label in 2006: "It's easy to see why bands would resist." Adds Jordan Kurland, manager of Death Cab for Cutie and the Postal Service: "My knee-jerk reaction would be 'no way,' because that's something that's been sacred for so long. A lot of bands, aside from an advance from a record deal, might not see money for a very, very long time, even if things go well-aside from touring and merchandise."