Behind the Grammys, Revolt in the Industry

The major record labels depend on three things to survive: the money of fans, the music of their artists and the support of the multinational corporations that own them. But the labels are suddenly realizing that they can’t depend on any of these.

Sure, there will be a lot of smiling faces when the 44th annual Grammy Awards are broadcast on Wednesday. There always are, because rules of sportsmanship apply — even to the music business. Win or lose, you must smile.

But behind the smiles, a particularly troubling set of circumstances is plaguing the record industry, which is in dire straits on almost every front.

The major record labels depend on three things to survive: the money of fans, the music of their artists and the support of the multinational corporations that own them. But the labels are suddenly realizing that they can’t depend on any of these. In the past, downturns were attributed to the cyclical nature of the recording business. But this is the first time in recent memory that everyone across the board (artists, executives, fans and industry observers) seems cynical about the very future of record labels as we know them.

“If the industry doesn’t change the way we do business,” said Val Azzoli, co-chairman of Atlantic Records, “we’re going to be bankrupt.”

While it has been widely reported that music sales were down 5 percent last year, this is the least of the music business’s woes. What is more troubling is not yesterday’s sales but tomorrow’s profits, and panicked executives are hurling recriminations in all directions: at radio stations with ever more limited playlists, at the downloading of music from the Internet, at the increased ease of duplicating CD’s on home computers and stereos, at the skyrocketing costs of marketing albums, at artists fighting their record companies, at the replacement of musically knowledgeable executives with corporate bean counters and at multinational companies that demand quick profits and instant hits. Add to all this new judicial and political problems, most recently a court ruling Friday in the Napster case that states that the record labels’ own Internet services “may run afoul of Internet antitrust laws.”

Many say that concern increased as Napster and its followers created a generation of music fans used to getting free songs on demand. Yet major label heads say that while attention has been focused on these services, a bigger worry is the practice of CD burning. Last year, sales of blank CD’s are reported to have outnumbered recorded CD’s.

This may be one additional reason that catalog sales, which once saved record companies from a bad year, are in sharp decline, down by as much as 20 percent to 30 percent, according to music executives.

However, what might look bad for record executives and artists may not be bad for the music economy as a whole. Because instead of buying records, young people are investing in expensive large storage hard drives and memory cards, signing up for broadband services and snapping up CD burners, dual-tray CD recorders, MP3 players and more. All this assures continual innovation from the electronics and computer industries and creates large sales — which could more than make up for the current flagging CD sales.

So, if you’re Sony, and you’re paying for the lifestyles of longtime stars like Michael Jackson, Jennifer Lopez, Bob Dylan and scores more in this extremely cost-ineffective industry, you may be grossing $4.6 billion a year, but only about 5 percent of your artists are considered successful. And not only is it more expensive to market these artists, but you need their profits to pay for the failures of all those other bands.

Referring to total sales revenue, the head of one major label said: “The top line is bigger, but the profit margins are shrinking. In 1994, we were making a profit margin of 30 percent. Now we’re probably making 10 or 8 percent.”

So, again, if you’re Sony, and you’re making $4.6 billion in music sales but taking in $40 billion in sales from electronics, who are you going to listen to: the music industry complaining about people downloading music without authorization, or the electronics executives trying to make better, more expensive CD burners and MP3 players?

A result is that while music executives and the Recording Industry Association of America are working to inform the public of the illegality of downloading music, technology companies are advertising the increased music storage on MP3 players and the latest version of Windows with folders specifically for sharing audio files on the Internet.

“We’re told that by saying, `You can’t steal our product,’ we’re impeding technology,” said Peter T. Paterno, a lawyer who represents Dr. Dre, Metallica and others. “As a country, we import everything, and one of the few things we export — entertainment — Congress wants to give away to some technology company. I’m so fed up with that mentality. If I was running a record company, as opposed to the wimps that are running one, I’d say, `You know what, I have no interest in compromising, and I’m going to go sue little Johnny who’s downloading this stuff.’ “

Combine this growing resentment toward consumers with the economic downturn and corporate belt-tightening and you have major cuts across the board in the music industry, particularly at Sony and EMI, where the label is being dismantled piece by piece, and superstars like Mariah Carey and David Bowie are being sent packing.

This is all unraveling with the intensity of an action film. For now that the industry is weakened, here come its artists. And they are angry. They have finally realized that the Recording Industry Association of America, the industry trade group, doesn’t represent their interests. It represents interests of the record labels.

So the artists are taking matters into their own high-profile hands. The night before the Grammys, more than 15 superstars — including Billy Joel, the Eagles, Stevie Nicks, No Doubt and the Dixie Chicks — are to perform at four different concert halls in Southern California in a benefit for their own advocacy group, the Recording Artists Coalition. Their aim is to overturn legislation exempting artists from a California labor code that limits service contracts to seven years, but the long-term goal is to get adequate compensation from the labels. If an act sells a million albums and has a No. 1 hit, chances are that, on the books, they’re still in debt to their label.

But the tables may be turning. In January, the week before Peggy Lee died, she finally won a class- action suit against her former label. Lee and several hundred other artists and their heirs were awarded $4.75 million in unpaid royalties, miscalculated royalties and unauthorized deductions from royalties. Current acts, including Courtney Love and the Dixie Chicks, have lawsuits pending over accounting practices.

“It’s bizarre in this day and age when you audit a record label, in 99.99 percent of the audits, the labels are found to have underpaid the artist,” said Simon Renshaw, who manages the Dixie Chicks. “I asked an auditor who’s been involved in 9,000 cases how many revealed an overpayment by the labels to the artist: the answer was one. Take that to a statistician.” (Spokesmen for the major labels said they did not comment on their financial or contractual relationships with artists.)

All this is reaching critical mass just in time for the Grammys. Mr. Joel, who is headlining the fund-raiser on Tuesday, is being toasted by the industry as its Man of the Year on Monday. Tori Amos, recently dropped by Atlantic, will be up for two awards, including best female rock vocal — for a song she recorded on Atlantic. She will be competing against Ms. Nicks, who will have performed in the artist benefit the night before.

What will be interesting about this year’s Grammy Awards will not be the anachronistic choices (nominations are, for the most part, on point compared to those of past years), but in the way the industry’s escalating tensions and doomsday scenarios bubble to the surface on live TV. Then, the next day, when the cameras are off, we’ll see who’s still smiling.

Author: Neil Strauss

News Service: New York Times

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