The recording industry should thank Apple
This month's Wired feature on Universal Music Group CEO Doug Morris--which was posted online--has received a lot of commentary, most of it damning Morris as representative of a clueless and mortally wounded industry. The following quote, in which Morris talks about the dawn of the MP3 era, has drawn particular interest:
"There's no one in the record company that's a technologist. That's a misconception writers make all the time, that the record industry missed this. They didn't. They just didn't know what to do." He goes on to explain that he wasn't even tech-savvy enough to know who to hire, explaining that anybody with a decent story would have gotten by him.
I won't call Morris a liar--he was probably just focused on traditional music-company concerns like finding marketable acts and packaging them for mass consumption. (Who can blame him--he probably got into the music industry because he loved music, not computers.)
But my memory of history is very different from his. For various reasons--increasing hard drive size and broadband penetration being the main ones--the original file-trading version of Napster took off in 2000. By 2001, Universal (then known as Vivendi Universal after its parent company) had teamed up with Sony to build and promote a music downloading service called Duet, later renamed Pressplay. Around the same time, the other three big labels--Warner, EMI, and Bertelesmann (which has since merged with Sony Music)--had teamed up with RealNetworks to create their own subscription-based service, MusicNet. Meanwhile, the labels sued Napster for copyright infringement and eventually got the company shut down--a tactic they've pursued against many other unathorized sites and file-trading networks and software applications since.
In other words, a mere year after Napster took off, Universal and the other labels had a digital strategy: create their own digital music services then sue competitors out of business. So somebody at the labels knew something about the burgeoning digital music market. The problem is that Pressplay and MusicNet failed because they sucked. The split among labels meant that neither service had a decent catalog, both were overpriced, and neither intially supported transferring songs to MP3 players. From a computer-conscious music fan's perspective, it appears that the labels purposely crippled their early digital efforts in hopes that their lawsuits would succeed, the genie would be put back into the bottle, and they could forget about this annoying Interwebs thing and go back to selling plastic discs with ridiculously high margins.
Now, Universal is going after Apple, complaining that its success with iTunes has given it too much power. Universal is licensing its catalog to iTunes on a case-by-case basis, is offering DRM-free MP3s to other sites, and is considering its own service, Total Music, which would rely on device makers to subsidize subscription fees. But Apple's the only reason the labels sell any music online at all--iTunes showed the importance of having a decent catalog, reasonable prices and usage restrictions, and an easy and intuitive end-to-end experience from purchase through playback. Consequently, 22 percent of all music--not digital music, all music--sold in the U.S. this year is expected to move through iTunes.
I'm not saying the labels should automatically do whatever Apple tells them to do, but complaining about the one bright spot in your distribution picture doesn't seem like a particularly smart move.
Matt Rosoff is an analyst with Directions on Microsoft, where he covers Microsoft's consumer products and corporate news. He's written about the technology industry since 1995, and reviewed the first Rio MP3 player for CNET.com in 1998. He is a member of the CNET Blog Network. Disclosure. You can follow Matt on Twitter @mattrosoff. 
However, they did suck because they had to make do with the horrible licensing terms the labels forced on them. MusicNet at the beginning was only allowed to let fans have 100 songs on their computer at any one time. If you wanted another song, you not only had to wait a month, you had to get rid of one of your other songs. That too quickly changed to unlimited downloads, but still within the punitive "rights" that still exist today with all DRM music.
I'm convinced the labels set up PressPlay and MusicNet not with grand goals of entering the digital business, but to fix their market margins at ridiculously high rates and then dump the services (PressPlay was sold to Roxio to become the new Napster, MusicNet was sold to VCs, both for pennies on the dollar). Congress and the DOJ look at "willing buyer" and "willing seller" methods in licensing and anti-trust disputes. The labels created a "willing seller" and the first subscribers to PressPlay and RealOne (with MusicPass powered by MusicNet) created "willing buyers". Voila - a market rate had been established to baseline any future content negotiations or disputes.
The problem is that only companies with other ways of making money (like selling iPods) can even break even on the razor-thin margins labels leave for digital services to build a business. Apple is not willing to budge on retail prices because that would also increase revenue for other distributors, putting competitors in business. And as Morris points out, the labels are now beholden to Apple for the lion's share of their online sales.
The labels' have nobody to blame for their current problems but themselves. Morris' "get the money now" approach to a disruptive technology like the Intarweb tubes thing is exactly what's killing his industry in the longer term.
Reheated warmed over formula music has a lot more to do with flagging sales than new media could ever begin to accomplish.
Give us music to buy and we will buy it.
- by tourband November 28, 2007 9:58 PM PST
- 2000 - 2001? Not even close. Doug (with Mel) were introduced to a digital strategy for Universal as early as 1995-6 but they were unwilling to play nicely with others; some things are apparently the same).
- Like this Reply to this comment
-
(3 Comments)BTW - they didn't miss anything, in fact, they knew what to do - they, like Strauss, Tommy, etc. simply made the choice not to jeopardize the receivables owed to their respective fiefdoms by the retailers and upset the balance of those existing relationships.
In fact, all of the senior executives at Universal, Sony, WEA, EMI and BMG chose this brass ring as opposed to the opportunities they were offered. If I remember correctly, at the time, the labels were owed about $8 Billion dollars from the retailers and no one wanted to jeopardize those receivables. SHORTSIGHTED.
This will always be remembered by me as a major disappointment in the annals of music history, you see, there was the advent of new technology which created endless possibilities mixed with the reality that the MBA culture had won control at the labels and all of the kiss ass politicians who had been failing upwards for years were in charge and no one could get a damn thing done because they knew it all, they knew everything, and they had degrees to prove it; hey guys, good move - this was the very f*cking reason labels needed creative's.
Anyhow, Doug speaks out of both sides of his neck and has a thousand masks. Great, another story about a POS with a lot of money and no integrity.