“If I can hear it, I can rip it,” said the geek.
The topic was digitized music, and whether it is possible to encrypt it in such a way to stop people from swapping MP3 files over the Kazaa network. He wasn’t boasting, nor was he issuing a challenge. It was a simple statement of fact. And he meant that anyone with minor programming skills could copy — “rip” — whatever sound comes out of your speakers, copy-protected or not.
This, then, is the bottom line of the entire debate about performers’ rights, recording-industry profits and copyright piracy: The new technology has blown a hole just under the waterline of the way the recording industry has sailed along for decades, the way it has marketed and sold music and how the profits have been divided among singers, composers, publishers, recording studios and record producers. Now that ship is sinking. And as it sinks, the record companies are crying for help. Everything from “Arrest that technology” through to “There oughta be a law.”
I’ve spoken to many people who download MP3 files from the various peer-to-peer networks that operate on the Internet, and none of them are doing it for profit, and they do not see it as stealing food from the mouths of the people who create the music. They have a variety of reasons, but the greatest is that their personal music collections are missing certain songs they want. This reason is incredibly important, because it sits at the centre of the entire debate over MP3s. In essence, the MP3 file-swapping phenomenon has proved that the music market is not being served the way it wants to be served. And what that market demands is music, not records.
But this is not new; the demand for music has been the same ever since technology entered the picture, specifically when Thomas Alva Edison created the first commercially successful phonograph in 1895. The effect of his invention was stunning. Edison imagined its purpose was to bring great musical performances to people who could not go to the entertainment palaces of New York. Though the phonograph certainly did that, it also created a new industry: Tin Pan Alley and the birth of the mass-market music publishing. In its wake, Vaudeville and Broadway musical theatre blossomed in the North, as did ragtime and country music in the South and blues in the Midwest. People could not only enjoy the live stage shows, they could bring the music home with them.
It was a wonderful time, except for one industry: the
piano-makers.
They wailed that the phonograph would sink piano sales; people would no longer want to sit around the family piano when the new technology could allow them to invite Al Jolson to deliver a command performance right in their parlours. Unlike today, when incredibly wealthy record companies can afford the best legal talent to try to stop a technology from ruining their business, the piano-makers were largely family operations, their protests unsupported by large amounts of cash. Besides, how could the public be convinced that there was a piano crisis when they were suddenly surrounded by music?
So the piano factories died off, one by one, succumbing almost entirely after the Second World War when various governments failed to stop Japanese and Korean piano manufacturers from dumping pianos on the North American market below manufacturing costs.
The first stage of the assault of Edison’s technology set the tone for a century to come: Record companies sold single songs, first on brown wax cylinders, then on seven-inch single-sided discs made of celluloid, then on double-sided discs made of shellac. During this time, the greatest technological challenge was to make the cylinder or disc spin at a correct and constant speed, during both the recording process and playback, so that the song emerging from the horn was close enough to the key the performer had recorded it in.
The second stage started as a result of the oil industry’s development of a multipurpose thermoplastic called polyvinyl chloride, or PVC. CBS’s record division recognized vinyl as a vastly superior medium for records, and nailed down an exclusive deal to use it; in 1948, CBS launched the long-playing record, or LP. Instead of spinning at 78 rpm, like its seven-inch ancestor, the LP spun at a slower 33 1/3 rpm, delivering 22 minutes of superior sound. It’s important to note that the LP wouldn’t become popular for at least another decade; people still bought songs, not records, and they were happy with another recent development, the 45-rpm record. This small disc, with its large hole, offered two songs, one on each side, and sold for about a dollar. At first, the 45s were perfect for rock and roll; Elvis Presley being the only certainty of the new phenomenon, the recording industry found it hard to get customers to buy ten or a dozen songs from a single singer, or group at a premium price. The performers just weren’t durable enough.
LPs needed something more to sell them, and movies supplied the product. In 1952, Cinerama introduced multitrack movie sound, which created a demand for better quality music. So the record industry focused on stereo, releasing the first two-track LPs in 1956.
But the LPs had a specialized purpose, at least at first: to present full theatrical experiences. The first million-selling LP was the original-cast recording of the Broadway musical My Fair Lady, followed shortly by piano sensation Van Cliburn playing Tchaikovsky’s First Piano Concerto.
Fans of popular music and rock and roll — which by this time had created a demand larger than the one for Broadway musicals or classical performances — still preferred to buy individual songs, and so they remained happy with the 45s. But because the discs were two-sided, record companies had to put something on the “B” side, usually filler songs from the same artist that were less likely to compete for airtime with the “A” side. The concept had been borrowed from movie theatres, which ran double features, the lower-budget production being known as a “B-movie,” a practice that petered out in the 1960s.
The music industry’s next step was fateful.
If fans of popular music were prepared to buy one poor song on a 45-rpm record to get the one good song they wanted, the recording companies reasoned that they could sell more “B” songs with one good one on a stereo LP. Eventually, the industry began to phase out the 45s, arguing that the superior quality of the stereo LPs was making the 45s tinny and archaic. Moreover, phasing out 45s had a more lucrative side: With stereo LPs, record companies could increase the ratio of bad songs to good ones, thereby raising the profit margin of the entire package. The strategy laid the groundwork for the current mess with the digital-rights debate.
The music industry has suddenly changed direction in its current rage over pirated MP3 music files. The relentless pursuit of quality since 1956 — the LP led to tape cassettes, Dolby sound, the doomed eight-track system and eventually compact discs — does not apply to pirated MP3 files. Most MP3 files are obviously poorer in quality than LPs, the result of trying to compress the enormous amount of data that makes up a three-minute song into something small enough to be easily stored on a home computer. So what happened to the industry’s insistence that buyers want better-quality sound?
The strategy of loading up an LP with second-rate material proved so successful that the practice became entrenched. Between the early 1960s and the late 1990s, the business of selling an increasing ratio of unmarketable songs to good ones became rampant, and overt enough that even record industry insiders joked cynically about the “twelve-to-one” record, meaning an album that had a dozen duds to every potential hit.
But those decades were prosperous; baby boomers spent much of their disposable income on music, their opinion of the duds on each LP being improved occasionally with the use of recreational drugs. But even though they grumbled, they still bought more records, hoping to get the same thrills from the other songs that they got out of the one hit they wanted. Only occasionally was a record so good that just about everything on it was enjoyable, and the word would go out like wildfire: “There’s not a bad track on that record, man. Check it out.”
The revenue rolled in. From the days of Presley, Buddy Holly and Little Richard right through to the late 1990s, the profits kept rising, an astonishing run of prosperity fuelled by a parallel phenomenon in which television, magazines, movies and newspapers all fell in line as part of one giant celebrity-manufacturing machine. The entertainment industry discovered that the enormous marketing mechanism of popular American culture could transform even second-rate performers into first-class revenue-generators. The record industry became so cynical about its ability to wring cash from a stone that it tempted fate by hiring four actors to impersonate rock singers; they struck another goldmine selling them as The Monkees. (The cynicism continues. Turn on MuchMusic and note all the “boy bands” that have been cobbled together by record executives hoping to repeat the success of The Backstreet Boys.)
The public’s appetite for popular culture seemed limitless. The revenues generated by the record industry were so impressive that record companies became prime targets for takeovers. Larger corporations with little or no interest in music were attracted by the record-makers’ ability to turn a profit and bought many of them out, bolstering their holdings by buying interests in TV networks, magazine publishers and movie studios. The new conglomerates talked about “synergy” and “convergence,” which meant essentially that each corporate division was in a position to promote the stars created by the company’s other holdings. People stopped using the word “monopoly,” especially after the deregulation mania of the 1980s loosened the laws governing corporate concentration.
One of the more interesting characters in this game is Edgar Bronfman Jr., scion of the Montreal-based Seagram’s liquor empire and an amateur songwriter (he co-authored To Love You More, recorded by diva Celine Dion). He bought the Universal entertainment conglomerate (parks, TV and film production and distribution, cable TV, book and music publishing) in 1995; in 1999, in the largest merger in music history, he bought the Polygram music empire to create the world’s largest record company. His Universal Music Group included the Decca Record Company, Deutsche Grammophon, Interscope Geffen A&M Records, Island Def Jam Music Group, Hip-O, Lost Highway Records, MCA Nashville, MCA Records, Mercury Records, Motown Records, Philips, Polydor, Universal Records and the Verve Music Group. Its businesses also include the Universal Music Publishing Group, one of the industry’s largest global music publishing operations.
The package had such a potential for profit that in 2000, Vivendi, a Paris-based mega-conglomerate whose boss, Jean-Marie Messier, had dreams of convergence verging on megalomania, bought out Bronfman’s Universal interests. “Vivendi Universal offers shareholders tremendous growth prospects,” Bronfman told an investors’ meeting in May 2002. “We are certain that with this merger, Vivendi Universal will be totally integrated with a range of products which no one else will be able to match,” he said.
The result of this and other mergers created an oligopoly of five major conglomerates: Vivendi Universal’s Universal Music, Warner Music, EMI Group PLC, Bertelsmann AG’s BMG and Sony Music. These Goliaths now rule the world, together churning out more than 80 per cent of all the music you hear.
The ink was barely dry on Bronfman’s takeover of Polygram when David showed up with his slingshot. A teenager called Shawn Fanning, a closet guitarist and self-taught computer programmer, dropped out of his freshman year at Boston’s Northeastern University in 1999 to introduce the third stage of Edison’s assault on the music industry. All he had to throw at the Goliaths was a small file-sharing program, to which he had given his own nickname, Napster. Within months, millions of computer hobbyists had snapped up the program and began a massive system of trading music files over the Internet. For free. Not surprisingly, after wheeling and dealing to become a giant among giants, Bronfman wasn’t willing to throw it all away because of the ingenuity of an upstart teenaged code-cutter. So he declared war on “piracy,” and promised to “go medieval on Napster’s ass.”
The music oligarchy holds one irrefutable argument in its favour: performers’ rights. Artists, composers, performers and musicians expect to receive cash from the profits of record sales, and buyers have been willing to pay. This has made a small number of performers unimaginably rich, but lesser artists have struggled. And the record industry is pointing at these impoverished artists as the real victims in the peer-to-peer wars.
Lost in this moral argument is the fact that the artists are not simply victims of lost sales; the misfortune of too many artists can be traced back to contracts that proved to be more lucrative to the record companies than the artists themselves. We’ve read their sad stories in People magazine or seen them on Entertainment Tonight. In some cases, artists desperate to make it even gave away their publishing rights to the record company.
And music publishing is an enormous source of income for the record industry. In standard publishing agreements, the industry gets a staggering 50 per cent of the rights. The luckier songwriter or composer may get a livable income, but the publisher collects half of all the royalties in the ever-growing music catalogue, and moreover, maintains control over how the rights are sold. This is one of the ways in which former Beatle Paul McCartney has become one of Europe’s richest men. He lost a bidding war for the rights to the Associated Television Corporation’s catalogue, whose 4,000 songs included most of the Beatles’ songs, in 1984, to the quirky but wealthy Michael Jackson, who paid $47.5 million US for it. Later, McCartney did manage to acquire the Southern Music catalogue, which includes Buddy Holly’s compositions and the music to the perennial stage favourites Grease, Annie, and A Chorus Line. He even owns the rights to Happy Birthday. Any time a Southern Music song is performed, Sir Paul gets half of the royalties.
But the record industry has undermined its own argument about paying artists. In a bizarre situation playing itself out in Canada, a consortium of music interests led by the record industry persuaded the federal government to impose a levy on the sale of all compact discs, because these discs might be used for copying pirated music files. After collecting more than $25 million, the consortium was last seen still reluctant to pay out a single cent to its own artists.
Protecting this system has become more important than exploiting the driving forces behind the stunning success of peer-to-peer file-sharing. Napster and its successors, especially Kazaa, have buried in their source code one feature that any other industry would kill for: An option in the programs allows users not only to search millions of other users’ directories for individual songs or artists, but also (using the “Find more from same user” command) to display all the files in the shared folders of individual computers.
With peer-to-peer file sharing, the music community is offering something it wouldn’t give anyone else under any circumstances: a peek into the contents of the hard drives of millions of users. The slightest hint that Microsoft is collecting similar information, untrue as it is, would send the average computer user into fits of outrage, condemning this unconstitutional invasion of privacy. But it is different with peer-to-peer file sharing. Offering their lists to all other users has instead become a declaration of freedom, if only because it seemed to fly in the face of corporate control.
It’s a wonder why the Big Five have not done anything to exploit peer-to-peer networking’s complex maze of listeners’ tastes and habits; they apparently haven’t even expressed an interest. Doing so could have told them something more important: The music market has changed dramatically.
Being able to look into individual computers on such an unprecedented scale would be any marketing department’s dream. The Big Five could have struck a deal with Napster or Kazaa not shutting them down in exchange for data derived from the file transfers — but instead they opted to keep the whole game to themselves by taking the networks to the courts. Instead of rolling with the new technology, the heavyweights hoped to preserve their old marketing model by making the technology illegal.
Many people had signed on to Napster and Kazaa for the sole purpose of filling gaps in their music libraries. An astonishing proportion of traded files involved out-of-print records that were impossible to get in the music stores, whose inventory largely contained recent hits; there were corners for golden oldies, but the record companies generally regard that as a fragmentary market, restricted to compilation recordings of obvious hits.
Fans of the Youngbloods, Golden Earring or Wishbone Ash — the kinds of bands that the Big Five don’t usually consider suitable candidates for mass-market “best of” compilation albums — couldn’t just walk into a store and grab a copy of a song originally released in 1967. Nor could they be assured of getting a whole album by placing an order for it with reluctant sales clerks; and if the store did get it, the album would often be a premium purchase, and customers would be forced to buy the entire record, including all those second-rate songs, to get the one song they wanted. In short, it made buying out-of-print records difficult and prohibitively expensive.
Napster and Kazaa freed buyers from that tyranny, and as a result released a flood of resentment at the twelve-to-one marketing schemes of the past three or four decades. And no appeal to the buyers’ innate sense of decency would prove effective either: It is difficult to summon sympathy for losses incurred by corporations with revenues exceeding the annual budgets of some members of the United Nations. Just ask Bill Gates about the sympathy he gets when he complains about piracy of Microsoft’s products.
So as the world busies itself rediscovering its youth through music, the Big Five are bemoaning falling sales.
The central issue still appears to be lost on the recording industry: Popular music fans buy songs, not records. And it’s impossible to overestimate how clearly peer-to-peer technology is proving this principle every day. At the time of this writing, 3.2 million people were signed on to Kazaa, swapping 601 million songs. Not albums, but songs.
What is the resistance to change? One answer is because the record industry has become too big, and that reshaping the entire basis of its profitability would somehow negate the staggering prices the conglomerates had paid to get on this gravy train. Executives who had engineered the takeovers found their reputations on the line; it is easier for them to cry foul than to scale back their profit expectations.
Another reason is that the record industry finds it impossible to trust research into an audience’s tastes, especially if those tastes were manufactured by the record industry in the first place. It’s a hall of mirrors thing: In the 1950s, the record industry tried to manipulate market demand by slipping wads of cash to radio disc jockeys. Back then, DJs selected the records they played, and thus wielded inordinate power. The under-the-counter payments to play certain songs were eventually exposed in a scam called “payola,” a contraction of the words “pay” and “Victrola,” which many people still called record players. In the first payola court case, DJ Alan Freed was indicted on May 9, 1960, for accepting $2,500 from a record company. He argued it had been a token of gratitude that had not affected what he chose to play. Although he paid a small fine, ABC Radio fired him. His career in shambles, Freed drank himself to death in 1965.
In all, 25 big-name DJs were indicted, including the ever-resilient Dick Clark, who had actually invested in a record company. But the beloved star of American Bandstand quickly dumped his holdings, engaged in a spirited defence and got off with a slap on the wrist. Although payola had not been illegal, commercial bribery was, and so after Freed’s trial, the U.S. government passed a statute making payola a misdemeanor, carrying a maximum penalty of $10,000 and one year in prison.
The record companies did not stop throwing cash at radio personalities, however. They continued to flatter them with music junkets to other cities and face-to-face meetings with stars in the hope of influencing their choice of music. This continued until the 1980s, when yet another technology evolved to shift the balance of the musical world order.
That was when radio stations started to rely on a playlist, a list of songs that was compiled by independent agencies using sophisticated audience analysis. The theory is that a scientific market assessment would be more accurate than the frequently quirky tastes of disc jockeys, but in practice it meant great savings because radio stations could more easily sell the demographics of a playlist to its advertisers; moreover, the stations could restrict themselves to hiring DJs with great personalities, who were less expensive than DJs who had great personalities as well as reliable tastes in music. The playlist agencies soon complicated the business by developing many different kinds of lists for different fragments of the music market: soul, rock, easy listening, disco, adult-oriented rock, country, golden oldies and so on.
In the absence of any other way of measuring tastes in popular music, the playlist ruled for years, and its flaws remained unnoticed until Napster came along. The most dramatic flaw was the tightness of the radio spectrum: Radio stations were granted licences by government agencies to serve a region, and there was room for only so many stations. Listeners who didn’t like the playlists chosen by the few stations within earshot were shut out. Even then playlist agencies rarely recognize the various fluctuations in regional tastes — it’s harder to sell big-ticket national brands with localized playlists — so the radio stations have been subscribing to playlists that increasingly fail to reflect the station’s specific regional demographics.
It’s the kind of mass-marketing failure that, along with others, found its voice among the anti-globalization forces. Though generally dismissed as a fringe movement of disaffected youth with little relevance to individual industries, the anti-globalization feelings reached a peak, not surprisingly, at about the same time as the popularity of Napster and Kazaa.
The music industry, insulated in its office towers and protected by phalanxes of lawyers insisting on a legal response to the technological assault, has failed to sense the frustration of young people who know they can never get what they want from their local radio stations or their record stores, and have nowhere else to turn except Napster and Kazaa. A classic example of this was in Toronto, where for years radio stations ignored the city’s substantial black community and its desire to hear dance music.
Where does that leave everyone?
The bottom line is that the Goliaths thought that they had the market nailed down, and could make it behave. With “synergy” and “convergence,” they took control of the entire process of selling records: from signing the performers to contracts to publishing music, marketing and promotion on television and in magazines. The only thing they have no control over is the record buyer.
It would not be surprising if the Goliaths, faced with falling profits from their music divisions, began to argue that their companies had “lost sight of their core business” and started shedding their record divisions. This may result in a series of smaller, more agile companies that are more responsive to changing technologies and tastes. It may also result in a shrinking market share for the Big Five, as independent labels rise to challenge them — and the popularity of the “indies” is, in fact, increasing, largely due to their ability to use the Internet to push their artists.
For all their power and might, the giants can’t fight the slippery technology of peer-to-peer file sharing. And with their current marketing systems, they can’t fight the average geek, who with a few days of pecking at a keyboard can rip anything you want to hear.
