"Lancing the f***ing boil": how digital killed Big Music

By Nate Anderson | Last updated March 25, 2009 12:31 AM

Despite popular perception, even those at the top of music business have a sense of humor, something captured repeatedly in Steve Knopper's new book, Appetite for Self-Destruction: The Spectacular Crash of the Record Industry in the Digital Age. In Knopper's telling, the decline of the major labels isn't just about technology or peer-to-peer programs—it's about personalities, and his book is stuffed with stories of music execs in action.

Here's one from late in the book:

All the SDMI tension came to a head in late August at the Villa Castelletti, an opulent hotel in hilly wine country about twenty miles from Florence, Italy. As the executives convened in a courtyard within the villa, they could hear sporadic shotgun blasts in the distance, aimed at scattering birds from the vineyards. The meeting went back and forth, and [Sony Music VP] Al Smith was getting worked up as usual, responding negatively to something chairman Talal Shamoon had said. Finally, Smith walked out. Three seconds later there came a resounding "Boom!" from a shotgun. The SDMI members looked at each other uncertainly. Without missing a beat, Shamoon spoke up: "I understand there's an opening at Sony Music."

It's funny, but also rather sad—not because of the birds and shotguns, but because the meeting was part of the hugely expensive Secure Digital Music Initiative that the labels launched in 1998 to slap a standard DRM scheme onto music. The big meetings took place all over the world (and at places like the Villa Castelletti, which are... not cheap), and they finally produced a watermarking scheme that was "uncrackable." The group started a contest and invited teams to hack SDMI; computer science professor Ed Felten soon defeated four separate watermarking schemes, was subsequently threatened by SDMI over publication of the results, sued them back, and the whole thing was eventually dropped. So was SDMI.

Had the music industry treated digital music sharing as it treated the CD—not obsessing over copy protection, embracing a new format, making money by the boatload—it might still be riding high. But the industry didn't do so, and, as Knopper chronicles, it has paid the price.

Welcome to the Jungle

The music business has never been a "normal" business. Consider, simply for the sake of illustration, an anecdote about the label Casablanca back in the 1970s:

Promo man Danny Davis, who didn't do drugs of any kinds, famously recalled talking to a radio programmer on the phone while a colleague trashed the stuff on his desk with a golf club, then lit the desk on fire.

"Almost anything could have happened at Casablanca," says Bill Aucoin, who managed Casablanca's most famous rock act, KISS, in those early days. "The first offices were a converted home with a pool house. If you went to the pool house at any time, day or night, as a record promoter or DJ, you probably could get laid at any moment."

The industry learned to mint hits (and therefore money) in the 60s and 70s, but it was the CD that made record companies into global behemoths. Knopper takes half his book explaining the CD boom, only coming to Napster 113 pages into his tale. That's because, in his telling of the story, the downfall of the labels in the age of digital distribution only makes sense when looking at the last major format shift and the huge profits it brought the industry.

If you've been watching Battlestar Galactica recently—or reading your Nietzsche—you'll be familiar with theories about the cyclical nature of history, and that's how Knopper sets up his story. When the CD was first introduced, plenty of record company execs hated it. One says, even now, "I thought [the engineers who designed it] could have done something to stop piracy."

Looking back at the CD era, though, it's clear that those little plastic discs were a goldmine. People loved the new format, many repurchased their collections on CD, and prices for recorded music went way up. How did the industry respond to this windfall? By screwing the artists.

Knopper describes how the labels wrote new contracts to cover the new format, contracts which featured larger "packaging reductions" and "free goods allowances." In addition to the deductions, artist royalty rates were reduced. "After labels factored in these newfangled deductions," Knopper says, "typical artists received roughly 81 cents per disc. Under the LP system, artists made a little more than 75 cents per disc. So labels sold CDs for almost $8 more than LPs at stores, but typical artists made just six cents more per record."

Such practices fueled a CD boom that ran from 1984 through 2000, at which point the bottom began falling out of the industry. After two decades of expensive music—and little support for cheap singles—labels had grown fat on pumping out albums with a couple of hits. The other songs might be no more than mediocre, but fans who wanted a particular hit usually bought the disc anyway. (A point proven by the fact that I once owned a copy of Chumbawamba's Tubthumper.)

The rise of Napster made clear to the music industry that the next great format had arrived. Knowing how much cash they earned from the last format shift, one might expect the industry to be thrilled with a system that could introduce more music fans to more music more quickly. Turning the digital download into the "next CD" might have seemed the industry's number one priority, but it wasn't. The industry hoped that digital would go away.

Death spiral

The sheer number of interviews that Knopper did for the book is impressive, and it lets him flesh out the personalities behind the music industry. It also means that he has many obscure but enlightening anecdotes at his command, such as one from Liquid Audio (remember them?) exec Gerry Kearby. Kearby was trying to be the counter-Napster, the online distributor that was label-friendly and used DRM. But when he tried to talk to the labels about distributing their music, he couldn't get a commitment.

One day in a moment of pure honesty, [a Sony rep] said, 'Look, Kearby, my job is to keep you down. We don't ever want you to succeed.'

Kearby tells Knopper about the moment when he knew it would never work. "One day in a moment of pure honesty, [a Sony rep] said, 'Look, Kearby, my job is to keep you down. We don't ever want you to succeed.' Some of them were more interested in experimenting than others, there's no doubt about it. But they were, in effect, buggy-whip manufacturers, trying to keep the auto at bay as long as they could."

One of the weaknesses of the book is that this sad tale of digital ineptitude is widely known, and Appetite for Self-Destruction doesn't offer any new insight for those who have followed along at sites like Ars Technica. Here's the short version: after the Napster lawsuit, the labels dabbled halfheartedly with their own craptacular services (remember PressPlay?) but never got serious about digital distribution. It took Steve Jobs and the iPod to put Apple in a commanding position, one which allowed the company to launch the iTunes Music Store with major label content and offer tracks for a buck. DRM, which the labels insisted on, meant that Apple came to dominate music sales in the US (it wouldn't license its Fairplay system to others, and the iPod was the dominant music player in the market). Only belatedly did the labels realize what had happened, and they finally tried to break Apple's chokehold by dropping DRM for stores like Amazon. There's also a bit about KaZaA, the Sony BMG rootkit fiasco, and the futility of the RIAA's lawsuit campaign.

But much of this is available elsewhere, and not just in article form at the various blogs and news sites that have followed the story. Books like Steven Levy's The Perfect Thing (iPod) and Joseph Menn's All the Rave (Napster) tackle some of the same topics in even greater detail.

But though Appetite for Self-Destruction covers plenty of familiar ground, what sets it apart is the emphasis on personality so often missing from technology reporting. Readers will come away from the book without much sympathy for the major labels but with a much better understanding of the people at the top who made key decisions, and why their own histories in music might have led them to make the choices that they did.

Knopper also does a fine job of connecting the Napster/iTunes/P2P story with the story about the CD boom years (though this does produce a long and sometimes tedious chapter on "boy bands" whose relevance to the main issues seems secondary). This is deliberate, and done in service of Knopper's own argument that many of the problems that the labels had with digital distribution came from two decades of growing fat on CD album sales. They simply weren't ready or willing to adapt to a new world of a la carte singles and lower per-track prices.

Knopper quotes Robert Pittman, the cofounder of MTV. "Stealing music is not killing music," said Pittman. "When I talk to people in the music business, most of them will admit that the problem is they're selling songs and not albums. I mean, you do the math."

"I realized that as an industry we'd kind of been smoking crack," said Universal exec Barney Wragg, after leaving the label in 2005. (Wragg took a job as head of digital music at EMI the next year.)

And James Mercer, the lead singer of indie band the Shins, was even more blunt. "You see these articles about the disaster in the music business," he said. "When you think about how unhealthy the business has been, this is like lancing the fucking boil and cleaning it out. It's not a fucking disaster to regular bands out there."

Peppered with such quotes and backed by tremendous interviewing, Appetite for Self-Destruction is a great read. It doesn't offer a lot to the technology geeks or the policy people, but it does sum up four decades of music industry history and personality for those who want to understand how the industry arrived at its current sorry state.