Innovation or bust
an industrial history of recorded music
There have been fascinating twists and turns in the global recording industry since Thomas Edison triggered the start of the race in 1877 with his tinfoil cylinder. Several books document parts of this journey very well, such as Roland Gelatt’s early history, The Fabulous Phonograph (1955), or Mark Coleman’s more modern journalistic account From the Victrola to the MP3 (2005).
Setting an historical context is essential for my critical analysis of the cultural industries. So, from published accounts and from personal experience, I summarise the music industry story below, with some relevant milestones in the technological and commercial evolution of recorded sound.
The first 100 years – fidelity and format dominance
The first 30 years of the recording industry were dominated by a format war between cylinders and discs.
Cylinders were the domain of Edison, before being more commercially developed by the Columbia Phonograph Company, formed in 1888 by Alexander Graham Bell, amongst others. Discs were pioneered by Emile Berliner, and developed by the Berliner Gramophone Company (1895), and then by Berliner in collaboration with Eldridge Johnson through the Victor Talking Machine Company (1901) with its flagship disc player, the Victrola. Columbia and Victor became the two dominant competitors for the first two decades of industrial development.
Financially speaking, the sale of players, or ‘hardware penetration’ in late 20th century speak, was perceived as being the big prize, rather than the sales of recordings themselves. Developing relationships with musicians was therefore primarily a promotional strategy. Columbia and Victor competed for talented performers to endorse their competing technologies. By 1891, Columbia had recorded a catalogue of the popular military band leader John Philip Sousa, along with a host of speaking recordings and vernacular songs. Competition for recordings of more serious musical substance came from Victor through its Red Label, which was supported by European classical singing stars such as Nellie Melba and Enrico Caruso. Caruso’s first recording was in 1902, and he went on to become the first million-selling recording artist.
Visual art also contributed to the competition between the formats. In 1899 the artist Francis Barraud was commissioned by an interested party (note 1) to amend his 1895 painting of his fox terrier, Nipper, listening to a phonograph. He painted out the Edison cylinder phonograph, replacing it with a gramophone disc player. The rights to the painting were acquired and His Master’s Voice (HMV) went on to become one of the most recognisable trademarks of the 20th century (see image at the top of this page).
In 1903 Columbia acknowledged the greater suitability of the disc format for musical reproduction and began manufacturing recordings in disc format alongside its cylinder recordings. By 1912, Columbia discontinued cylinders altogether. Berliner’s disc format had won, largely due to Victor’s marketing strategy of exclusively engaging celebrity classical conductors, musicians and opera singers. Edison alone continued to produce cylinders, primarily exploiting them for his originally intended purpose as a means of dictation, but the format was, by then, moribund.
During the second decade of the 20th century the industry thrived, and was led by Victor. By 1919, the US market for the industry’s products was worth $159 million. In that year there were nearly 200 manufacturers producing more than two million machines, and in 1921 production of recordings exceeded 100 million units. By this time, two things had become clear: first, that as the early patents expired, the business of selling discs was at least as financially interesting as the business of selling disc-playing machines; and second, that being closely in touch with emerging cultural trends was as important as having exclusive arrangements with established classical artists. The early leading role of classical music in the shaping of the development of the industry was soon overtaken by popular music, especially dance music, jazz, blues and ragtime. Spotting the new sounds, and the dance trends, and the emerging talent, were all critically important in the competition for record sales.
The role of recording company as cultural intermediary had arrived.
The first threat - radio
The seeds of the first US crisis for the recording industry were sown at the beginning of the third decade of the 20th century. In 1920 there were two important milestones, one commercial, occurring in the US, the other technological, occurring in the UK.
The former was the first commercial radio broadcast, and the latter was the first electrical recording from a remote pickup. With these developments, the evolution of the radio era gained pace. Even though the programme content of broadcasts in the first half of the 1920s was quite basic, radio was free, and direct broadcast had a higher sound quality than discs. Early broadcast licenses were granted on the basis that records were not played, but this was generally ignored despite the lobbying from music publishers and musicians’ unions. Being initially dismissive, then hostile to the new broadcast medium, the recording companies took some time to recognise the associated opportunities and threats which radio and electronic recording presented. Consequently revenues from players and recordings fell steadily from their 1921 peak. Eventually Victor and others collaborated to some extent with Bell Laboratories, the pioneers of electronic recording, and with the Radio Corporation of America (RCA), the government supported company which was at the forefront of radio. The products of these collaborations were new players of electronically recorded discs which also accommodated radios, the most notable being Victor’s Orthophonic Victrola and Brunswick’s Panatrope. Expectations of these new machines were high.
Victor spent $6 million promoting the launch of the new Victrola in November 1925, and within a week had taken orders for $20 million. Subsequently its shares almost doubled in value relative to their price earlier in the year. With great prescience, or luck, Victor shareholders sold their company to private investors one year later for $40million, a price which was based on assumption that the recording industry was still in robust health. 13 months after that, in January 1929, Victor was acquired by RCA to form RCA-Victor.
RCA was not committed to the recording business, but had an urgent need for Victor’s manufacturing plant and its network of dealers in order to satisfy the rampant demand for RCA radios. In October the same year, the stock market crashed spectacularly. Whilst almost all industries suffered badly from the Great Depression, the blow seemed fatal for the recording business. In 1927, sales of discs had been 104 million. By 1932 they had fallen to a mere 6 million. Sales of players fell from 987,000 to 40,000 over the same period. The cause of the collapse was a combination of much improved radio broadcasting, a lack of support from RCA for the recording business, and the perceived poor value for money of expensive discs and players which needed replacing as technology and formats changed. All these factors contributed to a level of consumer dissatisfaction with the recording industry which almost led to its demise.
Recovery, led from Europe
The factors which led to US disenchantment with gramophones were not so noticeable in Europe,where competition from radio was much less significant. Britain had been responsible for much of the innovation in classical music recording since Thomas Beecham’s pioneering recordings for HMV, and there remained a deep cultural and commercial commitment to recording. Furthermore, Britain still regarded the gramophone as a highly desirable home ornament and cultural accessory. US-led economic depression was similarly biting in Europe, but in 1931 the two major British competitors merged. Columbia and The Gramophone Company (owner of the HMV trademark) combined under a new company, Electric and Musical Instruments (EMI) which provided essential scale economies in difficult times. One of EMI’s thrifty initiatives was a project which encouraged private subscribers, via societies, to finance a wider repertoire of new classical recordings than would have been otherwise available. EMI’s leadership in recording technology was further underpinned when it opened new studios at Abbey Road in 1931, marked by a recording of Edward Elgar conducting the London Symphony Orchestra.
The flow of new and higher quality recordings from Europe kept US interest in the recording business alive. The concept, or rather the marketing, of ‘high fidelity’ (note 2) sound also took hold at this time. This was ‘more gimmick than gain’ (Gelatt, 1956, p.207), given that for most people the new and superior sound source was severely constrained by the low quality amplification and speakers which were generally available at that time. Nevertheless, the aspiration for ‘high-fidelity’ sold records in great quantities.
Another industrial stimulus imported to the US from the UK was the much lower pricing of records, led by a newcomer, the Decca Company, who in 1934 radically reduced the prices of records from big name artists from 75 cents to 35 cents. This coincided with RCA-Victor’s introduction of a cheap disc player attachment to the radio-set, the Duo Jr. which at $16.50 was a small fraction of the price of any previous player. By the mid-1930s, the consumer perception of value-for-money was restored.
The US recording industry returned to growth, and domestic record sales were now competing with the sales of records for use in jukeboxes. Jukeboxes had started to become extremely popular in bars and restaurants following the repeal of alcohol prohibition, which had been enforced between 1920 and 1933. Popular music, especially big band jazz music for dancing, played a leading role in the ensuing cultural liberation.
By 1938, RCA-Victor and Decca represented at least 75% of the 33 million records sold in the US that year. Although 33 million was well above the nadir of 6 million in 1932, it was still well below the late 1920s peak of more than 100 million. Columbia was struggling because it had not benefited from the commercial initiatives of its rivals, nor had it invested in recordings of new repertoire. In an ironic reversal of fortunes, the ailing Columbia Phonograph was bought at the end of 1938 by Columbia Broadcasting System (CBS), the radio network to which Columbia Phonograph had given its name as a short-term rescuer-investor in the fledgling broadcasting company a decade earlier. CBS was now growing quickly, and challenging its main competitor, NBC, which was the broadcasting arm of RCA.
Between RCA and CBS, radio broadcasters now controlled the two best known record companies in the US. Columbia Phonograph revived under its new broadcaster-owners, who recognised that new repertoire was critical to the satisfaction of consumer demand for new recordings in both popular and classical music.
The second threat - war on two fronts
Intense competition between all three companies led to a growth spurt, and in 1941 the US industry finally surpassed its 1920s peak, achieving sales of 127 million discs.
The boom was short-lived. America entered the Second World War, and in 1942 the importation of shellac, the primary component of discs, was cut by 70 percent. Production of electrical goods for civilian consumption was also halted.
As it turned out, war overseas was not the greatest threat for the industry. Four months after the shellac restriction was imposed, a complete cessation of recording activity was imposed from a different source. His name was James Caesar Petrillo, the President of the American Federation of Musicians. The ban covered everyone from jobbing musicians to band leaders and classical conductors.
Petrillo had been waging war on recorded music played on the radio and in jukeboxes for more than a decade, and he promoted Sousa’s phrase ‘canned music’ (Sousa 1906) to great derogatory effect. Petrillo’s arguments recalled the days when thousands of restaurants and dancehalls had employed their own bands, and radio stations had their own orchestras. Jukeboxes and records played on the radio were therefore bad for the livelihood of musicians, or so it seemed to Petrillo.
Petrillo had previously achieved partial successes for his union members, such as the rather absurd insistence on having a union musician employed in every radio station simply to operate the turntables. But the 1942 strike preventing all recording was more dramatic than anything he had previously achieved.
Decca suffered the worst. Being the newest company, they had the smallest catalogue of recordings to fall back on during the ban. Decca was forced to the negotiating table after 13 months, conceding a royalty payable to the AFM on all records. Victor and Columbia gave in after two years, agreeing similar royalties on Armistice Day 1944.
The second recovery (1946 to 1953)
The combination of the recording ban and the shellac restriction meant that huge demand had built up over the war years which had dramatic consequences when both issues were resolved. In 1946 US annual sales leapt to 275 million discs, and then to 400 million the following year. Sales of disc players in 1947 were 3.4 million.
Europe was also innovating in recording technology. One example is full frequency range recording (FFRR) which was developed by English Decca as a bi-product of military-commissioned research. But the end of the war led to a more startling revelation for English and American sound engineers: the German progress in the development of magnetic tape.
Tape had several advantages over disc, not least that it enabled considerably longer continuous recording times. For all the improvements in sound quality, discs had revolved at 78 rpm since the early 1920s and needed to be changed every four minutes, a drawback which was scarcely tolerable for the enjoyment of classical recordings. Tape, by contrast, could run for 30 minutes.
Tape had first been developed by a Danish engineer in 1899, but had not been commercialized for musical recordings due to various technical obstacles relating to amplification. These had been solved in the intervening years, and the German machines of the 1940s were technically impressive. But they were also expensive and the tapes were bulky. The commercial potential of tape was identified by the Minnesota Mining and Manufacturing Company (later re-named 3M). 3M was famous for its Scotch Tape brand of adhesive materials and was an innovator in the commercialization of a more practical lightweight magnetic recording tape. By the time Bing Crosby insisted on a move to tape for the recording of his radio shows in 1947, a landslide had started in favour of the tape format for radio productions and master recording.
Tape may well have replaced discs as the preferred consumer format for musical recordings, had not Peter Goldmark, a Hungarian-born engineer working in Columbia’s laboratory, managed to produce a new long playing disc, the LP Microgroove Record. Columbia recognised the need to maintain innovation leadership, and in 1944 had set Goldmark the challenge of developing a long playing record. By 1947 he produced a disc which maintained the 12-inch standard diameter, but was made of vinylite and played at a slower speed of 33 and 1/3 rpm, and had narrower grooves. This combination meant that it could play for more than 20 minutes each side, with no loss of sound quality.
Hoping for industry-wide adoption of the new LP format, in 1948 Columbia invited its main competitor RCA-Victor to share its system of LP recording. RCA-Victor ignored the invitation and within a year launched its own competing format, the 7-inch, 45 rpm, micro-groove record. The advantages of the 45 were its compactness, and the fact that new smaller machines had much faster automatic disc changers. But the playing time was still only 4 minutes. RCA-Victor was therefore banking on domestic storage convenience being more attractive to consumers than the appeal of longer continuous playing times. The latter was more appealing to the classical market, the former to the mass market for popular songs.
The format battle between the LP and the 45 confused the consumer, and in 1949 sales fell by more than a fifth. It took until 1953 for the format question to be standardized internationally, with the predominance of players which were compatible with both disc sizes and speeds. The formats ultimately became known as 45s or singles, and LPs or albums.
With hindsight, it seems inevitable that the industry would eventually settle into maintaining two formats which allowed them to differentiate demand for music, and to market varied repertoire in different ways and at different prices. But that positive outcome was not seen at the time and is a good example of a hindsight rationalization of the intransigence of RCA-Victor and Columbia in refusing to concede format victory to each other.
As it turned out, more by necessity than design, the establishment of two ultimately complementary formats meant that the competing corporate technology interests contributed to the shaping of culture, and artists adapted to the available formats. Classical music, Broadway shows, jazz and themed popular music thrived on the LP format. The 45 was better suited to musicians, composers and performers who were more inclined to produce hit songs, or singles. It was only in the late 1960s and 1970s that contemporary artists began to explore the musical possibilities of the LP with longer and more holistic musical creations.
There were further improvements in sound reproduction technology, such as stereophonic sound, which were instrumental in ruthlessly exploiting the aspirational audiophile through sales of ever more expensive players, amplifiers and speakers. However, by the mid-1950s the dominant physical formats for general consumption were now largely settled for the next 20 years.
Symbiosis and prosperity - the fifties, sixties and seventies
The birth of the new formats coincided with the so-called ‘baby-boom’, and in many ways the evolution of singles and albums became culturally and economically intertwined with their human siblings. There was unprecedented economic prosperity in the US and the emergence of ‘white’ rock and roll from its R&B roots illustrated the cultural exuberance of the time. Radio blossomed as a cultural medium for the young through the rise of the disc jockey, or DJ, as tastemaker and trend-setter.
Competition amongst record companies for new musical talent was fierce, but segmentation of the market meant that new divisions and ‘labels’ sprang up to accommodate the demand, creating new stars, and making healthy profits. Rather than being a threat to music sales, radio had settled into a symbiotic, if sometimes corrupt (note 3) relationship with the recording industry. Radio, and the excitement of the top 40 charts, fuelled the desire for music. Tiny transistor radios and small portable 45 players were easily affordable by the early 1960s, and made music an essential and ubiquitous part of the young liberated and expressive lifestyle.
The music industry boomed through the 1960s and 1970s, not only in the US, but also internationally, helped by the rich and diverse cultural contribution from British artists. Growth can be attributed to a number of factors which were technological as well as cultural. One factor was the growing popularity of the LP album as a medium for new musical innovation and artistic expression. Pink Floyd’s Dark Side of the Moon is an iconic example.
Other sources of 1970s success include an explosion of new genres such as reggae, punk, hip hop, and disco on top of the diversifying repertoire within the genres of pop, rock, soul, funk and traditional R&B. International marketing campaigns became powerfully co-ordinated leading to the global dominance of anglo-american repertoire. There were also some hugely successful movie soundtracks, with Saturday Night Fever and Grease each selling in excess of 25 million units.
As a result of all these factors, the industry achieved an historic peak (note 4) towards the end of the decade more or less 100 years after Edison’s invention.
1980 to 1999 - portability, new formats and global domination
Though it was before my time in the business, anecdotes from my older colleagues (note 5) made it clear that in the early 1980s the business suffered something of a post-1970s hangover, marked by falling sales in the early part of the new decade. This has been interpreted as resulting from poor corporate governance in controlling the extravagance and wild excesses of the late 1970s. Other arguments offered for industry decline include a complacent and short-termist approach to the quantity and quality of investment in new artists, and a cyclical cultural lull in the emergence of new talent and social trends.
One further possible cause of short-term decline, though often disputed (note 6), was the growing popularity of the musicassette (MC) format. Blank recordable cassettes facilitated home taping and sharing, thereby arguably ‘cannibalizing’ the sales of LPs. The UK industry’s public education campaign in the 1980s that “home-taping is killing music” was subsequently ridiculed when the extent of the longer-term contribution of the cassette became more apparent. By the end of the 1970s the radio-cassette player had already become the default standard for in-car audio. Even more significantly, the popularity of the cassette led to the development of the Sony Walkman, one of the most successful products ever produced by the Japanese electronics giant. The Walkman was launched in 1979 and it transformed the consumption of music globally. It made music very portable and very personal, and quickly became a highly desirable lifestyle accessory for hundreds of millions of people (note 7). It was the iPod of its day and undoubtedly stimulated the global demand for recorded music, even after taking account of increases in home-taping.
By the time the Walkman was just getting into its stride, another product innovation emerged, driven by technology. In 1982 Sony, in collaboration with Philips, the Dutch electronics giant who had invented the musicassette in the 1960s, launched the compact disc (CD). With a futuristic look, and attributes such as greater robustness, longevity, convenience, and arguably higher sound quality, the CD was successfully marketed as a superior product to both the MC and the LP (note 8). Consequently, many library-building consumers re-purchased albums on CD which they already owned on other formats.
By the second half of the 1980s the recorded music business was back on a healthy growth curve which continued right up to the end of the century. This growth allowed the major record companies to invest in efficient large-scale manufacturing plants and global marketing and distribution networks, further strengthening their control of the lion’s share of the music value-chain. Technology-driven product innovation had seemingly secured the future of the industry, just as it had done repeatedly since the birth of recording technology one hundred years earlier.
International corporate empire-building
During the 1980s and 1990s, corporate ownership of the music industry became much more international. In 1986 the German media company Bertelsmann acquired RCA Records (including the Victor legacy) and formed the Bertelsmann Music Group (BMG). In 1987 Sony of Japan acquired CBS Records (including the Columbia US legacy), re-naming it Sony Music Entertainment (SME) in 1991.
The Dutch company PolyGram had been especially acquisitive of established independent record labels. I joined the company in early 1992 and the atmosphere was exuberant. I was involved in the acquisitions of Motown and Def Jam, and in the post-acquisition integration to the Group of A&M and Island Records, which had each been acquired in 1989. PolyGram already had an impressive stable of labels which included Phonogram, Mercury, Polydor, Decca, Philips, Verve, London Records and Deutsche Grammophon, the latter being the German company founded by Emile Berliner in1898. By the late 1990s, PolyGram could claim to be the biggest record company in the world.
Then in late 1998, Seagram CEO Edgar Bronfman Jr. controversially extended the Canadian drinks company’s new direction into entertainment when he bought PolyGram from its parent company, Philips, for US$10 billion. PolyGram was merged with Seagram’s own recently acquired and re-branded Universal Music Group, which included the labels MCA, Geffen and Interscope Records. The integration of the two companies was successful, and the newly combined powerhouse then represented well over one quarter of the recorded music market in most territories. At the time of writing, Universal Music Group still retains its market leadership, having further consolidated its dominant position with the 2012 acquisition of EMI.(note 9)
In the late 1990s there was growing pressure in the corporate finance world to maximise the ‘new media’ value of market leading entertainment content through consolidation with traditional media and communications companies. This pressure led Bronfman to merge Seagram (including the newly-merged Universal Music Group) with the French conglomerate Vivendi in 2000, forming Vivendi-Universal in a transaction valued at US$34 billion.
This sounds like a promising story, at least for corporate shareholder value. (note 10) However, in June 1999, only six months after the PolyGram acquisition, the peer-to-peer file-sharing service Napster was launched. Although it was widely expected that there would be trouble ahead, no-one was gloomy enough to predict just then that 1999 would mark an historic peak of the global recorded music market, nor that a dozen years later the market would have lost more than half of its value. In fact on an inflation-adjusted per-capita basis, the 2012 US recorded music market was even below half of the value of its previous peak in the late 1970s.
Also unforeseen was the trauma one year later when Vivendi-Universal was formed in June 2000. This transaction was only six months after another giant bet on the synergies between new media and old, the record-breaking US$164 billion merger of AOL and Time Warner which no doubt influenced Vivendi. Vivendi was the new corporate brand name for a very old French water and utilities institution, which had diversified into French media and telecoms in the 1990s. Vivendi had a maverick CEO, Jean-Marie Messier, who was sure that owners of wires and pipes needed to control attractive content in order to maximise their value.
As with those involved in the catastrophic AOL Time Warner merger, Messier ultimately paid the price of precociousness and over-inflated ambition. Two years after the creation of Vivendi-Universal, Messier was ignobly dismissed amid accusations (and later criminal charges) of misleading investors and destroying shareholder value.
1999 to 2003 - the filesharing pandemic
The filesharing pioneer Napster, in its unauthorized form, closed in 2001, only two years after its launch and following lawsuits from the recording industry. However Napster had opened a floodgate, and similar services such as Kazaa, Gnutella, BitTorrent and RapidShare emerged and grew for several years at a rate which outpaced the industry’s efforts to have them shut down.
Napster and its successors stole the headlines as the nemesis to the new millennial hubris of those who would tightly control the dissemination of music, but the rapid growth of unauthorised peer-to-peer filesharing is certainly not the only cause of the collapse of corporate shareholder value in the music business. It is true that Napster had unsettled many senior executives who were understandably anxious and duty-bound to protect the value of corporate assets represented by intellectual property rights, catalogues and large unrecouped advances to artists. After all, these were the products of decades of investment in the development of artists’ careers, and they underpinned corporate balance sheets and share prices. Yet despite this anxiety, there was also within the company a counterbalancing feeling of excitement about new technologies.
This more positive feeling is rarely written about because it does not fit neatly with the dominant blog-narrative of schadenfreude; i.e, that the record industry somehow got its just desert for being managed by greedy, complacent, white, middle-aged male Luddites working within a system which often appears to waste more talent than it develops. Such a resentful view does not accommodate my own observations that music companies are mostly populated with people who choose to work in the industry because they love to be involved with the development of artists, and with the processes of discovery, production and dissemination of great music. Whilst some of those people are characterised by arrogance, egotism and vanity, most work with humility and dedication.
All are bound by an interest in contributing to the success of talented and/or glamorous people, and in bringing musical delight to a big audience. Though they felt anxious about the disruption of new technologies, record company employees equally felt excitement and anticipation that we were on the front line of profound change which went beyond the prevailing value-chain of music production and distribution. In the early years at least, there was an assumption that the record company had a role, and even a responsibility, to be a pioneer of new forms of music discovery and consumption; not by being a barrier to new technology, but by promoting and co-developing it, continuing the 20th century industrial legacy. The problem is that the recording industry has always had a dual culture, a split personality which makes it difficult to reconcile the rather different roles of scientist-inventor and cultural patron-curator. But more of that later...
The more immediate and transparent problem was that within months of Napster launching, a frighteningly large proportion of all the music ever recorded, including new recordings before they were officially released, was available on the internet for free. It was available not just to experts and to early adopters of technology, but also available relatively easily around the world to anyone who had internet access; or anyone who had a friend or family member with internet access and a CD burner.
The audio CD, which had been the saviour of the industry in the 1980s, was a digital product which could be copied and was now perceived as an insecure product. Prior to Napster, it was reasonable to assume that corporate strategies could be adapted and optimised in ways which could manage the risk of unauthorised copying as the threat evolved. It seemed reasonable to assume that this would be achieved through the control of copy-enabling and disabling software and hardware, and through the enforcement of patents and copyright. With the benefit of hindsight, this seems to be a glaringly obvious corporate misjudgement, but even the most prescient of companies could not have recognised, before the mid-1990s at the earliest, the scale and immediacy of risk which the unprotected (note 11) CD format presented.
There were two important flaws in the imagined scenarios of record companies. The first was a failure to notice that consumers had been copying CDs to their computer hard-drives since the mid-1990s, often just for personal use, and that this attribute of the CD was one of its appealing qualities. The second flaw was the deep-seated presumption that very high fidelity audio reproduction would always be a prerequisite for music consumers.
'What a fuss people make about fidelity' (Oscar Wilde 1891)
The pursuit of natural ‘lifelike’ sound reproduction was the original mission of recording companies, and gave them their right to participate in the revenue potential of musicians and composers. It brought the great classical performers such as Caruso, Melba, Beecham and Elgar into the living room. In his book Capturing Sound, Mark Katz points out that for more than a century ‘a discourse of realism has reinforced the idea of recorded sound as a mirror of sonic reality, while at the same time obscuring the true impact of the technology’ (Katz 2004) p.1. By ‘true impact’ he means that recorded sounds, as mediated sounds in their various transformations, have their own independent properties and characteristics which encourage new creative practices and aesthetics. The new practices are in musical performance, in production, in the creation of new genres, in listening behaviours, and in the socialization of music. The idea of ‘natural’ or ‘lifelike’ sound now has little meaning, as the vast majority of what we hear has been mediated by technology, even in ‘live’ performance which is so frequently assisted by recording technology in one form or another. The recording industry has long understood how to take advantage of some of these technological impacts, but it severely underestimated the degree to which consumers were happy to sacrifice a small amount of reproductive purity for the benefits of choice, convenience and discovery.
Enter MP3 - the age of file compression
The catalyst of the highly disruptive file-sharing phenomenon was the audio compression format known as MP3, a short form of MPEG-1, or MPEG-2, Audio Layer 3.
MP3 is a product of a long history of scientific research in telephony and psychoacoustics begun by AT&T’s Bell Laboratories in the 1920s. Of most relevance here is the concept of perceptual coding. This is the name given to the solution which makes it possible to exclude, for the purpose of efficient transmission, those parts of sound which are not likely to be audible to the human ear.
The industrial goal for telecommunications companies is to maximize the capacity of their systems and infrastructure by minimizing the amount of data required to transmit a signal of acceptable quality. It is interesting to reflect on how this is a quite different industrial goal from the music industry which had consistently prioritised audio reproductive quality over data storage and transmission efficiency. This subtle divergence of technical priorities is an important clue as to why the compressed MP3 format (note 12) was not perceived as a threat to the music industry until it was too late.
From the 1890s to the 1980s, the pursuit of high fidelity (hi-fi) in sound reproduction was the common goal of engineers, audiophiles, and corporate marketeers alike. In the early decades of the 20th century the profits in the recording were driven by sales of players, not records. Home stereo sound systems with ever higher specifications and promises of higher fidelity generated billions of dollars for the electronics industry, and the perception of high sound quality was a key element in the success of the audio CD format.
In the 1990s, minimizing the file sizes which created such high quality was not the biggest industrial priority. It might be said that the electronics and recording industries misjudged the tolerances of the ‘public ear’ as it relates to music consumption. For many years they successfully marketed products which were technically over-specified for much of the public’s listening behaviour. It only became apparent following the success of the iPod and iTunes, but the public were prepared to sacrifice high-end reproductive quality in return for the greater convenience, accessibility and personalized experiences made possible by small digital files.
Given the cleverness of perceptual coding, combined with the high proportion of music which is consumed via cheap button headphones or in noisy environments, most consumers are not even aware of the sacrifice. But this level of compression tolerance was not well understood in the 1990s. Audiophiles regarded high levels of compression as technologically regressive; artists and A&R executives regarded it as aesthetically degrading.
A good deal of pride would have to be swallowed before the industry could accept that hi-fidelity was not as important as they thought.
The end of the industrial symbiosis between music and technology
In order to understand the evolution of the MP3 format and the way it blindsided the music industry, it is particularly relevant to understand the music technology strategies which were being pursued by Philips and Sony in the late 1980s and early 1990s.
As successful as the CD was, its size was regarded as being too large to support a really convenient mobile player which could be attached to the human body whilst physically active. The cassette Walkman was a robust portable device but it was looking very old-fashioned in a digital world. Sony and Philips, who had collaborated so lucratively on the establishment of the CD audio standard, were now in a highly competitive race, working separately on digital portable solutions to replace the cassette and its related hardware products.
Sony’s solution was the MiniDisc, which resembled a smaller version of the CD. Philips solution was the Digital Compact Cassette (DCC) which resembled a smarter hi-tech version of the analogue cassette. Both launched in 1992, and both ultimately failed to make a serious commercial impact.
The DCC had disappeared by 1997. The MiniDisc was more popular, especially in Sony’s home market of Japan. However, it never captured the success of either the CD format or the cassette Walkman and was finally discontinued in 2013. Unlike Philips, Sony did experiment with a portable digital media player, and with direct-to-consumer online music sales through its Sony Connect programme, launched in 2004. Connect failed, and Sony abandoned it four years later, recognizing that its consumer proposition was too restrictive and simply not as compelling as the alternatives, especially iTunes.
Although they considered themselves to be pursuing digital strategies, Sony and Philips had been continuing to assume they could control the consumption experience by concentrating primarily on physical products: discs, tapes and associated hardware. Their content-owning subsidiaries referred to themselves as record companies, being inseparably identified with their physical products. In a way, the whole industry was cognitively constrained, carrying almost 100 years of ‘common sense’ that high-fidelity and well-packaged physical products would always be critical attributes in consumers’ perception of value, i.e. what they would be prepared to pay for.
Though Philips and Sony were fully aware of the evolution of much smaller compressed digital files such as MP3, they did not perceive them as being a direct threat, as they seemed to be insubstantial products which were clearly of insufficient audio quality to compete with the CD or the MiniDisc. It is easy to look back on those years and wonder at the lack of vision which might have seen that digital content was on the verge of breaking free from its plastic containers. But a century of common sense takes a while to overturn.
In his excellent book, MP3: The Meaning of a Format, Jonathan Sterne comments:
The relative absence of innovation in the mainstream recording industry is crucial to the MP3 story. [ ] In its formative years online music was not the province of the recording industry, which had hitherto done a fairly good job of controlling its distribution channels. Online music - which was at its core a mode of distribution, a relation to infrastructure – was instead the province of companies like Fraunhofer and Philips, Microsoft and RealNetworks. (Sterne 2012) pp. 203-4.
It is very interesting that Sterne does not equate the ‘province of Philips’ with the province of the recording industry. Philips was instrumental in the growth of the recording industry through its development of the cassette and the CD, and through its majority ownership of market-leading music label group, PolyGram.
Of even more interest, however, is to appreciate the irony that Philips was so actively involved in MPEG (see next section) without seeing the scope of its impact on the music business.
The role of MPEG
MPEG stands for the Motion Picture Experts Group, a collaborative international network of scientist-technicians who shared an aspirational goal of establishing global technical standards.
MPEG was established in 1988 as an offshoot of JPEG, which set standards for still photographic images. The network is truly international (note 13) and was motivated by the desire to avoid the huge industrial inefficiency and consumer frustrations caused by competing standards in audio-visual and communications systems and infrastructure. It also aimed to reduce the risk of second-rate technical solutions becoming dominant. At the time of MPEG’s formation, full bandwidth digital CD audio could not be combined with digital video onto a disc, nor was it suitable for phone lines or radio.
These constraints hindered both the technical progress and the commercial potential of enhanced audio-visual quality in home video, broadcasting and telecommunications. MPEG therefore set about establishing digital audio compression standards.
Despite MPEG’s aspirations to suppress corporate competitive agendas, two competing coding-decoding (‘codec’) standards emerged early on. In an effort to mediate conflicting corporate interests, both codecs were incorporated as options in the standard, and named as MPEG Layer 2 and MPEG Layer 3. Layer 2 was less complex but also less efficient. It was backed by Philips and by Japanese electronic giant Panasonic. Layer 3 was backed by the research engineers at US telecoms giant AT&T, the Germany-based Fraunhofer Institute and others.
Being one of the pioneers of the CD and of the first optical videodisc formats in the 1970s, Philips was a highly credible expert member of MPEG. In the still undeveloped digital home video market, Philips was keen to replicate its CD patent success in the global audio market by leading the process in developing the next generation of video discs. As a company with a powerful presence in radio and TV products, Philips also had a strong strategic interest in pioneering the standards in satellite television and digital audio broadcasting. Audio compression was a key element of these standards.
By 1995, Philips had seemingly got its way, with MPEG Layer 2 being adopted for digital audio and TV broadcasting, and for digital video discs (DVDs). Before commenting further on Philips’ apparent success and on the subsequent strategies of Philips and Sony, it is important to understand what happened next to the ‘losing’ format, Layer 3.
The Fraunhofer Institute, still convinced of the superiority of Layer 3, continued its marketing of the alternative standard in what seemed at the time to be niche channels. It became the preferred standard for the Internet Underground Music Archive (IUMA) which is acknowledged to be the first major player in online music distribution, being set up in 1993. As recounted by Sterne (2012), IUMA switched from Layer 2 to Layer 3 not only because of its higher quality with smaller file sizes, but because it became freely available. This availability was unauthorized, being distributed by an Australian hacker who in 1995 acquired Fraunhofer’s program with a stolen credit card, and adapted the interface, redistributing it for free under the name “thank-you Fraunhofer”. It was around this time that Fraunhofer rebranded MPEG Layer 3 with the name MP3.
In addition to being the format of choice for technically-savvy musicians, active music consumers and hackers, Microsoft adopted MP3 in 1995 within applications bundled with its operating system. By 1999, the MP3 format was also compatible with Apple’s Quicktime. A further boost came from the launch of various personal, portable, digital audio players from 1997 onwards. The most well-known was Diamond Multimedia’s Rio, being the first of its kind to attract the attention of music industry lawyers, and Diamond successfully defended itself against the 1998 lawsuit brought by the Recording Industry Association of America (RIAA).
A perfect storm
Between 1995 and 1999, a series of technology developments conspired to create the perfect storm for the mainstream recording industry:
the hacking of the MP3 encoding program and its unauthorised free distribution;
the broad acceptance of the MP3 sound compression standard for file transfers amongst communities of technicians, musicians and highly active music consumers;
the incorporation of MP3-compatible applications in both Windows and Apple computers;
the rapid domestic market penetration of personal computers with CD drives which allowed the widespread ‘ripping’ and ‘burning’ of CDs;
the appearance of portable digital media players; and
the development and rapid viral spread of peer-to-peer file sharing technology.
Finally, and perhaps the most damaging, was that the record labels had corporate parents who were distracted by other priorities.
During these years, Sony and Philips were engaged in winning other media format battles which they perceived to be more lucrative and which went well beyond the domain of recorded music. From the mid-1990s onwards there was in both Philips and Sony a growing strategic misalignment between their electronics divisions and their music divisions.
Sony had a number of conflicts where its music division was in litigation with its other product divisions. The latter endeavoured, rationally enough, to exploit new consumer demand from the emerging technologies, such as internet radio services and CD burning hardware, unconcerned as to the detrimental effect it might have on Sony Music.
Similar tensions emerged between PolyGram and it corporate parent Philips. I joined PolyGram in 1992, the same year in which Philips launched the ill-fated Digital Compact Cassette (DCC). Whilst Philips and PolyGram had distinct cultures, they were both Dutch and there was still a strong mutual respect and confidence in the symbiotic relationship. Jan Timmer, Philips’ CEO from 1990 to 1996, had been in charge of PolyGram from the difficult early 1980s and he is credited with rescuing not only PolyGram, but also the whole music business, through his role in the successful launch of the CD. There was, therefore, loyalty and strategic understanding between Philips and PolyGram during Timmer’s tenure as Philips CEO.
However, by then Philips was suffering financially. It had grown to become a complex and unwieldy global company of over 250,000 employees, and a reputation for great technology innovation rather than for smart marketing strategies. In 1996, Cor Boonstra took over from Jan Timmer, and was the first Philips CEO not to have developed his career within the Philips group. He came from American food group Sara Lee and had no experience or empathy with the entertainment business. He began rationalising the many divisions and companies within the Group, and successfully transformed Phillips to have more of a consumer electronics brand focus under the campaign “Let’s make things better”.
As regards music strategy, the failure of the DCC format was only one of several factors that had a detrimental impact on the relationship between Philips and PolyGram under Boonstra’s tenure. Other factors were Boonstra’s nervousness in not knowing the entertainment business, and having to rely on ‘mercurial and difficult management’ (Kuhn 2002). He was also anxious about PolyGram ploughing its substantial cash-flow into its fledgling film business, and he worried about the threat to the music business posed by the internet.
In his book 100 Films and a Funeral PolyGram Filmed Entertainment CEO Michael Kuhn gives an account of the demise of the business following its acquisition by Seagram. He gives some insights on this important phase in the history of the relationship between music content and technology. Recounting a late 1997 meeting between PolyGram executives and Cor Boonstra, he writes:
We decided to have it out. We convened a meeting in a country house hotel, south of London. [ ] After a pleasant dinner we set out to discover the truth. We said that we thought that he [Boonstra] was not particularly interested in PolyGram as such. He said that was correct. We then discussed whether he would like Philips to get out of their investment if they could. He said he would. We then devised a plan whereby we would each explore various exit scenarios with Philips and reconvene in due course.
Unknown to PolyGram’s management, Philips already had a process underway and was in talks with Seagram. The sale was announced in May 1998, only a few months after that meeting. I draw attention to this event because it is relevant to describe the emotions within PolyGram when it was announced that we were to be sold. I had attended a PolyGram senior international finance meeting a few days before the announcement. At that meeting, we expressed great concern that the Group (Phillips and PolyGram) did not appear to have a strategy regarding new digital technology and the internet. The DCC had been quietly withdrawn from the market 18 months earlier. Since then there was a sense that Philips, under new direction, was giving up on its long relationship with recorded music technology and products in favour of health and wellbeing products.
Despite this premonition, there was a profound sense of shock, betrayal and sadness when the news of the disposal finally broke. PolyGram was a company which discovered and managed talent, and which promoted, manufactured and distributed physical products. But as successful as PolyGram was at those things, it did not have the expertise, structure, resources, and culture of technical innovation with which to be a major player in the domain of the new type of solutions which were to shape the future consumption of music. More worryingly, neither did our new owners, Seagram.
It is tempting to imagine that if Philips had, through its active role in MPEG, better understood the potential life of digital music files beyond their physical containers, things might have turned out differently. In parallel with MPEG, Sony and Philips were each pursuing independent research and development of media compression as part of their MiniDisc and DCC strategies. Each had a proprietary codec which if it had come to market dominance instead of MP3, might have given either company, and the industry in general, more control over internet file transfers, relegating alternative unauthorised formats to the fringes.
As a former PolyGram senior manager, I therefore feel that a huge industrial opportunity was missed. By contrast, as an active music consumer, I feel that the MP3 story is a serendipitous one: it is difficult to imagine that, had it retained tight control of digital music file distribution, the recording industry would have created a music consumption experience anywhere close to the breadth and flexibility of what is available today.
2003 to 2013 - The golden age of Apple
The withdrawal by Sony and Philips from the device market eliminated two major competitive threats to new entrants, and thereby created an enormous opportunity.
In his book Good Strategy /Bad Strategy, Richard Rumelt (2011) recalls a conversation he had with Steve Jobs in 1998, not long after Jobs had returned to Apple to save it from near bankruptcy. He asked Jobs what his strategy was for the longer term, after his initial cuts and refocusing of Apple as a niche player in the global computer market. Jobs replied that he was just ‘going to wait for the next big thing’ (p.14). This comment was made the same year in which portable digital music players arrived on the market in notable quantities from a variety of specialist manufacturers such as Audible, Diamond and Creative. Jobs saw the opportunity but he did not rush to market. He recognised that the experience of digitizing and organizing one’s music collection was a labour-intensive exercise. It also required technical knowledge and therefore, for a while at least, it would be limited to the domain of early technology-adopting, and highly-active music consumers.
Any solution which might appeal to a more general consumer would have to make the whole experience much easier and more enjoyable. It required thought, care and time to craft the optimal design. Apple launched the first iPod three years later in 2001, but it was only when a Microsoft Windows-compatible version of iTunes was released in October 2003 that the mass market of music consumers took notice. It had therefore taken ten years from the first online distribution of music by IUMA, five years from the arrival of the first portable digital music players, and four years from Napster triggering the file-sharing revolution, before a compelling, legal and authorised digital online music offering finally crystallised.
Apple delivered what millions of consumers craved, even if most of them didn’t know it yet: a holistic and pleasurable solution for organizing, personalizing, discovering, and rapidly accessing almost all the music most people would ever want, all wrapped up in an elegantly designed, intuitive-to-use portable device which synchronised simply and reliably with one’s computer. By 2012 Apple had sold 350 million units of the various iPod models.
For the purpose of illustration of the comparative scale of revenues, this broadly equates to an average annual revenue of $5 billion. When added to another $5bn of music revenues from iTunes, this means that Apple had generated from music (note 14) around twice the annual revenues of market leading music company Universal Music Group.
As early as 2006 Apple had already grown from having no previous music retailing presence to become the single biggest music retailer in the world, this market share being amplified by the fact sales of CDs were collapsing in most markets. Apple’s dominance of music retailing was further secured with the launches of the iPhone (2006) and iPad (2010) which embedded the Apple media platform even more deeply and widely.
Record companies had played no part in the development of this extraordinary new business model for music consumption, other than to licence their recordings to iTunes. Even this minimal level of collaboration was conceded with extreme reluctance in some cases. Many in the recording industry, including some major artists who withheld their permission, thought that the brutally simple pricing of 99 cents for all songs, combined with the unbundling of the album format which allowed consumers to cherry-pick individual songs, had the effect of commoditizing music. For many in the 'old' business it constituted a disastrous strategy which diluted economic value.
Theoretically they had a strong argument, but Jobs had a stronger one to which he held firm: that simplicity, flexibility and choice were the key attributes which secured the mass-market adoption of iTunes. Competing economic pricing theories of value-maximization had no relevance here because the recording industry had no credible alternative business models. They therefore had no choice but to accept Apple’s terms of trade. Though there was something of a love-hate relationship between Apple and the record companies for many years, only die-hard music industry veterans would now fail to acknowledge that Apple prevented an even sharper decline in the recorded music industry in the first decade of the new millennium.
In early 2014, the ten year boom of puchased digital downloads, led and dominated by iTunes, showed signs of waning. Generation X and Baby Boomers had to work hard to discover and access the music they wanted. When they found it, they wanted to own it. Steve Jobs understood that very well.
But for the younger end of Generation Y, or the Millennials, the benefits of owning digital products were nowhere near as compelling. Now that music was so ubiquitous, plentiful, and easy to access, why go to the trouble of storing and managing a huge private collection, much of which might only be listened to once?
By this time many alternative digital music services and models had been established, and there were more legal online services in the UK than anywhere else in the world. But these alternatives had very minor market shares. The phone companies in particular had failed to collaborate effectively with the music industry in order to create offerings which could seriously compete with Apple. The most successful service, after iTunes, was Swedish subscription service Spotify, launched in 2008.
Subscription services were amongst the first credible online music offerings (e.g. Rhapsody in 2001), yet they had failed to make a dent in iTunes’ globally dominant share of digital music spending. Google had launched a subscription service, All Access, but had failed to make much of an impact. Apple was considering following suit, but Spotify still looked the most promising, with 40 million users as of May 2014, of whom more than 10 million were claimed to be paying customers, the remainder accepting advertising in exchange for the free service. Despite this success, Spotify still only represented around one fifth of the music revenues generated by iTunes and was still loss-making.
Given the success of subscription models in the TV market, it is curious why they took so long to be successful for music. They give more choice and access to a vastly bigger catalogue than an individual could reasonably own, and they provide a risk-free browsing and discovery experience, thereby presenting a very compelling economic argument for the active music consumer who buys more than a dozen albums a year. Steve Jobs was always strongly opposed to the subscription model (note 16) based on his assumption of a deeply embedded cultural construct of music to be collected and owned. Jobs’ prejudice alone was a significant obstacle to the development of subscription models, at least until his death in 2011.
The music industry has long held a similar antipathy towards the subscription model, feeling that renting music rather than buying it outright could further commoditize (note 17) the supply of music, diminishing consumer commitment to music purchasing, and reducing fan loyalty to individual artists. Record companies were also anxious that they would lose visibility of the detailed sales and consumption data of their products, which has implications for marketing and promotion, and for artist royalty accountability. Furthermore, on the technical side, subscription services suffered real difficulties in infrastructure, interoperability and bandwidth reliability. These were obstacles to creating a portable subscription option which is both easy and reliable for the consumer, and secure for the content owners. Prudence was the priority in the early years, and the consequentially limited consumer offering was self-defeating. Most of those technical problems had been overcome by 2014, but the one price ‘all you can eat’ model was still too crude and economically inefficient to exploit a huge and diverse market. Broadly-speaking, the £9.99 a month model is a great bargain for the top 15% of most active music consumers, but a rather expensive luxury for the rest. Until there is mass market adoption of subscription services, with greater differentiation bteween basic and premium services, the model may turn out to be rather dilutive for the artists and for the record industry.
Despite these continuing obstacles, I predict that in the foreseeable future music consumption via access services, in one form or another, will outstrip the growth in sales of individual digital products (tracks or albums) to be bought and owned. I should point out, however, that I’ve been saying this for ten years, and things still have a long way to go before I’m proved right.
[NB - This section was written in 2014 will be updated in 2023.]
Where next for record companies?
There is a tendency, especially amongst people over the age of 40, to think that the diminished monetary value of the recorded music market is a sad and retrograde development in cultural history. I used to feel that way myself, but I have subsequently come to the conclusion that it is the curious phenomenon of 20th century music consumption that may ultimately be seen as the cultural anomaly.
The origins of music date back millennia and many believe that music is at least as old as language. Prior to the invention of the phonograph at the end of the 19th century, music was first and foremost a social activity. It was composed and performed for live audiences, whether the purpose was ritual, political, educational, or simply entertainment.
Today, listening to music on one's own has become a normalised human activity. But such a personal and bespoke experience cannot be considered to be a timeless human practice. Over the course of the 20th century, recording technology converted the listening experience into a more private affair which we now take for granted as a fundamental human pleasure. However, this wonderfully illustrative article in a 1923 edition of Gramophone magazine reminds us how unnatural and shocking it was to encounter someone listening to music at home, on their own:
You would look twice to see whether some other person were not hidden in some corner of the room, and if you found no such one would painfully blush, as if you had discovered your friend sniffing cocaine, emptying a bottle of whisky, or plaiting straws in his hair...I fear that if I were discovered listening to the Fifth Symphony without a chaperon to guarantee my sanity, my friends would fall away with grievous shaking of the head.
With this perspective, one might see new media and technology in the 21st century as stimulating a shift in the cultural role of music back towards its social origins, a shift to which record companies have struggled to adjust.
It is easy to romanticize the grass-roots revolutionary aspects of the MP3 story decribed earlier. It is tempting to indulge in a nostalgic lament for the collapse of a long and successful marriage between the inventors who industrialized recording technology and the cultural intermediaries who nurtured and commercialized the careers of artists and tastemakers. The marriage was made at the turn of the previous century with names such as Victor, Columbia, His Master’s Voice and Deutsche Grammophon. All these names can be traced by corporate lineage to the two remaining market leaders, Universal and Sony (note 18), the businesses which today continue to control well over half of the diminished global recorded music market. They may have ceded their legacy roles as technology hardware innovators to a whole new species of giant corporate media innovators, yet despite the apocalyptic discourse surrounding the music business, it is, in the aggregate, in much better health than is popularly reported, when the broader social functions of music are taken into account.
On an inflation-adjusted basis, the global recorded music market in 2012 was under half of its peak in 1999, but the years of decline started to reverse in 2014. Most recorded companies have adjusted their structures and overheads to accommodate the changing economics, maintaining respectable bottom line profit margin percentages. Furthermore, it is generally much less clearly and less frequently reported that the falls in sales of recordings has been largely offset by growth in other sources of revenue, especially live performance (note 19).
It is also not well understood that recorded music data is often reported separately from music publishing data, even though music businesses often run the two activities in parallel, albeit with separate management and distinct organizational cultures. Music publishing is the part of the business which deals in the compositional rights as distinct from the recording rights. It is a less capital-intensive business, as its role is more focused on collecting revenues from all sources, rather than investing in specific parts of the many forms of music exploitation. Publishing is the discrete, low profile and lower risk part of the music business, and has been consistently profitable throughout the new millennium value-chain disruption, as its revenue streams are more evenly spread. It will remain lucrative, assuming copyright law remains largely intact and enforceable.
The music market is actually made up of many significant revenue streams. These include licensing of recordings (for advertising, movies, TV and games), live performance, broadcast revenues, merchandising, sponsorship, brand marketing, composition/home recording software, sheet music and instrument sales. The complexity inherent in these various rights and business models creates confusion in the public mind about the health of the broader music industry, especially given the piecemeal reporting of market data, and the lack of understanding about the relationship between the publishing and recording business models.
Record companies traditionally did not participate in live performance, merchandising and sponsorship, viewing them as ancillary markets. In the case of developing artists, live tour support is in fact a common promotional expense for record companies, rather than a revenue stream. In recent years record companies have been increasingly challenging these strategies and their own contractual arrangements with artists and concert promoters, so that they can participate in revenues which are arguably directly related to their investments. In this respect, it will only be a matter of time before the increasingly narrow terms ‘recording’ contract and ‘record’ companies become obsolete, as music businesses extend broader services to artists. Similarly, consumers will become oblivious to the distinction of separately purchased recorded music products within their overall cross-media, multi-channel consumption of music in all its forms. Music businesses are nevertheless reluctant to give up the term ‘recorded music market’ as the ability to demonstrate the shrinkage of this market is a key argument in the industry’s lobbying for stricter statutory copyright-infringement protection.
There are two critical factors which will determine the economic future of the organizations which we still nostalgically refer to as record companies. The first factor has a cultural dimension, is service-driven, and transcends whichever policies and laws prevail. The second is entirely dependent on law and policy reform. Both factors are deeply socially-constructed and have become regarded as common-sense ways of organising the cultural industries. Their claims to common sense have, however, been fiercely contested in the new millennium. Being linguistically constructed they are highly dependent upon the power of narrative, rhetoric and metaphor, and thus lend themselves to discursive methods of analysis.
The first factor I call expert services. I assume that those working in the music business will retain their expertise and extensive resources in the discovery, nurturing, development and bespoke promotion of exceptional talent. This includes their ability to detect, shape and exploit cultural trends through a variety of media, products and services. They will need to continue to master new skills, especially regarding new ways to exploit, directly or through collaboration, the social role of music. These embrace what Kevin Kelly (2008) in his article Better than Free calls his eight inimitable ‘generatives’ of consumer value, namely: immediacy, personalization, interpretation, authenticity, accessibility, findability, embodiment, and patronage.
No matter how easy it may have become for musicians to record and to present their music online, nor how efficient and sophisticated the recommendation algorithms and other grapevine tools are, the skills of the cultural intermediary will thrive because they are ancient, subtle and complex crafts which underpin mutually productive social roles and identities. If anything they will be more valued than ever in a world of proliferating and competing products. A growing taste for more local and organically grown talent untainted by big corporate exploitation favours the small independent music entrepreneur.
At the other end of the spectrum, there is seemingly no diminishment in the public appetite for easily discoverable and digestible hits, style icons and branded glamour, which the bigger corporations are so expert at providing. In both cases, artists are generally disinclined to spend their time being marketeers, entrepreneurs, administrators and sophisticated self-promoters, even now when many of the previous obstacles to them playing these roles have been removed. It therefore seems reasonable to assume that music businesses (rather than record companies) will continue to adapt and master the new media tools and technologies which will help them retain their positions as patrons and curators, even if they neither own nor control the technology for production and dissemination.
Whilst the provision of expert services will determine whether the businesses formerly known as record companies continue to have any role in the future value-chain of music, a second critical factor will influence the scale and scope of their activities. That second critical factor, which I will refer to as capital protection, is the extent to which intellectual property law, and copyright in particular, might be reformed either in favour or against the current content-owning oligopolies. This is not just an issue for the music industry, but for all the traditional cultural industries, such as book publishing and the film industry.
Reform has already proved itself to be a painfully slow political process, not helped by the fact that, in the UK alone, there have been six successive ministers for intellectual property since I interviewed the first one in 2007. There have also been several government-commissioned reviews so far in the new millennium, all more or less commonly concluding that the current law is less than optimal with regard to fostering innovation.
Complexity, ignorance and fear all conspire to create obstacles for the development of new products and services which rely on intellectual property. Angry demands to liberate culture from its old captors are inextricably bound up with fears that the ‘wrong’ kind of liberalisation will favour new media giants whose ‘big data’ armouries may already be creating new monopolies through their control and non-remunerating exploitation of online identities, behaviours and images.
New legislation is sober, modest and unambitious in its reforming scope. Even so, it has still not made any significant impact on the power relations between content providers and other economic participants. This is largely due to the rhetorical minefield which it is endeavouring to cross, and to the political preference for industry-brokered voluntary solutions, rather than imposed statutory ones.
France and Germany are more legislatively conservative and protective of their legacy cultures than the UK. France was the first to implement (and to withdraw) controversial anti-infringement measures which can lead to a person’s internet connection being cut off. The continental Europeans are also particularly fearful of the cultural and economic impact of Google, Facebook, Apple and Amazon.
The US government is relatively less concerned about cultural protection measures, but is more vulnerable to being swayed by powerful corporate interests, both new and old. The traditional content industries won hard-lobbied pre-Napster victories with the Copyright Term Extension Act (1998) and the protective anti-circumvention measures contained within the Digital Millennium Copyright Act (1998). Since then there has been more deadlock than progress in legislative changes, along with a tsunami of litigation by rights-holders. There is broad acknowledgement of a strong case for copyright reform, with the US Register of Copyrights calling for ‘the next great copyright act’ recognising that ‘if one needs an army of lawyers to understand the basic precepts of the law, then it’s time for a new law’ (Maria Pallante 2013).