Business as usual

If you've ever wondered why CDs cost nearly $20, a stroll around last week's National Association of Recording Merchandisers (NARM) convention at the Marriott World Center near Disney World might have provided a little insight.

You could have attended a "Welcome Reception" sponsored by Sony Music, with a half-dozen open bars, nearly a dozen different food stations and no music playing. You may have felt the urge to check out an hour-long "product presentation" from Universal Music that featured three live acts (including The Jayhawks), a video presentation and no food. Or, you could have checked out one of the "Club NARM" nights that featured live acts (like A Simple Plan or The Del McCoury Band) and drinks. There were "networking breakfasts," "hospitality suites" and meals sponsored by labels. There were bands (like Soundtrack of Our Lives and Alison Krauss) playing during the Business Session and Awards Banquet. All of it was paid for by record labels, distributors and record stores, and all of it was unnecessary.

NARM, like most industry conventions, is a combination of schmoozing, seminars and selling. About 1,600 representatives from the record-store business were there. Unlike other industries, however, NARM isn't the only place where biz insiders come together. Held immediately after the South by Southwest convention in Austin, and immediately before the Winter Music Conference in Miami, NARM is one of many high-profile music industry conferences, along with In the City (UK), MIDEM (France), CMJ Music Marathon (New York), Popkomm (Germany) and dozens of others. Though this convention is supposedly geared toward the retail aspect of the business, most events at NARM were decidedly focused on the state of the music industry, rather than the state of retail.

NARM -- like all of the other music business' self-congratulatory soirees -- is a relic of a time long past, when consumers flocked to record stores to pick up the hot, new release. That was before Kazaa, before Amazon and before a seemingly relentless onslaught of records that nobody cares about. The music business is tanking and, aside from cursory acknowledgments of temporary trouble (NARM president Pamela Horovitz called the current climate "awkward" in her remarks at the opening business session), nobody within the business seems to know what to do about it. Even the most casual music fan is aware that the Recording Industry Association of America (RIAA, which represents the record labels) has been waging a war on music fans it deems "web pirates." And some may even have been persuaded by the propaganda that "downloading is killing music."

But the truth is that the music business is killing music. By holding on to a seriously outdated business model -- one that includes budget-drainers like NARM -- the industry has made itself irrelevant. Instead of putting the blame where it's due, however, this industry has decided to go after its customers.

Some people seem to understand this. NARM chairman David Schlang said it best when he admitted that, "We've done a really good job of pissing off our customers." Even Hilary Rosen, the oft-vilified chairman and CEO of the RIAA and the person most readily identified with the war on consumers waged by the industry, acknowledged that "anti-piracy efforts are a waste of time if consumers aren't being served."

The thing is, nobody at NARM seems to know how to serve those consumers, they just knew they were in trouble if they don't. The ideas tossed around -- online stores, copy-protection, lawsuits -- all conform to antiquated notions of retailing that demand a middleman (or five) between the artist or label and the consumer. Yet research -- some of which was conducted by NARM itself -- indicates that the next generation of consumers has never been without computers, has never been without file-sharing, and has never been required to walk into a record store to get their music. Why on earth would these people shell out $20 for something they're used to getting for free? Especially when, every time they've done it in the past, they've gotten an incredibly inferior product? Simply put, they won't, unless they have a very compelling reason to do so.

Blame it on Frampton

Previous generations of music fans had very compelling reasons. In the '60s and early '70s, record labels certainly had their share of disposable hits. However, the industry's foundation was built on artists' careers, whether it was popular unit-shifters like Aerosmith and Fleetwood Mac, or fringe artists like The Fugs. The trifecta of mindless pop, left-field artistry and mainstream hit-makers provided enough money to keep the business healthy and enough credibility to keep it respectable.

Then, in 1976, a guy named Peter Frampton released a live album that sold 13 million copies, an unheard-of amount. Labels had experienced smashing successes before, but "Frampton Comes Alive" was a clarion call for the business to focus on a few, high-profile acts that could make them lots of money, rather than dozens of smaller acts that, in aggregate, would probably make them far less. Greed took over, though artistry still remained a vital element of the process. In the '80s, pop superstars like Prince, Michael Jackson and Bruce Springsteen managed to create inspired, inventive work, all while raking in hundreds of millions of dollars for their labels (which, by the way, had invested quite heavily in their careers before they became superstars).

But these artists were the last remnants of a once-idealistic business, and only Springsteen still has a contract with his original label. When the commercial success of the big names waned in the late '80s, vacuous teen-pop began to dominate airwaves and chain stores. Disgruntled music fans turned to the post-punk diversity of the independent labels that laid the groundwork for the "college rock" movement of the mid-to-late '80s.

This was the golden age of music retail. While "alternative" outlets thrived on the seemingly unending freshness of material from labels like 4AD, Matador and Sub Pop, mainstream retailers got fat from CD reissues of catalog titles and the output of teen-oriented pop stars. It was quite possible during the late '80s and early '90s to run a music shop that was both highly profitable and way cool, and numerous regional chains popped up alongside thriving behemoths like Tower and Musicland. The expensive habits the industry acquired over the past 30 years -- radio payola, press/retail junkets, exorbitant salaries and, yes, lavish conventioneering -- only got more out of control and more entrenched.

So, when the bottom quite literally fell out in the recent, post-alternative environment, how could the industry possibly react? They had no real artists on their rosters (all fired after their first album didn't sell). They had no real stars (all fired after their fifth album didn't sell). What they did have was a never-ending cycle of one-hit wonders: hip-hop flash, nŸ-rock anonymity, boy-band idolatry. There was nothing substantial for a generation of music fans to latch onto. Sure, the songs were there, and radio hits abounded. But nobody knew -- or cared -- who they were listening to. The industry's response? Business as usual.

Customers are criminals

Of course nobody at the NARM convention -- or South by Southwest or any other conference -- would actually admit to the problems. There were discussions about rediscovering market shares, reassessing the future identity of the industry, eliminating "illegal" file-sharing and a general feeling of "We've got to do something about this!" But not one panel or speaker offered any concrete solution.

In the sparsely attended "Consumer Research Forum," however, it became very clear that this industry doesn't fully grasp how out of touch they are with their consumer base. According to Matt Kleinschmitt of Ipsos-Reid, a market research firm retained by NARM, his company realized in 1999 that "with the rise of Napster, it was very clear that consumers were going to have a wide range of options" when it came to getting their music. The industry's response to Napster was litigation of the service and vilification of its users. The service eventually shut down, but others, like Kazaa, popped up in its wake, leaving the music business wondering where all their customers had gone.

NARM contracted with Ipsos-Reid to try and get a pulse on "digital music behavior" among consumers in 2002, three years after it was abundantly clear that the entire music-business landscape was irrevocably altered. The resulting survey, conducted in December 2002, revealed that while 24 percent of the American population has downloaded a song off the Internet, 19 percent has used a file-sharing service. The same study showed that it's record-store customers who are downloading: 35 percent of those people who had bought two or more CDs in the past six months have also downloaded.

Pissing off customers indeed. In essence, the three years the industry spent on "enforcement" could have been spent actually researching these trends and getting ahead of them, rather than criminalizing customers.

The same study indicated that CD prices are out of line with reality. Survey results indicated that consumers think $13 is an "appropriate" price on a new release by an established artist. If a CD is more than six months old, the same consumers feel like paying about $2 less. For a CD older than 18 months, $9 is about right.

Currently, most "catalog" CDs have a list price of $11.98, $3 more than what consumers feel appropriate. But the biggest jump comes on "hits." The Top 20 in Billboard's March 22 issue has 16 titles with a list price of $18.98, two titles at $17.98 and one each at $16.98 and $13.98. That's about 50 percent more than what customers think is appropriate.

However, looking at the same chart from March 21, 1998, the average list price is only about $1 less. So it's not as if prices have suddenly gone through the roof. Yet there are 11 platinum or multi-platinum albums on the 1998 chart, with a total of 87 million sales among them. On the recent chart, there are nine platinum or multiplatinum albums. However, those albums' sales only tally up to 25 million, a precipitous drop.

Which could be explained by another survey presented in the forum. Focused on the tastemaking youth market, this second batch of research clearly spelled out that the kids who buy records want more than one good song on a CD, something they're obviously not getting.

So, an industry sponsored study tells the industry that their customers are the ones they've been calling "criminals," that their product prices are out of line with reality, and that the products they do provide consumers aren't of high enough quality to warrant any real excitement. Translation: the days of Frampton Comes Alive are over, and if it wants to remain vital, this business needs to quit having back-slapping conventions and get down to the business of putting out products people want to buy.

Singles rock

I thought I had found someone with a good idea when I ran into a couple of women in a hallway wearing sandwich boards proclaiming "Save the Single!" After all, resurrecting the single as a format would go a long way in providing people the hits they want at a cheap price without the risk of ending up with a bunch of crappy songs for $20. It might even curtail downloading of hits.

The women were handing out flyers -- which turned out to be for 15 percent off at the Virgin Megastore, and not a tract on the benefits of singles -- so I asked them why the single should be saved.

"Singles rock," proclaimed one.

"They rock?"

"Oh yeah, they're so cool," she said.

"That's all?"

"Well, yeah."

If weak sloganeering -- as cover for handing out discount coupons -- is the best solution the music business can come up with, then it's in bigger trouble than any amount of "web piracy" could provide. Only by shedding the accoutrements of it's big-budget past and attempting to come up with real solutions that work for both artists and consumers (and not worrying so much about making sure every middleman has a place in the "new model") can this industry hope to survive. Independent labels are thriving (see sidebar), and perhaps the big guys could take some hints.

But it's unlikely. Which means more conventions and more free drinks for delusional businesspeople and a lot less good music for the people who really care about it.

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