The Perfect Bubble: 1985-2000

Aram

June 11, 2012

¶ 1 Leave a comment on paragraph 1 0

¶ 2 Leave a comment on paragraph 2 0 Figure 4: Global Music Sales Revenue, 1969-2011 (Inflation-adjusted $US billions)

¶ 3 Leave a comment on paragraph 3 0 As you can see from the chart above, global music sales revenues began to climb steeply in the mid-to-late 1980s. In the decade between 1985 and 1995, adjusting for inflation, the market expanded by 324% – more than it had in a generation, and far outstripping any previous gain in terms of actual dollars spent. This explosion wasn’t simply the result of people liking music more than they had in the past, or of the product improving (say what you will about the relative merits of 80s pop and metal, and 90s grunge and hip-hop). To the contrary, it was the result of a combination of factors, including a highly successful (and expensive) new recording format, the consolidation of the music retail and broadcasting sectors, a new generic strategy which focused on aggregating mass audiences, and a booming consumer economy.

¶ 4 Leave a comment on paragraph 4 0 One of the biggest boons to the recording industry during the last two decades of the 20^th Century was the market success of the compact disc. As I discussed in Chapter 2, one of the primary reasons the music industry has historically updated its distribution formats each decade or two is to reinvigorate the marketplace, both renewing interest in recorded music as a consumer product and driving fans to upgrade their existing collections. The CD has been the most successful physical distribution format of all time by many measures, including the speed with which it achieved market dominance and the total number of units sold at its peak. First introduced to the market in 1983, retailers were already touting the CD’s potential to spark a replacement cycle by 1984.[1] CDs outsold microcassettes globally for the first time in 1993, and remained the dominant sales format, in terms of revenues, through 2010.[2] Only in 1998-1999 did Billboard magazine first raise the specter of diminishing sales due to the “maturing of the CD-replacement cycle,”[3] suggesting that it had played a significant role in driving revenues for the past 15 years (see Figure 5).

¶ 5 Leave a comment on paragraph 5 0  

¶ 6 Leave a comment on paragraph 6 0
Figure 5: CD Replacement Cycle and Global Music Sales Revenue

¶ 7 Leave a comment on paragraph 7 0  

¶ 8 Leave a comment on paragraph 8 0 Another important factor in the expansion of the recorded music market during the 1980s and ‘90s was the transformation and consolidation of the music retail sector. Until the 1970s, most people bought their music at independent record shops or general merchandisers. While there were some regional “music specialty” chain retailers like Sam Goody and Camelot Records, they were still a far cry from the global “superstores” and “megastores” typified by Tower Records, HMV and Virgin a decade or two later. By the early 1980s, the head of the National Association of Recording Merchandisers (NARM) was confidently predicting the imminent death of “mom and pop operations” in the wake of “further consolidation of the large retail chains.”[4] His words proved prescient; coasting on the larger wave of industrial consolidation and the general transformation of retail into a mall-based, entertainment experience, the music sector reinvented itself under the auspices of its new corporate owners, forcing most independent retailers out of operation and streamlining and standardizing the music shopping environment.

¶ 9 Leave a comment on paragraph 9 0 In the short term, this was a boon to music sales; it increased retail space and foot traffic overall, brought many innovations in “end-cap” promotion and other forms of in-store and cooperative marketing, and made price competition less likely. It also helped fuel sales for the industry’s biggest acts; with a single deal, a record label could effectively promote its top artists in thousands of stores across the country, and around the world. In the longer term, however, consolidation had a strategic down side; with the mom-and-pop stores out of the picture, there was little basis for customer loyalty, not much diversity in terms of music selection, and a strict, short-term bottom line driving all strategic decisions.

¶ 10 Leave a comment on paragraph 10 0 Within another decade, a new breed of “big-box” retailers like Best Buy, Circuit City and Wal-Mart began selling a significant amount of music. Like the Towers and HMVs of the world, they were large corporate chains with little to differentiate them. But unlike the music-only megastores, these retailers could afford to sell music at break-even point, or even as a “loss leader,” with the assumption that a portion of consumers lured to the store with the promise of $9.99 CDs would end up splurging on $299.99 stereo systems and $499.99 televisions. The effect, according to one music chain executive, was “like a neutron bomb has gone off,” instantaneously undermining sales at nearby music-only stores by up to 50%.[5]

¶ 11 Leave a comment on paragraph 11 0 While the lower prices offered by big-box retailers temporarily helped boost sales volume, they also augured ill for the industry. By the mid-1990s, the music specialty stores, forced into a losing price war with Best Buy and Circuit City, began to see their retail margins erode steeply. Together with the record labels, which had initially ignored their plight on the grounds that greater volume meant a better bottom line, they came up with a plan to stanch the blood flow. In exchange for the labels’ financial cooperation in music advertising, retailers would adhere to a strict “minimum advertised pricing” (MAP) policy – essentially fixing the price of CDs at a level high enough for the music retailers to retain some profit.[6] This policy lasted from the mid-1990s until 2000 (see Figure 6), arguably maintaining an artificially inflated value for the compact disc market beyond its expiration date.

¶ 12 Leave a comment on paragraph 12 0  

¶ 13 Leave a comment on paragraph 13 0
Figure 6: Music Retail Transformation and Global Music Sales Revenue

¶ 14 Leave a comment on paragraph 14 0  

¶ 15 Leave a comment on paragraph 15 0 The 1980s-90s also saw the emergence of a “blockbuster economy” in the music industry, in which an increasing portion of the record labels’ fortunes rested in the market performance of a dwindling number of megastar artists with increasingly short shelf lives. This came about as the result of a number of factors. First, beginning in the late 1970s, major labels entered into a bidding and poaching war over some of the industry’s biggest acts, inflating the advances paid on royalties to stratospheric heights. Artists like James Taylor, Michael Jackson, and Bruce Springsteen were some of the initial beneficiaries of these deals, which paid them millions of dollars before they had recorded a single note.[7] In order to recoup these unprecedented expenses, the labels had to sell an unprecedented number of units, which meant spending more on marketing and promotion, which in turn eroded their margins and required a higher volume of sales to achieve profitability.

¶ 16 Leave a comment on paragraph 16 0 This dynamic was compounded by an increasingly concentrated, integrated and expensive marketing and promotional system. Beginning with the 1981 launch of MTV, television became a (possibly the) dominant element in bringing new songs and acts to the public’s attention, and successful artists were increasingly required to be triple threats – good musicians, good dancers, and good looking to boot – which naturally depressed the number, range and diversity of potential pop stars. After Viacom bought MTV in 1985, it began to expand its music television offerings rapidly, building or acquiring nearly every major music cable channel, including VH1, BET, and CMT. With the deregulation of the US radio industry in the mid-1990s, media conglomerate Clear Channel went on a buying spree of its own, expanding from the legal maximum of 40 stations in 1996 to over 1,100 by the end of the century. Together, Clear Channel and Viacom accounted for the majority of the music marketing opportunities on US radio, television, and outdoor media (e.g. billboards), as well as the nation’s largest events promotion company.

¶ 17 Leave a comment on paragraph 17 0 These companies wielded their consolidated power as a form of leverage over artists and labels, requiring all-or-nothing commitments to national tours, marketing and promotional campaigns (often, all three). For labels, this further undermined the value proposition for investing in mid-level artists who may have a loyal following of a few hundred thousand, but would never be able to sell a platinum album or fill stadiums across the country. It also meant that there was a higher-than-ever risk associated with artist development; beginning in this period, if an artist didn’t have a hit with his or her first radio single, a full album could very well never be released. Gone were the days when artists like Bob Dylan or Simon & Garfunkel could struggle through a few albums’ worth of obscurity before hitting it big.

¶ 18 Leave a comment on paragraph 18 0 Naturally, the rise of the blockbuster economy could be heard aesthetically in the music itself, which had to aim for larger audiences, often sacrificing depth of resonance for breadth of appeal. One example of this trend was the emergence of “boy bands” such as New Kids on the Block, the Backstreet Boys, and ‘NSYNC. With their youthful bravado, carefully-coiffed images and even more polished sound, these groups were ideal vehicles to sell a few platinum albums, sell out a few tours, unload a ton of merchandise, and then put out to pasture (or, on rare occasion, develop into successful solo acts). If many of these groups sounded the same, it was often because much of the music was written and produced by the same people. Labels and artists during this time increasingly came to rely on the pop expertise of a handful of “super producers” such as Max Martin, Rami Yacoub and Rodney Jerkins,[8] who developed consistent songwriting and studio techniques that could be applied to any popular artist of the day. The true value of such producers to the music industry is reflected in their economic remuneration; while most major label artists wait a lifetime without ever seeing a royalty check, successful producers typically receive high production fees plus royalties on sale, without having to wait for the labels to recoup their expenses. In fact, in many cases, the producer’s cut is paid out of the artist’s piece of the pie, rather than the label’s – meaning that the more expensive a producer is, the smaller a chance is that the artist will ever earn a dime.

¶ 19 Leave a comment on paragraph 19 0 Despite the many business risks of the blockbuster economy (e.g. greater upfront expense, less diversified risk, lower customer loyalty, slimmer margins), its short-term effect was to increase record sales volume, and therefore revenue. Thus, while only two of the top-selling albums of all time, according to the RIAA, were produced between 1990-2000,[9] suggesting that the artists released during this period tended to lack the longevity of those from earlier eras, eight of the 17 albums to surpass 1 million copies sold in a single week were released during this period, and the Backstreet Boys, ‘N SYNC and Britney Spears were the third, fourth and fifth to achieve this milestone, respectively.[10]

¶ 20 Leave a comment on paragraph 20 0 The final element of the music industry’s “perfect bubble” was an excellent economy. The decade between March, 1991 and March 2001 was characterized by a consistent economic expansion unprecedented in American history.[11] This had a direct impact on the ability of consumers to purchase music products, as it was characterized by a similar expansion in median household income[12] (see Figure 7). Meanwhile, following the end of the Cold War and other geopolitical changes of the era, new global markets emerged, increasing worldwide demand for entertainment industry products. This buoyed the creative economy as a whole; according to research published by the United Nations, creative exports nearly doubled from $227.5 billion in 1996 to $424.4 billion in 2005.[13]

¶ 21 Leave a comment on paragraph 21 0
Figure 7: Global Music Sales; Economic Expansion and Recession in the U.S.
 

¶ 22 Leave a comment on paragraph 22 0 To summarize, the last decade and a half of the 20th Century – a period of time during which the global music sales market grew to more than three times its former size – amounted to a perfect bubble for the recording industry. Between the ascendance of the CD format, the evolution of the music retail market, the rise of the blockbuster model, the consolidation of broadcasting and the unprecedented expansion of the US and global economies, it is little surprise that the market fared so well. Yet in many of these factors, short-term success was paired with long-term instability. All bubbles eventually pop, and the music retail market was no different in this respect. As I will discuss in the following section, the “perfect storm” that ensued was complex, severe, and had very little to do with P2P or any form of “piracy” by music fans.