The Industry’s Chickens Come Home to Roost

Aram

July 10, 2012

¶ 1 Leave a comment on paragraph 1 0 This is hardly the first era in which the music industry’s reputation has been challenged. The “payola” scandals of the 1950s and 2000s suggested to many observers that the industry was more concerned with raking in profits than with releasing good music. The 1985 Senate hearings on profanity in popular music spurred nationwide handwringing over the nefarious effects of heavy metal (and other forms of accused “audio pornography”) on America’s youth. Sensationalistic challenges to religious authority by performers like Madonna and Sinéad O’Connor, and the association of underworld violence with gangsta rap, sent god-fearing, law-abiding citizens into apoplexies during the 1990s. In every era, it seems, the industry has struggled to keep its nose clean, barely skirting the edge of propriety, and keeping only one step ahead of the proverbial torches and pitchforks.

¶ 2 Leave a comment on paragraph 2 0 Given this colorful history, it would be tempting to see any current challenges to the music industry’s goodwill as simply another iteration of a well-established pattern. Yet there is something distinct about its present reputational straits. In the past, the industry’s primary critics and detractors tended to fall into two (somewhat overlapping) categories: social conservatives opposed to the sex/violence/permissiveness exhibited and championed by youth-oriented musical genres like rock and rap, and “high culture” types like Theodor Adorno,[1] concerned that popular music was junk food for the soul, and corrosive to the political process. Even the payola scandals, which were technically about unethical market manipulation, were initially spurred by concerns about the role of rock music in promoting racial integration and otherwise undermining the foundations of white American hegemony.[2] In nearly every case, the music industry was able to turn the outrage to its advantage, developing a romantic aura of danger and mystique, and a reputation as a boundary-pushing force for social change, in cahoots with the youth, the artists, and the revolutionaries of the world.

¶ 3 Leave a comment on paragraph 3 0 By contrast, the music industry today faces its greatest criticism from its former allies: its own artists, its own business partners, and its own consumers. Ironically, its staunchest supporters are now government regulators (instead of holding investigative hearings, for instance, Congress now promotes legislation aimed at granting the industry ever greater power), and its chief allies include religious groups, police organizations, and conservative social and political advocates.[3] What accounts for this sudden shift in polarity? How did the music industry lose its mojo and its cred, and why does it seem to have become the very image of its putative nemesis, what in the counterculture era it would have called “The Man”? The answer has little to do with some foundational shift in industry ethics or practices, and can be better understood as a powerful cartel’s long-wandering chickens coming home to roost.

¶ 4 Leave a comment on paragraph 4 0 First of all, as I discussed briefly in Chapter 4, the music industry has a history of unfair and exploitative labor practices. In addition to the legislative and contractual wrangling I described earlier, the major labels have often reached beyond the liberal scope of their allotted power, violating the terms of their own contracts and functionally robbing their artists of their entitled dues. For instance, a recent legal suit brought by country music legend Kenny Rogers against Capitol Records[4] offers a litany of alleged violations, including:

• ¶ 5 Leave a comment on paragraph 5 0
• Taking two years to respond to an audit request.
• Refusing to account for, or pay a share of, the substantial fees collected in lawsuits against P2P companies such as Napster, Kazaa and Grokster.
• Holding over $76,000 in unprocessed royalties in a “suspense file” with no apparent right or cause.
• Non-payment of royalties from sales of music via record clubs.
• Non-payment of royalties on “free goods” distributed overseas, in violation of Rogers’ contract.
• Inconsistent documentation, “in that some accounts showed earnings for certain albums in certain periods, but other accounts . . . failed to reflect those earnings.”
• Withholding foreign taxes even though they were offset by tax credits.
• Incorrect royalty rate calculation in some foreign territories.
• Charging over $12,000 to Rogers without any explanation of those charges.
• Charging Rogers 100% of video production costs, even though his contract stipulated a 50% charge.
• Failing to account for or pay royalties based on radio performance royalties.[5]
• Paying Rogers a far lower royalty than his contract required for “non-disc records” such as digital downloads and ringtones.
• Failing to remedy any of these oversights financially once the audit had revealed them.

¶ 6 Leave a comment on paragraph 6 0 While it’s true that these are alleged wrongs in a legal complaint, they are consistent with those described in other recent lawsuits, and with widespread criticisms from artist advocates over several decades (University of Ottawa law professor Michael Geist, quoting another lawsuit brought by artists against major labels alleging $6 billion in damages by the labels, attributes what he calls their “rampant infringement” to a routine policy of “exploit now, pay later if at all.”[6]). And if these are the kinds of liberties major record labels are willing to take with the accounts of popular, established acts like Kenny Rogers, it seems likely that less experienced or less powerful artists are apt to be exploited to an even greater degree, and with less recourse. Indeed, chroniclers of African-American musical culture have observed in depth the degrees to which the music industry has systematically denied black musicians an ownership stake – or even a living wage – for the profound range of musics they have contributed to the marketplace, from ragtime to rap and beyond.[7] As Q-Tip rapped in A Tribe Called Quest’s classic 1991 song “Check the Rhime”: “Industry rule number four thousand and eighty/Record company people are shady.”

¶ 7 Leave a comment on paragraph 7 0 In addition to its exploitative labor relations, the music industry has also historically had problematic dealings with its partners and competitors, and has consistently been accused, and at times been convicted, of anti-competitive, collusive, coercive and/or dishonest relations with other firms and organizations. As I discussed in Chapter 1, this predates the recorded music industry; as early as the mid-19^th Century, the largest American music publishers colluded to set prices for printed scores. Since then, virtually every consolidated sector of the industry, from broadcasters[8] to radio promoters[9] to event promoters[10] to television networks[11] to music retailers[12] to the major labels,[13] has conformed to this pattern, facing lawsuits, government investigations and regulatory actions aimed at curtailing such behaviors or even dismantling the cartels. By the turn of the 21^st Century, the music industry rested on an uneasy détente between these highly concentrated, deeply interdependent oligarchies (in the words of veteran pop guitarist and author Steve Lukather, it was, at this point, “the most corrupt business – next to politics – in the world”[14]). Yet one major disruption to the industry’s infrastructure could potentially produce a powerful enough shock wave to make the entire edifice fall like a house of cards.

¶ 8 Leave a comment on paragraph 8 0 The third area in which the music industry has historically undermined its own goodwill is in its relations with its consumers. The price-fixing of musical scores and CDs I have already described continued into the digital age, with the launch of major label-owned, DRM-backed digital music subscription initiatives MusicNet and PressPlay in 2001, which required consumers to pay $240 per year – far more than the median music buyer typically spent – just to listen to digital music from all five major labels.[15] The US Department of Justice soon investigated these services for potential anticompetitive practices,[16] and at the time of writing, there is still a pending antitrust suit[17] against the majors for their involvement in these businesses (the US Supreme Court declined to hear an appeal by the labels in 2011). Another practice that engendered some bad blood was the recording industry’s effort to phase out the “single” format while injecting the typical album-length release with more filler than hits. This widely-recognized practice (Billboard once reviewed an album as “remarkably filler-free”[18]) was an affront to consumers, who were forced to pay for several songs they didn’t want in order to own the two or three they actually cared about. Numerous other examples could be cited, from the FTC-investigated “negative option” billing practices[19] used by label-run record clubs to the self-scalping, service charges, and other methods by which music event ticket prices have been jacked up over the years.[20] A fuller accounting could easily fill a chapter on its own; suffice to say that the music industry has historically overcharged and under-delivered for its own consumers, across a range of products and sectors. If we also consider the industry’s period attempts to demonize its own customer base (e.g. “Home Taping is Killing Music”), it is little surprise that the long-simmering cauldron of consumer resentment would boil over as soon as the lid was lifted.

¶ 9 Leave a comment on paragraph 9 0 The digitization of music, and musical culture, proved the necessary catalyst to bring the music industry’s tensions with its artists, business partners, and consumers to a crisis point. By providing artists with the tools and technologies to take charge of their own production, marketing and distribution, digital music underscored the disequilibrium of traditional record contracts, and provided what for many is a preferable alternative; why agree to a 12% royalty rate (pre-recoupment, and pre-shenanigans) when an online self-distribution platform like Tunecore allows artists to keep 100% of sales revenues for a fixed fee of a few dollars per track per year? True, a major label-backed album might sell more units, but as the old business adage holds, you can’t make up for negative margins on volume.

¶ 10 Leave a comment on paragraph 10 0 Digital music has also challenged traditional music cartels, and the anticompetitive practices they engender, largely by virtue of its dematerializing effect on recorded music itself. Historically, the cartels were built by tightly controlling distribution of physical scores and recordings to retail environments, and by restricting music on the airwaves to “clear channels” owned by broadcasting conglomerates. Both methods were forms of manufactured scarcity, inflating the market value of what would otherwise have been a ubiquitous resource through a constellation of technological and legal constraints. Digitization largely eliminated these technological barriers, by enabling songs to be reproduced and redistributed infinitely at no cost, by providing online retailers with limitless shelf space, and by enabling webcasters to offer as many different programs and play lists as there are listeners.

¶ 11 Leave a comment on paragraph 11 0 These changes provided greater leverage both to innovative businesses and to consumers. For instance, independent musicians and record labels no longer had to pay a premium to share shelf space or air time with the majors; most digital retailers and subscription providers now boast libraries of 15-20 million songs, as does Clear Channel’s custom webcasting product, IHeartRadio (though many of the company’s terrestrial broadcasting stations still offer play lists of 100 or fewer songs). Nor are consumers nearly as beholden to the dictates of the marketplace; if commercial music products and services don’t offer appealing features at reasonable prices, they will seek their music out through other means, such as P2P.

¶ 12 Leave a comment on paragraph 12 0 As is the case with artists, these newfound freedoms among non-cartelized music businesses and consumers have highlighted by contrast the basic unfairness of the 20^th Century music industry. At the same time, they have provided all three groups with a measure of independence from the major labels, publishers, retailers and broadcasters, allowing a greater degree of criticism without fear of reprisal. In the meantime, the burgeoning blogosphere and other outlets of social media have amplified the conversation, bringing once arcane legal and economic arguments into the public sphere. While the industry once operated behind a veil of chic professionalism, today its innermost workings are subject to the judgments and voluble opinions of millions of armchair business analysts and cultural commentators. Even this book, which once would have been written in a solitary vacuum, and read by a select group of academic researchers, has been “pre-published” freely online, and (at the time of writing) read by thousands of people, many of them presumably from outside of the academy and music industry. With this greater degree of overall scrutiny has come a broader acknowledgment of the industry’s faults, its errors, and its foibles; even if the industry transformed itself today into a global charity focused on curing AIDS and ending poverty, it seems likely that its uncharitable past would continue to haunt it.