Maintenance and the Music Business

May 1, 2003 12:00 PM, BY EDDIE CILETTI

Polls


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Mix readers know me as a career tech. I'm the geek who chats with electrons. The job chose me a long time ago, and though I fought it for a while, being an engineer with tech chops opened some doors and became a stepping stone into production. Well, sort of. Eight years into that career path, I realized the importance of working with talent and being selective. But recognizing and waiting for “good” projects is a luxury — one that I could not afford at the time — so I accepted the road less traveled. It's a lot less crowded during rush hour.

Instead of offering my usual tech tips and fixes, this month, I interviewed someone from my former life. Don Rose set out to create a cool record company, achieved his goal and was willing to share his perspective with us. I knew him in 1980 when he was president of EAT Records, a small Boston-based label with artists like Rubber Rodeo and Human Sexual Response. Then, in 1983, he became president, CEO and co-founder of Rykodisc, which originally began as a CD-only label in 1983. Born in 1955 (same as me) in Kalamazoo, Mich., and fourth cousin to Brian Epstein, Rose sold Rykodisc to Chris Blackwell's Palm Pictures in 1998. Now out of the music business and pursuing another with similar passion, he's got nothing to lose by speaking candidly.

For my own part, I don't think there's anything wrong with the recording industry that hasn't always been wrong with it. This has always been a dirty business. Hardly the romanticized yellow-brick road, it's more like the artistic equivalent of buying a lottery ticket. (Keep in mind that the lottery is a tax on people who are bad at math.) If you're really looking for answers, bashing the record companies is way too easy. Yes, they are dinosaurs who failed to embrace technology at a time when radio sucks. But, that said, consider the saying, “Be careful what you wish for.” Our industry has experienced an exponential technological growth combined with unbridled capitalism (now faltering from its own excesses). Many of us grew up dreaming of the “record” model, but it's broken now just like the corporate music-industry model. Affordable recording technology allows a lot more players into the game, but that same technology also supports more games to be played.

There is plenty of activity in our industry: People buying recording gear and/or studio time and putting out CDs. But a lot of what goes on is below the record company's radar. That's part of what the music industry is now: a hobby for people with day jobs. More people are making music, but fewer and fewer are making a living at it. Here's what Rose had to say about the state of the business.

So, you're down on the music biz.

Yeah, I'm down on it. I have a bad attitude.

Give me your bad attitude bullets.

I think that all of this blame on digital downloading is not to the point. Although at the same time, I think that the industry's failure to embrace and create a legal form of downloading is contributing to an already acute problem. The industry is not geared toward promoting music that really captures the public's imagination. It's become very corporate and formulaic, and radio…

Is dead.

Exactly. Radio is not a partner in the industry. I think that the music industry has continued to depend upon radio, but has ended up pandering to a medium that doesn't care — to its own detriment.

Do you think that the industry is basically pandering to the 12 to 25 year olds?

Yeah. That's a target demographic that radio chases and the music industry slavishly follows. At the same time, downloading is such a compelling, immediate and fun way to access music that it just blows my mind that the music industry is still trying to resist, fight and control it rather than embrace, enhance and learn to derive revenue from it. They'd rather kill it first to prove that they have control and then turn around and figure out a way to dole it out to people. It's a bankrupt philosophy.

Regarding peer-to-peer networking, do you feel that the cat's been let out of the bag: that no one will want to pay for downloaded content?

No, I don't believe that.

What if in the process of registering, by subscription or a la carte, the user became part of the distribution process, kind of like Amway meets the Discover Card?

Right, sure. Every time it changes hands, it triggers a micropayment.

Has this occurred to anyone?

Yes, it has, although not specifically the way you describe it. Digital-rights management, DRM, is a virtual architecture that allows each licensee to dictate whatever the rules might be. For example, the file can go out for free but expire in 30 days or can be passed one time, from one person to another, or the user can listen to the first 30 seconds and if it's the desired file, there's an option to make the micropayment.

There were a handful of DRM companies three or four years ago, the most established of which is Intertrust.com. It went public with a market cap of a billion dollars at its peak and was purchased by Sony and Philips in November 2002. It's an idea that the majors would desperately like to see happen. I don't know if the technology really works yet: if it's foolproof and un-hackable.

Why does everyone — consumers and artists — hate the record companies?

The Industry's at war. I think it's about control. You can make all of the financial arguments that the industry has been shooting itself in the foot, but it is an industry built on a foundation of ownership and exploitation of intellectual property rights. Allowing peer-to-peer networking and Silicon Valley companies to manage that part of their business requires them to give up control.

When I spoke to one record company executive, who wanted to stay off the record, about cash flow, she said that it wasn't a matter of the record companies losing money, but that they made less money. In the '90s, there was so much growth, “irrational exuberance” in Greenspan-speak. Do you think it's just economic reality that the record industry has to downward-adjust its growth expectations?

Well, the record companies lose money in some quarters and hope to make up for it in other quarters, like the holiday season.

Do you foresee the majors returning to the minimalist production, a la the current indie scene and 20-ish years ago with new wave?

I think that will be a component of the future: The industry will downsize, though I don't think it's a solution for the majors. I do think that the financial model and the distribution model are busted; it's not just the fact that they're spending too much, there are fewer people buying CDs. As you put it, consumers and artists dislike the major labels. It's a terrible business. Who wants to be at war with everybody?

Has anyone ever done research to determine how many independent and vanity CDs are pressed vs. the number of CDs the majors are putting out?

Well, I think it's less. I think the whole business is contracting, no doubt about it.

So, what do you think will save the Music Industry?

Downloading is definitely on the rise, but not because it's free — that's probably third on the list — but because it's immediate and the selection is virtually unlimited.

Selection is definitely not what radio's about.

Right. People are still engaged; they still want music, but they want a choice. So I say, just give the people what they want. It's so simple. We need a legitimate Napster or KaZaA, with a subscription model like cable television. All you can eat for a low monthly fee, plus gold, platinum and titanium membership — whatever. Quick, easy, inexpensive and legit. Once the proper economic relationship is established, all of the bells and whistles can be added.

Do you think that the record companies would consider rewarding customers who are, in essence, assisting in the distribution of content?

I don't know if the record companies would consider that. Even DRM adds a layer of friction. For all these years, the industry sales model has been unit-based, like selling bottled water. Now, it's running water. Technology has changed the rules. Now, distribution is so much easier and consumer-friendly. With the exception of premium channels, you don't pay for itemized programming on cable television. I think music access should be like that: the virtual jukebox in the sky, whether from a server or peer-to-peer.

You're saying that the threshold for success is simplicity. For me, that would be the compilations I get from my friend Bob. If radio was less restricted, he'd be a very successful DJ.

They used to make A&R guys out of people like that and then they'd ruin them! Now, he can be Virtual Bob on the Internet.

What about the difference between the fees record companies and the RIAA want to collect from Internet radio vs. traditional radio?

It's true and justified, but first you need to understand why terrestrial radio pays music publishers but not the performance [recording]. The reason for the latter dates back to the second World War. Back then, there were two broadcasting systems — Columbia and RCA — and it boiled down to a performance fee exemption for one of the networks (I don't remember which) to get their music played. The exemption eventually became the norm. Radio stations in any other industrialized country in the world pay both publishing and performance [record company] fees, but they are small. The online fees are very, very small: something like seven-tenths of a penny. The problem is that the advertising revenue for online services is not the same.

Now that you've left the messy music business behind, what are you doing now?

I've always had a passion for classic cars, so I started a locating, brokering, import and export business. Just me, a laptop and a cell phone. I'm having a lot of fun doing that, as well as listening to music, making compilations, downloading music — even of CDs that I own — because it's faster than gathering them up and ripping; certainly easier than transferring vinyl. And, I've got a 14-year-old son who is a downloading maniac, and I closely watch his habits.


“Tech's Files” will be technical again next month.






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