The Decline & Fall of the Music Industry Empire

Is it possible that the music industry as we know it—as an industry—may cease to exist? Don't be entirely surprised if that, indeed, comes to pass. Why, you may wonder, what could bring this industry to its knees, and beyond? Well, it's like this: the recording industry is in the proverbial tank financially, and it seems as though it is continuing in that container, in part due to its own heavy-handedness.

First, the financials. The Financial Times reported this week, "The first six months of 2002 left them"—with "them" being record company execs—"particularly lost for words. After five years of declines, sales of recorded music fell 7 percent in the US, 6 percent in the UK and by double digits in Japan as the industry faced the potent mix of an economic slowdown, music piracy and a lack of new acts with mass appeal."

Apparently, one of the approaches being taken is a favorite solution of managers in all industries: cut costs. A consequence of that is that there is less money with which to do things like finding new acts with mass appeal. Which would then mean that there will be more years of financial declines. And chances are more than good that shareholders in the companies in question are not particularly interested in seeing the value of their investments tank faster than a collapsing career.

Those are the external factors. Then there are the thick thumbs. That is, there is the nontrivial $143 million price-fixing settlement being paid by Universal, BMG, EMI, Warner Music, and Sony. Briefly, 43 states claimed that these companies got together to inflate the prices of CDs. The so-called "defense" of this practice is that it was for the good of the little guys, for the small record retailers who cannot afford to discount the same way the big box retailers can. So, by having some big guys keeping the CD prices up, the little guys benefited. Sure. Of course, there is the whole issue of the people who actually buy the discs in question. . . . Think about this: these companies are all in a bad way financially, and here they are, paying out money that they have undoubtedly already spent. Chances are, few if any of them had a line item on their budgets: "Price-fixing lawsuit settlement."

Now, the music industry is a whole lot bigger than a $143-million settlement. But it seems clear that there are no bright spots with regard to some act or acts that will be capable of pulling these companies out of their spiraling financial malaise. So what will happen? Before a total fall, of course, there will undoubtedly be a further contraction, a reduction in the number of record companies. And a consequence of that will be a greater difficulty in finding the kind of acts (which is certainly a loaded term that smacks of disingenuity) that they are going to need if they are to realize any simulacrum of a recovery. For one thing, there will simply be fewer people who are out there in the clubs looking for the performers they need. What brought them to this point? In a word: Greed.

Which brings me to another word: Microsoft. A small item in the October 1 issue of the Wall Street Journal notes, "Internet music software maker Liquid Audio Inc. agreed to sell its patents rights to Microsoft Corp. for $7 million." That is, in itself, cause for a bit of pause. The folks in Redmond are capturing still another segment of the entertainment infrastructure. In case you're not familiar with Liquid Audio, the news item goes on to note: "In contrast to the MP3 format, Liquid Audio's secure format is more to the liking of record labels that want to sell copyright-protected music over the Web." And you can be fairly confident that if Microsoft has the patents, it will be working with great diligence to make sure that it becomes the de facto standard, that MP3 becomes a footnote.

Happy listening.