Story of the Year: The October Surprise

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Illustration by Arthur Giron
David Peisner WRITTEN BY
David Peisner

October 10, 2007, is a day that will live in infamy in the hearts of major-label executives. That was the day Radiohead, after more than a decade with Capitol Records, self-released their seventh album, In Rainbows, digitally, without a price tag. The same day, news broke that Madonna was leaving Warner Bros., her label since the early '80s, to sign with Live Nation. Her deal cedes percentages of her touring, merchandising, licensing, and CD and DVD revenue to the concert promoter in return for a cool $120 million. Notably absent from both equations, at least at this early stage, was the mention of any traditional record label. The thinking went: If these two titans could get along without major-label muscle, wouldn't everyone else soon do the same?

"I expect fewer bands to be going the major-label route in the future," says Bob Lefsetz, an industry consultant who writes a widely read newsletter. "If you're a rock band, they can't get you on Top 40 radio. MTV doesn't play music. So what can they do for you other than pay you some advance and cry in your beer?"

Yes, it's a lousy time to be a major. CD sales are down nearly 30 percent since 2000, digital distribution has rendered the labels' once-coveted relationships with brick-and-mortar retailers (the ones that still exist) increasingly less valuable, cheap recording technology has made big advances unnecessary, and online promo avenues like MySpace, Facebook, and YouTube have leveled the playing field for acts without access to marketing dollars. In fact, Radiohead's release and Madonna's deal were merely the highlights of a remarkable month of developments that all pointed toward the seemingly inevitable -- if perhaps unnecessarily hasty -- conclusion that major labels are the buggy-whip industry of the 21st century.

October began with Brit-rock veterans the Charlatans announcing they'd be offering their tenth studio album for free through the website of U.K. radio station XFM. "We faced the fact that CDs are on the decline," says frontman Tim Burgess. "But people are getting the records somehow. What was so appealing about going to XFM is they're playing us 40 times a day."

The following week, Nine Inch Nails' Trent Reznor posted a message on his band's site, to say that after nearly two decades on a major, he was a "free agent," pleased to "finally have a direct relationship with [his] audience."

On October 21, ex-Kinks leader Ray Davies gave away his second solo album, which was mounted to the cover of 1.5 million copies of a British newspaper, following a strategy pioneered by Prince in July. Nine days later, Starbucks revealed it was adding a new artist, Hilary McRae, to its Hear Music roster, home to Paul McCartney, Joni Mitchell, and James Taylor. The same day, the Eagles released Long Road Out of Eden, their first studio album in 27 years -- but it was only available at Wal-Mart, walmart.com, Sam's Club, or through the band's website. (The album sold an astounding 711,000 copies in its first week.) The month closed with poet/rapper Saul Williams offering his Trent Reznor-produced fourth album for free (or a $5 donation) through his website.

"Trent had the idea a year and a half ago," says Williams. "At first I thought he was out of his mind. But as soon as we saw what Radiohead did, we were like, 'We should follow our guts.' " Williams and Reznor have indicated the release model is a trial balloon for the next Nine Inch Nails album. "Trent will take the best of this and drop the worst. I'm his black lab rat."

If these events weren't troubling enough for the majors, consider British rave-metal outfit Enter Shikari and Philly indie rockers Clap Your Hands Say Yeah each selling more than 100,000 CDs without the help of any record company at all. It becomes easy to understand the labels' apocalyptic outlook.

Just as telling was the industry's good news from October: A $222,000 verdict against a 30-year-old single mom for illegally downloading 24 songs, and the shutdown of the members-only file-sharing site OiNK. Both were apparent victories in the Recording Industry Association of America's long-running campaign to scare file-sharers straight -- one of the main strategies to halt CD sales' continuing death spiral -- but were also indicative of the ultimate futility of the labels' efforts and their continued inability to see the digital age for anything but its perils. Representatives from the four major music companies -- Sony BMG, Universal, EMI, and Warner Bros. -- declined to comment on the record for this story, but in a leaked company memo, Guy Hands, the new head of EMI, parent company to Radiohead's former label, acknowledged as much: "The industry, rather than embracing digitalization and the opportunities it brings for promotion of product and distribution through multiple channels, has stuck its head in the sand."

Lost among all these harbingers of doom is a considerable silver lining: While the present is messy and the future uncertain, there's every reason to think these developments will ultimately benefit both artists and fans. "You see these articles about the disaster in the music business," says James Mercer, frontman for the Shins, whose contract with Sub Pop recently expired. "When you think about how unhealthy the business has been, this is like lancing the fucking boil and cleaning it out. It's not a fucking disaster to regular bands out there. It's now more likely I'll be able to start my own label, release my work, profit from it, and have a more lucrative career. For a band at our level, it's all a bowl of cherries."

Blaming file-sharing for moribund CD sales has become the new gospel. While it would be irrational to dismiss any correlation, there is at least anecdotal evidence that file-sharing's impact is felt most by the highest-profile, biggest-budget releases.

"Our sales are up," says Mac McCaughan, founder of Merge Records, home to Arcade Fire, Spoon, and McCaughan's own Superchunk. "I don't think we've been hurt by file-sharing. In some cases, it's helped increase the discussion about a band. The overwhelming attitude of people buying records on independent labels is that they love music and are willing to pay for it. You start losing sales when more casual listeners download a shared copy just to check something out."

The bigger the media splash an artist makes -- through advertising, promotions, videos, whatever -- the more casual fans that artist will attract. Feeling little loyalty to the artist, that listener might be more inclined to download the artist's music illegally. In other words, many more people probably stole Paris Hilton's album than M. Ward's. It's a classic catch-22: The more money a label spends to promote an album, the greater the chance people will swipe it.

An early analysis of the activity on Radiohead's site claimed that more than one million people downloaded In Rainbows during October at an average of $2.26 (though the band has said those numbers are "wholly inaccurate"). Since nearly all that money would go straight into the band's pockets, that wouldn't be a bad haul, especially if one takes into account Radiohead manager Bryce Edge's admission that the digital release was largely a promotional stunt for the physical CD, which will not only sound better, but also contain tracks not available online. "If we didn't believe that when people hear the music, they will want to buy the CD, we wouldn't do what we are doing," he told a U.K. trade magazine. "You can't listen to a Radiohead record on MP3 and hear the detail; it's impossible."

But despite Radiohead's hedging, there is an acknowledgement implicit in both In Rainbows' release and Madonna's new deal that CD sales are a shrinking piece of an artist's financial pie. "The CD is just a marketing tool for other branding avenues," says Jon Leshay, Mandy Moore's manager. "That five-inch plastic circle is no longer the top priority for consumers."

The industry's reaction to the changing landscape has been essentially two-fold. First, the RIAA scare tactics, which have succeeded in little more than repeated public-relations black eyes. Second, the implementation of multiple-rights contracts, or "360-degree deals," in which the label shares in the artists' profits from, among other things, touring, publishing, merchandising, and licensing. The labels' thinking is simple: We're expending the most money and effort developing this artist's career, so why should we only be getting paid off one tiny revenue stream? But these deals have proved controversial.

"The industry's demand for bands to sign over a portion of their merchandise and tour revenues as part of a recording contract is an admission that selling music isn't a sustainable business model," says Alan McGee, the former Creation Records boss, who now manages the Charlatans. "In a 360 deal, this is what the record company is doing: ripping off the door at the gig. Let's call it like it is."

McGee isn't alone in his consternation. "The labels want a piece of everything, but what are they doing to deserve that piece?" says Clap Your Hands Say Yeah manager Nick Stern, who used to work at Atlantic Records. "I know what my booking agent does. I know what my merch company does. What's a label going to do that we can't do for ourselves?"

To be fair, some record companies are working on an answer. This past year, Warner Music Group began building the suite of services it can offer an artist, buying Irving Azoff's Front Line Management, launching a video production division, and partnering with Violator Management to develop endorsement and licensing opportunities. Back in July, Universal bought the management group Sanctuary, and all the labels have been partnering with cell-phone companies and networking websites to distribute music on platforms that would've been unthinkable five years ago. But the sluggish pace of change may prove costly. While the RIAA was busy suing grandmothers, Live Nation was acquiring or teaming with companies that handle merchandising, ticketing, and Web services, and strengthening their sponsorship, marketing, and production capabilities, making them a more appealing one-stop shop as they look to sign more artists.

"Look at it from the artist's perspective," says Michael Cohl, chairman of Live Nation's Artist Nation division, which will manage acts such as Madonna. "Most make more money from touring than any other area." So naturally, Cohl reasons, bands should trust the company that earns them the most dough to figure out how to manage smaller pieces of their business -- not the other way around.

"The main business of Warner Music is selling music," Lefsetz says. "Wall Street says that business is dead. Do you want to be in business with them or with someone making money, like Live Nation? It's like Smith Corona typewriters saying, 'We're going into the computer business. So rather than go to IBM or Apple, stay with us while we figure out what's going on in that business.' That's nuts."

The threat to labels isn't that Live Nation will scoop up every superstar and leave them fighting over scraps. It's that if Live Nation is successful and its model is emulated by others, this will offer global pop stars -- who had the majors' marketing and distribution machine to thank for their lofty status and were previously assumed to be the one contingent that would continue to benefit from it in the future -- an attractive alternative career path.

But even this isn't the labels' real nightmare scenario. That comes if promising young acts prove unwilling to sign 360 deals. After all, if bands with limited commercial appeal, like Clap Your Hands Say Yeah and Enter Shikari, can make a good living, how long before an artist bypasses labels altogether and becomes a full-fledged superstar? "Rock bands are going to find it easier to do that," says Stern. "You can have the distribution, you can have the machine a good management company has, so you definitely don't need the label."

But don't sound the death knell for the major labels just yet: Besides owning valuable back catalogs, they've assembled an infrastructure that isn't going to disappear overnight, any more than several million people's desire to own a Nickelback album will. This is why Enter Shikari, who successfully self-released in their native U.K., have hooked up with Interscope subsidiary Tiny Evil for their U.S. debut. It's why the Eagles signed with Polydor overseas. Even independently released CDs are frequently at least distributed through a major label or through the Alternative Distribution Alliance, which is owned by Warner Music. And if the majors prove able to offer useful services in the context of these 360 deals, Leshay believes they'll endure, albeit with diminished power. "We've lived in an age when artists worked for record companies," he says. "Now direction is going to be coming from artists and managers for record companies to assist in what's right for the artist."

Arguably, if the industry's 360 model takes hold, the labels would have a greater financial interest in nurturing careers rather than simply working singles. Soulja Boy may sell ringtones in 2007, but he doesn't sell concert tickets or merch like the Rolling Stones or the Police. And come 2009, he may not sell much of anything, whereas career artists can hit the road practically anytime for a big payday. Regardless, the labels will inevitably get smaller as CD sales continue to dwindle and they adjust to a landscape in which they're just one of many options available to artists. "It's a good environment, because artists can make what they want and reach their audience without filters," says Lefsetz, who envisions a future with fewer superstars but many more artists earning a decent income playing music. "What we're going to have is the equivalent of cable TV. There's going to be a lot of niches, and some will break out on a big level."

Fewer multiplatinum behemoths and more midlevel artists selling a few hundred thousand records on their own terms might mean a boom for indie labels, especially big ones such as Merge, Matador, Sub Pop, and Epitaph. It's also likely to mean more music made more accessible at more reasonable prices, if not for free. As for artists themselves, the proliferation of possibilities for recording, financing, promoting, and distributing their music will make it easier than ever to get heard, although possibly harder than ever to stand out.

"Bands ask me advice all the time," says the Shins' Mercer. "The real advice is, 'Don't worry about the stuff you used to. You don't need great connections. You don't need these ancient avenues of distribution. If you have a website, a MySpace page, and YouTube videos, people are going to hear it.' The only advice is to be fucking good. That's the main thing. Just be good."

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