Story of the Year: The October Surprise

Illustration by Arthur Giron

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?"