|
      |
For the $13 billion American record industry, 1996 was a bluesy kind of year. As revenues increased less than 1 percent and consumers bought 8 percent fewer CDs and cassettes compared to the previous year, the pause button, it seems, was hit on a decade of double-digit growth. Moreover, this sales slowdown occurred despite the industry's release of an unprecedented total of twenty thousand new titles. Is there trouble brewing for the business with a beat, a virtually recession-free industry for the past fifty years? To shed some light on the situation, the Bulletin spoke with Jay R. Boberg (113th AMP), Candace A. Bond (MBA '92), Paul Knutson (HBS '98), William H. roedy, Jr. (MBA '79), and Strauss Zelnick (MBA/JD '83), industry insiders with perspectives from key vantage points in the music world. They, along with HBS associate professor John J. Sviokla, a close observer of the industry, provide insight not only about the recent slump but also about the fascinating workings of the star-maker machinery behind the music that moves America. Strauss Zelnick, president and CEO of BMG Entertainment North America, a division of Germany's Bertelsmann AG and one of the most influential record companies in the country, blames the music industry's recent problems, perhaps ironically, on the compact disc. In the early 1980s, this little piece of hardware rescued the music business from the lethargy of the post-disco era - the industry's only other down period in recent history. With record companies' decision to switch to CD format, sales picked up considerably as customers rushed out to replace their vinyl record collections with the same music reissued on the new technology. Now, explains Zelnick, the CD boom has played itself out. "The CD market is reaching saturation," he says. "That's why we're seeing the slowdown." Candace Bond, vice president of catalog development and special markets for Motown Record Company, L.P., which moved from Detroit to Los Angeles in 1972, adds that the current stagnation can also be attributed to "a lack of hits" on the part of the major labels and increased competition for the consumer entertainment dollar. In 1996, efforts by big stars fizzled, and half of the ten best-selling albums of the year were actually released in 1995. The year brought no major new musical genre to generate album sales the way rap and alternative rock had in previous years. "Product returns from financially pinched retailers were very heavy last year, affecting both major and independent labels," Bond says. "In addition, intense pricing wars by electronics chains and discount department stores destabilized account bases." Some record executives have admitted to losing touch with their audiences and to alienating consumers by relentlessly pursuing and pushing hit singles instead of nurturing bands for long-term success. "There's some truth to that," says Jay Boberg, president of MCA Records. "In fact, part of the challenge I face at MCA is bringing more of an artist-development sensibility to the label." Orchestrating an IndustryTo understand Boberg's point, it's helpful to look at how the music industry functions. After years of consolidation, the business is now dominated by a handful of major distribution companies (often referred to simply as "the majors") that are responsible for some 80 percent of industry revenues: BMG, EMD (EMI/Capitol), PGD (Polygram), Sony Music, WEA (Warner), and UMVD (Universal). Each conglomerate owns, in part or in full, various "labels" - fully staffed companies that sign and groom artists, guide the album production process, and market the final product. Labels such as Arista and RCA, for example, fall under BMG's umbrella, while Boberg's MCA, the jazz label GRP, and Interscope all belong to Universal. Then there are the independents, those labels, such as Rounder Records and Priority, that have either little or no financial affiliation with the majors. Independent labels traditionally account for roughly 20 percent of music industry revenues. (Of late, however, they have been showing considerable strength; in 1996, independents collectively rallied to grasp the number one spot in total U.S. album market share for the first time - climbing over industry giants such as Warner Music Group and Sony Music.) Labels acquire music in two ways. One is by signing an artist who has already produced an album. The other is by "discovering" fresh, unmarketed talent. "That happens through every method, from the sublime to the bizarre," says Boberg. Labels' "artist and repertoire" (A&R;) staffs, he explains, continually fly all over the country and the world to major festivals, grungy clubs, and obscure coffeehouses in search of that diamond in the rough. Along the way, they talk to anyone - reporters, radio DJs, retail operators, managers, and even friends. Staff outside A&R;, too, keep their feelers out, reporting back to the department on anyone they feel "passionate" about, says Boberg. "If you've been around music for a long time," says Paul Knutson, who served as Rounder Records' general manager from 1994 to 1996, "you develop an ability to spot a quality act when you see it." In the end, however, admits Boberg, "when we decide to sign an artist, it really comes down to somebody's subjective opinion here at the label." Once an act is on board, the label begins what it hopes will be a long and intimate creative collaboration, providing the artist or band feedback on songs and setting them up with just the right producer and recording engineer to create a harmonious chemistry. In the case of labels focused on urban music, the production company may be owned by the label itself; on the rock and pop sides, producers are usually independent. Meanwhile, the label begins to create a marketing "image" for the performer or group. Posters, CD cover designs, concert ads, music videos, and other forms of advertising, says Boberg, "all need to be tied together in a very well-crafted campaign to portray the music in a certain way." Part of the process involves educating the label's entire staff about the artist. "You have to get everybody really excited and proud to represent this person or group," says Boberg. "I call it 'building the bonfire.'" Marketing campaign managers generally choose one of two strategies. One is to prod radio stations to run a hit single from an album as many times a day as possible - what's known as creating "push" in the marketplace. The other is to drum up fan interest in the album by first touring the band and promoting the record in the media - otherwise known as "pull." "The approach you use depends on whether or not you have what you sense is a 'radio-friendly' hit," says Boberg. "If you do, you take it to radio. If it's an album that has overall power but doesn't have one single that really drives it, you'll tend to go the tour route." Given the influence of radio in making or breaking an artist, cases of corruption and the "buying" of airtime are legendary in the music industry. Today, however, notes Boberg, things are different. "That may have happened in the past," he says, "but today radio stations are so niche-driven that they can't afford to play just anything. They do so much research to see if their particular audience will react to a song that if a single is floundering, they'll pull it right off the airwaves. So, in a sense, the process of getting records played on the radio has a lot to do with bringing stations music that will help them achieve their audience." One boon to the record industry has come in the form of MTV, which hit the airwaves in 1981 as the world's first 24-hour video music network. MTV has undoubtedly become one of the nation's most influential music promoters, and in 1987 the network launched MTV Europe and began to set up other international satellites. Currently, the music channel reaches more than 294 million households on every continent except Antarctica - including unexpected places such as Croatia, Lebanon, and the former Soviet Union. But according to William Roedy, president, international, of MTV Networks, American record executives looking to MTV as a way to create a dominant world presence for American pop music (similar to the influence American movies enjoy) will be disappointed. "We work very hard at supporting local music on all of our international stations," he says. "We also look to expose international audiences to all sorts of new music, not just American." In fact, he says, "one of our dreams is to make the American audience more open to the incredible diversity we have around the world." CONTINUED |
