1999: The Year the Record Industry Lost Control

Author:Eamonn Forde

“The Web will be a great place to find music. It will make the music of the world more accessible” – Todd Rundgren, 1998

“We will never be in the business of making our music digital and degrading its value dramatically as long as we are continuing to sell CDs” Sir Colin Southgate, EMI CEO, 1996

For some lucky people, listening to music is all they need. Some don’t even bother to collect all the releases, like that rare Portuguese CD single with the extra hidden live tracks. A somewhat smaller number, like Eamonn Forde, and like me (I think there must be more of us) are also fascinated by the business of music. This is Forde’s third industry focused tome, having previously written about the demise of EMI (The Final days of EMI: Selling The Pig) and the management of musical estates (Leaving The Building: The Lucrative Afterlife of Music Estates). It’s a lot more of an engaging read than it sounds, honest. This time Word and Q alumni Forde has chosen 1999 as the tipping point that saw the record industry not so much disrupted, but dumped on it’s head, as the internet and digital music kicked the legs out from the record companies and retailers.

Forde divides the book into sections that explore a number of different themes; the record companies, the retailers, the emergence of the mp3 as the dominant digital music format, pirates and those charged with bringing them to account as well endeavors such as digital copy protection. There are some wonderfully cheesy chapter titles – “I want my mp3”, “Who do you think you CD-R”, “Marauder on the Dancefloor” … you get the idea. Bowie’s gets a section to himself on account of how keen he was to embrace digital (remember he had his own ISP, BowieNet) and how accurate his vision proved to be. An extract of this section appeared in the March 5th Guardian (it’s in the box)

There is a wealth of detail in the book and Forde’s research is fastidious. A sizable number of record company / retail executives were interviewed by Forde, including Edgar Bronfman, who created Universal out of Seagram and PolyGram, the biggest player in the 90’s and still a musical behemoth to this day. He also makes extensive use of articles for trade press sources like Music Week to provide the context for much of the story. There’s a generous tip of the hat to the British Library at the end as critical facilitator of his research

The book opens with an assessment of the record companies, who had turned CDs in to a cash cow. Having overseen and engineered a significant profit premium through the migration from vinyl to CD, Forde describes the toxic mix of defensiveness and disbelief that their dominance could be challenged alongside a total, determined lack of vision that paved the way for first Napster, then Apple then Amazon not just derail their gravy train, but eat it with their lunch and dinner too.

Record companies had used CDs to generate a tsunami of cash. As a new format CDs offered a premium return over vinyl and cassette, the price pushed to almost exactly double that of an LP. CDs rejuvenated back catalogue by selling consumers product they already bought in another format. But there was even more to grab as the contacts with musicians didn’t include this new format, so the royalty rates were pegged 20% lower whilst doubling the amounts artists were charged for packaging.

Forde provides an important reminder of the timeline of key events. The first CD was Billy Joel’s “52nd Street”, released in Japan in 1982. The first CD player went on sale in the UK in 1983 for £545 (close to £1.8k today). It took EMI 4 more years to see the value of putting The Beatles onto CD. And 2010 before it made iTunes. Meanwhile the first website established in 1991, and by 1999 there were over 3 million. iTunes appeared in 2001, superseded by Apple Music in 2015. Napster went bankrupt in 2002 but the name lives on, bought and sold half a dozen times, most recently as 2022. Spotify had been active in Europe sine 2008 reaching the US in 2011.

Initially pigeon-holing the internet as nothing more than a marketing tool, the major record companies refused to accept it as a selling opportunity, not just in the early days of dial up connections and floppy discs, but even past the point where companies like MP3.Com proved the viability of online licensed sales despite being denied content from the majors. Although each record company had advocates, particularly amongst the independents, the majors remained Canute like. Mistrustful of licensing any of their songs, fearful of seeing their margins from CDs erode, record companies prioritized growth by acquiring each other, unwilling or unable to consider whether digital music was a threat or an opportunity. Forde gives numerous examples of the industry’s technical illiteracy, just one example being the special permission Warner’s required staff to get for an office internet connection – in 1999 – whilst other companies had staff working on computers at home because they weren’t connected at work.

The picture for retailers was even bleaker. Stuck in an abusive but co-dependent relationship with record companies they didn’t trust, they found themselves not knowing whether to stick (bank on fans favoring physical purchases over digital) or twist (abandon physical and embrace digital, or at least try them in parallel), which made going bust almost inevitable.

Pivotal in the story of the decline of the CD is the humble single. Having transitioned from 45’s to CD singles, the major record companies saw an opportunity to build even more revenue by abandoning CD singles (in the US at least) due to costing as much to manufacture as a full CD album, but retailing for less than half as much. Sales were expected to migrate to full albums, and this it cleared the way for CD album releases that were little more than singles padded out with much more mediocre filler. Unmentioned is the close cousin which was the “Best of” CD that would have one previously unreleased track. The unintended consequence of their avarice – and what was evidently a lack of understanding of what their customer base actually wanted – they unwittingly fueled interest in downloading, which at the time the majors were still refusing to license.

A problem with such fastidious research is that as much as it is a strength, it can also get in the way of the story. Forde’s writing style is easy to follow but the book has numerous detours into the subjects like millennium bug, format wars (mp3 vs mp1 and mp2 , AAC) and the IPO aspirations of digital music start-ups that while they add a lot more content, it’s at the expense of moving the story forward. Forde talked extensively to executives in the industry at the time, but given how many tell similar stories there’s a diminishing return to namechecking and giving us the job title of each one.
There’s also a sense that the book rather fizzles out, closing with a look at Napster, simultaneously seen as the devil incarnate but also attracting venture capital investments as well as eventually funding from BMG (followed by ownership). Forde acknowledges that Joseph Menn’s “All The Rave: The Rise & Fall of Shaun Manning’s Napster” is a definitive account so he restricts his account to Napster’s early days which rather robs the tale of final dénouement where pretty much everyone loses their shirt.

That said, this is an epic piece of work, and in terms of the ascent of digital it’s only telling the first part of the story, bowing out before downloads die an even quicker death than CDs as access to music replaces ownership as the next major market disruption, and the majors prove that old dogs can get very rich once again from the old tricks they already learned. Hopefully Mr Forde will be back at the British Library soon.

Length of Read:Epic

Might appeal to people who enjoyed…

Either of his previous books

One thing you’ve learned

One? How about the following 5 selected at random
-Universal is still a significant shareholder in Spotify, after it gave majors stock in return for licensing deals (Sony and Warner having full or partly cashed out)
– Every CD sold and every CD player sold earns developers Sony and Phillips a royalty
– Piracy of music can be traced back to 1877, with knock off copies of sheet music.
– Mafia interest in CD piracy grew as the cash yield was greater than drugs in terms of $’s by weight
– Tony Wilson founded a download company called Music33 founded tracks would cost 33p. Had he ever sold any.

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