Patrons, Curators, Inventors and Thieves

The Storytelling Contest of the Cultural Industries in the Digital Age

Jonathan Wheeldon

• Publisher: Palgrave Macmillan
• Year: 2014
• Print ISBN: 9781349320776, 9780230249431
• eBook ISBN: 9780230306677
• Topic: Politics & International Relations
• Subtopic: Management
• Index: Politics & International Relations

Jonathan Wheeldon offers a rare and unusually reflective insider account of the transformational challenges of the music industry, and the cultural industries in general, over the past 15 years. He also makes a potentially valuable contribution to loosening the industrial-political deadlock in the debate over copyright reform.

Part I
My Version of Events

1

A Personal Perspective

This first part of the book is my narrative attempt to make sense of recorded music industry history. It is shaped by my subjective observations and experiences – as an active consumer since the mid-1970s, as a finance professional and industry insider from 1992 to 2007, and aspires towards objectivity through my efforts as a scholar since 2005. It does not claim to be a definitive interpretation, but simply a reference point for critical reflection in subsequent chapters. Before I begin, it is worth asking: what is the point of trying to make historic sense of the music industry?

I have two reasons.

The first reason is specific to the music business. The major record companies are generally considered to be amongst the first, and certainly the most talked about, industrial casualties of the internet age. Everyone seems to have a view on what happened to the music industry, especially anyone who takes an interest in music, or in the creative industries, or in technology and media innovation, or in organizational strategy and change management, or in intellectual property law and cultural-economic policy. That adds up to a lot of people, and most have formed their own theories on why it happened and what, if anything, might or should happen next. Prevailing popular discourse constitutes the internet and new social media as vehicles for a liberating and field-levelling revolution. The discourse is antagonistic, even belligerent, with the implication that the repressive bastions of the old guard need to be overthrown. But whilst the old guard have been wounded, and some even died, those who remain soldier on in a battlefield whose lines have been re-drawn. Some are bigger and stronger than before. There remains some antagonism towards big corporations that still play the role of cultural intermediary and use their shield of intellectual property protection to hold on to power. Wonderful new devices and channels provide more consumer choice and empowerment than ever before. It is claimed that budding musicians can be seen and heard more easily than ever before. Yet for some reason there remains a sense of injustice about where the power and influence lies, and how the spoils are divided.

I understand the disappointment and frustration at the endless war of words between those who want a free flow of musical expression and discovery and those who seek economic reward and recognition for their contribution to cultural production. But the war is not a simple two-way contest. Those who claim that rights-owners are obstacles to innovation and cultural democracy do not speak with one clear voice. They include the highly vocal and articulate cyber-utopians as well as the more muffled ventriloquial corporate voices of new media service providers and device manufacturers. This ventriloquism derives from the recognition by companies such as Google, Facebook, Apple and Amazon, amongst many others, that their strategic goals may be as misaligned with the dreams of the cyber-utopians as with those of the music and film companies. They rely on others, including users who are addicted to their products and services, to publicly lobby for less restrictive copyright. For now, there is a sense that not much has changed at all and that the real revolution has not yet happened. Identifying the likelihood or desirability of a further revolution in copyright protection is the first reason I am trying to make sense of the music industry.

The second reason is because the music industry, constructed as a valuable national domestic and export asset which has fallen victim to the unregulated wiki wild west, tends to be stealing the limelight in the wider political debate around the rights, controls and protections attaching to expression and innovation in education, culture, science and technology. There is thus a real danger that innovation in the 21st century, and in particular the future of the internet, and the way it is regulated and policed, will be disproportionately influenced by discourse which has a nostalgic sympathy for the music industry. Reconciling the competing interests in intellectual property policy reform is a fundamental social dilemma, just like many other political balancing acts which tease and torture societies. In this context, the second reason for beginning the book with some history is to establish a balanced long-term perspective which encourages critical reflection on the dilemma, and will hopefully promote more open-minded dialogue.

New millennium dawn, or dusk?

In February 2000 I returned to the UK after seven years working overseas for the world’s largest music company, Universal Music Group. My original assignment had been to New York, then Madrid and ultimately Los Angeles. Still employed by Universal, I returned to the company’s international headquarters in London, where I was asked to project-manage the development of an embryonic and innovative concept called Voxstar. The project aimed to capture the potential of new media and technology in order to transform the consumer experience of engaging with music and artists. My return coincided with the peak of the dot-com boom, and, as it turned out, the financial peak of the global recorded music market, though no one knew these things at that time. London was buzzing with the anticipation of further extraordinary growth yet to come. It was a particularly exciting time to be in a record company: full of possibilities, bright sparks, blue ocean visions, and beautifully constructed PowerPoint slides.

Voxstar was designed to create a new technology platform for music, not just for Universal’s content, but open to all artists; and not just for the paid download of recorded music, but offering a broad experience of content and community, news and chat, access to artists, games and competitions, streamed music, and live webcasts. All this would be provided interactively via new digital technology, channels and devices as they emerged. Moving away from the old business model of music to be sold and owned, there were new experiential values to be exploited and monetized, at least according to the new-age dot-com consultants supported by the neat precision and predictability of their spread-sheet models. Choice, convenience, personalization, empowerment, flexibility, discovery, immediacy, exclusivity, community and mobility were the determinants of value for the 21st-century digital consumer; or so we believed. As a logical consequence of serving these needs, revenue would flow from a number of new channels including subscriptions, ‘freemium’ products and services, advertising, sponsorship, licensing, artist-branding, merchandizing, ticket-commissions and more. The main risks, as they appeared then, were not that we were strategically misguided, but that others would beat us to market, or that we would be blind-sided by a ‘killer-app’ which eclipsed our own innovations.

Universal committed over £15 million of development money to Voxstar but we sought third-party funding, not only to mitigate the risk, but also to demonstrate the independence of the new venture from Universal’s traditional business. The new millennium investment environment was intoxicating. Despite growing evidence of an already bursting dot-com bubble, in late April 2000 the major telecommunications operators still had the confidence to bet their futures in the largest ever UK auction. They bid a jaw-dropping and ultimately crippling £22.5 billion for licences to operate the third generation (3G) spectrum which they believed provided the platform to enable phones to take over from computers as the gateway to broad and ‘rich’ media consumption. Music delivered by mobile phone was very much at the forefront of these hopes.

In that climate, demonstrably prudent behaviour was symptomatic of lacking vision, and scepticism was for spectators and losers. It therefore seemed not at all absurd to find myself sitting in front of the world’s leading investment banks, inviting them to commit £50 million for a 20% stake in something unproven and yet to be built, simply based on the expected future value of market-leading music rights exploited via new media channels. Only a few months later, our fate seemed secured when Voxstar was designated as the music partner for Vizzavi, the mobile internet portal recently constituted as a billion-euro joint venture between Vodafone and Vivendi. We stepped up our ‘burn rate’, or negative cash-flow as it should have been more soberly described. Many people deemed burn rate to be indicative of the boldness of one’s ambition, being confident that revenue streams would emerge if the online user ‘traffic’ was ‘sticky’ enough. ‘Build it, and they will come’ was the mantra.

Sadly, Voxstar, Vizzavi, and 3G services in general were all ahead of their time, and naïve in their ambition. Aspirations for a brave, open and collaborative new world were misplaced. Despite being fully staffed and ready for launch by the spring of 2001, Voxstar was prevented from going public by a lack of confidence and consensus regarding competing digital strategic priorities amongst the various stakeholder decision-makers in London, New York, Los Angeles and Paris. In a tense and awkward meeting overlooking the Arc de Triomphe, Vivendi-Universal CEO Jean-Marie Messier and Universal Music CEO Edgar Bronfman Jr. instructed us to re-purpose Voxstar’s leading edge technology to support other internal projects including the recently acquired MP3.com. The majority of the newly hired team was let go, along with their valuable new-media skills and their fresh outlook. Vizzavi suffered a similar fate, disappearing one year later. MP3.com limped on for two years but was dismantled and sold in 2003.

Another pair of early industry-led new-media innovation failures are worthy of mention. Pressplay, a partially collaborative online music subscription service which linked Universal with its competitor Sony, and with Microsoft and Yahoo, also closed in 2003. A rival music rental service called MusicNet, linking other music competitors EMI and Bertelsmann with AOL Time Warner and Real Networks, failed shortly afterwards. Both Pressplay and MusicNet failed for two fundamental reasons. First, they didn’t license music content to each other, meaning that user access was limited to less than half the music which users would naturally be seeking. Second, neither service offered a satisfactory portable solution, effectively confining the enjoyment of the music to a user’s computer. Lack of portability was not so much due to the often-cited technical obstacles as it was to an ultimately self-defeating timidity. Such corporate timidity was based on a pessimistic presumption that giving customers too much flexibility in their consumption would promote file-sharing. The thought process went as follows: ‘if we give customers a service which is too good, they will abuse it’, rather than a more confident and optimistic: ‘if we give customers a great service which they really want, then they will happily pay for it and keep using it’. By not giving customers the benefit of the doubt, the music industry suffered a high price. In 2006, the then defunct services of Pressplay and MusicNet were ranked 9th in PC World’s ‘25 Worst Tech Products of All Time’, with the condemnation that the ‘brain-dead features showed that the record companies still didn’t get it’.¹ By then, the recorded music industry had given up any strategic hope or intent of retaining its mastery of technology in the 21st century in the same way it had controlled the technological means of production and consumption of music in the 20th century.

I mention Voxstar and these other heroic failures at the beginning of the book because I want to dilute, though not to dismiss entirely, the myth that record companies contributed to their own demise by burying their heads in the sand, refusing to see or to contemplate the impact of the internet on their business models. The myth continues that when they did finally begin to understand the opportunity, they were incapable of acting in anything other than a protective-defensive way, seeing only threats, not opportunities. This is a slightly misleading depiction in two ways. Firstly, it ignores the fact that some important open-minded and collaborative early attempts were made by record companies to innovate, albeit with potential collaborators who came with their own prejudices and obstacles. It should also be noted that all parties were operating within complex contractual, statutory and regulatory constraints. Secondly, the accusation of wilful myopia directed at record companies usually centres on their behaviour after 1999. By contrast, my diagnosis suggests that this hereditary affliction began much earlier, as I will demonstrate in the next chapter.

2

Innovation or Bust: A Short History of Recorded Music

It is not the purpose of this book to recount in detail the fascinating but complex twists and turns of the international recording industry since Edison triggered the start of the race in 1877 with his tinfoil cylinder. There are several books which document this very well, such as Roland Gelatt’s early history, The Fabulous Phonograph (1955), or Mark Coleman’s more modern journalistic account From the Victrola to the MP3 (2005), to name just two.

Nevertheless, setting a historical context is essential for the critical reflections later in the book, so from these and other accounts, including personal experience, it is worth summarizing the music industry story at an unashamedly high level, with some relevant milestones in the evolution of recorded sound and its commercialization.

The first 100 years – fidelity and format dominance

The first 30 years of the recording industry were dominated by a format war between cylinders and discs. Cylinders were the domain of Edison, before being more commercially developed by the Columbia Phonograph Company, formed in 1888 by Alexander Graham Bell, amongst others. Discs were pioneered by Emile Berliner, and developed by the Berliner Gramophone Company (1895), and then by Berliner in collaboration with Eldridge Johnson through the Victor Talking Machine Company (1901) with its flagship disc player, the Victrola. Columbia and Victor became the two dominant competitors for the first two decades of industrial development.

Financially speaking, the sale of players, or ‘hardware penetration’ in late 20th-century speak, was perceived as being the big prize, rather than the sales of recordings themselves. Developing relationships with musicians was a promotional strategy and Columbia and Victor competed for talented performers to endorse their competing technologies. By 1891, Columbia had recorded a catalogue of the popular military band leader John Philip Sousa, along with a host of speaking recordings and vernacular songs. Competition for recordings of more serious musical substance came from Victor through its Red Label, which was supported by European classical singing stars such as Nellie Melba and Enrico Caruso. Caruso’s first recording was in 1902, and he went on to become the first million-selling recording artist. Visual art also contributed to the competition between the formats. In 1899 the artist Francis Barraud was commissioned by an interested party¹ to amend his 1895 painting of his fox terrier, Nipper, listening to a phonograph. He painted out the Edison cylinder phonograph, replacing it with a gramophone disc player. The rights to the painting were acquired and His Master’s Voice (HMV) went on to become one of the most recognizable trademarks of the 20th century.

In 1903 Columbia acknowledged the greater suitability of the disc format for musical reproduction and began manufacturing recordings in disc format alongside its cylinder recordings. By 1912, Columbia discontinued cylinders altogether. Berliner’s disc format had won, largely due to Victor’s marketing strategy of exclusively engaging celebrity classical conductors, musicians and opera singers. Edison alone continued to produce cylinders, primarily exploiting them for his originally intended purpose as a means of dictation, but the format was, by then, moribund.

During the second decade of the 20th century the industry thrived, and was led by Victor. By 1919, the US market for the industry’s products was worth $159 million.² In that year there were nearly 200 manufacturers producing more than two million machines, and in 1921 production of recordings exceeded 100 million units. By that time, two things had become clear: first, that as the early patents expired, the business of selling discs was at least as financially interesting as the business of selling disc-playing machines; and second, that being closely in touch with emerging cultural trends was as important as having exclusive arrangements with established classical artists. The early leading role of classical music in the shaping of the development of the industry was soon overtaken by popular music, especially dance music, jazz, blues and ragtime. Spotting the new sounds, and the dance trends, and the emerging talent were all critically important in the competition for record sales. The role of recording company as cultural intermediary had arrived.

The first threat – radio

The seeds of the first US crisis for the recording industry were sown at the beginning of the third decade of the 20th century. In 1920 there were two important milestones, one commercial, occurring in the US, the other technological, occurring in the UK. The former was the first commercial radio broadcast, and the latter was the first electrical recording from a remote pickup. With these developments, the evolution of the radio era gained pace. Even though the programme content of broadcasts in the first half of the 1920s was quite basic, radio was free, and direct broadcast had a higher sound quality than discs. Early broadcast licences were granted on the basis that records were not played, but this was generally ignored despite the lobbying from music publishers and musicians’ unions. Being initially dismissive, then hostile to the new broadcast medium, the recording companies took some time to recognize the associated opportunities and threats which radio and electronic recording presented. Consequently, revenues from players and recordings fell steadily from their 1921 peak.

Eventually Victor and others collaborated to some extent with Bell Laboratories, the pioneers of electronic recording, and with the Radio Corporation of America (RCA), the government-supported company which was at the forefront of radio. The products of these collaborations were new players of electronically recorded discs which also accommodated radios, the most notable being Victor’s Orthophonic Victrola and Brunswick’s Panatrope. Expectations of these new machines were high. Victor spent $6 million promoting the launch of the new Victrola in November 1925, and within a week had taken orders for $20 million. Subsequently its shares almost doubled in value relative to their price earlier in the year.

With great prescience, or luck, Victor shareholders sold their company to private investors one year later for $40 million, a price which was based on the assumption that the recording industry was still in robust health. Thirteen months after that, in January 1929, Victor was acquired by RCA to form RCA-Victor. RCA was not committed to the recording business, but had an urgent need for Victor’s manufacturing plant and its network of dealers in order to satisfy the rampant demand for RCA radios. In October the same year, the stock market crashed spectacularly. Whilst almost all industries suffered badly from the Great Depression, the blow seemed fatal for the recording business. In 1927, sales of discs had been 104 million. By 1932 they had fallen to a mere six million. Sales of players fell from 987,000 to 40,000 over the same period. The cause of the collapse was a combination of much improved radio broadcasting, a lack of support from RCA for the recording business, and the perceived poor value-for-money of expensive discs and players which needed replacing as technology and formats changed. All these factors contributed to a level of consumer dissatisfaction with the recording industry which almost led to its demise.

Recovery led from Europe

The factors which led to US disenchantment with gramophones were not so noticeable in Europe, where competition from radio was much less significant. Britain had been responsible for much of the innovation in classical music recording since Thomas Beecham’s pioneering recordings for HMV, and there remained a deep cultural and commercial commitment to recording. Furthermore, Britain still regarded the gramophone as a highly desirable home ornament and cultural accessory. US-led economic depression was similarly biting in Europe, but in 1931 the two major British competitors merged. Columbia and The Gramophone Company (owner of the HMV trademark) combined under a new company, Electric and Musical Industries (EMI), which provided essential scale economies in difficult times. One of EMI’s thrifty initiatives was a project which encouraged private subscribers, via societies, to finance a wider repertoire of new classical recordings than would have been otherwise available. EMI’s leadership in recording technology was further underpinned when it opened new studios at Abbey Road in 1931, marked by a recording of Edward Elgar conducting the London Symphony Orches...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Contents
• List of Figures
• Introduction: A Changing Master-Narrative of Cultural Production
• Part I: My Version of Events
• Part II: Stakeholder Voices
• Part III: A Storytelling Contest
• Part IV: The Pirate’s Tale: The Reform of Copyright and the Future
• Notes
• References
• Index