From Iceland — The Fallacy of Excess:

The Fallacy of Excess:

Published May 9, 2008

The Fallacy of Excess:

How did I get started in the business? As most musicians know, the bass player is the most economic thinking person in the band; they hardly practice and girls can’t tell the difference between them and the guitar player. Thus when you become a bass player, you’ve already got a grasp on the laws of supply and demand. Every band needs a bass player, while there’s plenty of guitar players around. So if you want to be in a band, it’s a good idea to play bass.

Now, being the economic thinking person in my band, I was soon put in charge of taking care of business, and business pretty soon became pretty complex in our band because we had to find ways of making a living off a rather exotic type of music. So we did a lot of contracts and international deals that had to be managed. We worked on a country-to-country level, finding enough people in Japan or the UK who were interested to release our albums there, and so on, selling a couple of thousand copies in every country. We’d sell about 100.000 copies of an album worldwide in the late eighties.

Was it a lot of work? Well, we were quite lazy and toured very little. Another thing that saved us a lot of time is that we never rehearsed, which is not a concept I recommend for young artists. We only rehearsed once in our time, when we’d gotten bored by our way of doing things and thought it would be good to challenge ourselves by rehearsing for our next album. I’m not going to say which album it was; it wasn’t one of the better ones.

I played with the band for 14 years, and for the last five we started our own publishing company because we were unhappy with the situation we found in the market. We built a very efficient company, which we soon realized would be even more efficient if we helped some of our friends who had asked us why we couldn’t handle their copyrights as well as our own.

“We didn’t strive to dominate the market”
I saw an opportunity to build what I call an artist friendly publishing company, based on efficiency and improvement of copyright collection and administration of copyrights. And that was definitely missing in the market, so for a couple of years I tried to do both the band and the business, but that wasn’t really working because we would go on tour for three months and then had to start over, which makes it hard to develop a new business. It was easier to focus on one or the other, and obviously I’d played in bands for twenty years at that point so I thought it was time to focus on the business side. I am glad that I did, and I have to say that I was very lucky; after spending some time building the publishing company the people from [international indie label] Play it Again Sam came along and wanted to build a European independent label.

I worked on that indie label for two years and the majors were always coming up to us to ask if we could help them develop new artists, because it seemed like we were a bit better at handling artists at an early point in their careers than they were. They wanted to give us some of their baby artists to develop. However, it wasn’t until Paul Russell from Sony records approached me that the idea seemed viable for us, as he was the first one to want to let us keep the artists after they’d had their success.

So we made the Sony Independent Network Europe model and that worked well as a concept for five years. We had a lot of success; the indies under our helm broke artists at home and within very short periods of time we could turn that into global success stories, which worked out pretty well for everybody. We had our failures as well, of course. The way we combined the strength of the majors and the indies is that we’d mostly let the indies under SINE do their thing, and then Sony would come in with their strong and efficient marketing department. Having a presence in every territory of the world and having a structure in every country made for a very efficient structure. I was surprised by how many records you could sell at that time; we sold 70 million albums operating a small team over five years.

Conferences, cocaine and hookers
Decadence in the record industry, you say? Well, when I joined Sony in ’96 it was really the tail end of decadent 90’s era. Still a bit excessive, but when you went to conferences people reminisced fondly about hanging with Walter Yetnikoff [notorious former CBS/Sony Music exec] in the preceding years: “… and we were on a boat with a lot of hookers, and there was all that coke and everybody got gold watches to take home as souvenirs after the party…” It isn’t like that any more; it must have been more in the late eighties and early nineties. What happened is that a) the record industry convinced the artists that CDs were really complicated and expensive, so everybody agreed on taking a royalty reduction of 25% and b) they convinced the buying public that CD technology was so expensive that they had to raise the price: when of course the truth was that the format very soon became much cheaper to manufacture than vinyl. The profit margins were incredible, they blew up, and a lot of rebuying was going on as well, with people replacing their old vinyl collections with CDs. Those were ten or twenty years where, frankly, I think the music business created a lot of the problems that it’s had later on. It grew so fat and rich that a lot of very mediocre-to-bad managers survived very well by just being there, and even managed to show a profit. For a lot of people in the major companies, the strategy was to attach yourself to something that was successful, and distance yourself from what was not. That was a survival strategy that worked and kept a lot of incompetent people in the business.

Collapsing old industry
In that sense, it was a good thing and a right thing that the bubble burst; a shake out on the structure level wasn’t so bad for the music industry at all. However, after the fourth round of firing people, you could tell that some really good people were getting let go. I realized that the SINE model wasn’t working anymore when I went to Sweden – at one point, some Oasis album had just come out and we weren’t getting the second single on the radio. “Hang on. The Oasis single? Whaddaya mean it’s not on radio?” I arrived at Sony’s Swedish office and I found the lady who was head of radio promotion in the mailroom, packing parcels. I realized she was the only radio promotion person left with Sony Sweden, and she was responsible for the entire international repertoire, and the entire Scandinavian roster, and SINE. And her assistant had just been fired the week before. Which is why she was in the postal room, actually sticking sellotape on records that were to be shipped to radio. So the Oasis record was probably somewhere in that pile of records to be mailed out.

But what we did at SINE, and what we’re proud of, is that we managed to introduce new artists into the system, artists that had maybe been well known at home but lacked international recognition. And that ability, to develop new artists internationally, has been lost by the major companies. And that’s still the situation because of how they’ve reacted to diminishing revenues, reducing their staff to a level where development is near-impossible.

The financial people have become very influential and with the major assumption that “…since we’re doing a profit on J. Lo and Christina Aguilera, we should only do those releases, and then we can be quite profitable.” And what they’re missing is that sometimes the J. Lo records don’t sell as much as you would expect – and they have nothing to replace them with, because most success stories start at the bottom. For instance, I had the pleasure of working with Travis, who sold six million copies of their second album while their first one only sold thirty thousand. The situation today is that bands like that probably don’t get to release their potentially six million selling second album, because the company is afraid to invest in them.

How Americans killed the singles market
When file sharing became the norm, the big labels were paying up for their years of excess, and it’s well deserved. Especially in the case of the multinationals, because they carry a big share of the blame for the various policies.

For instance, Americans killed the singles market. It worked well for them to make two or three singles with an artist that they would produce very nicely, and only make them available as a package on an album that was filled with inferior songs that the consumer had no interest in purchasing. There’s a difference between an album that’s conceived by an artist, and one that’s conceived by the record company because they want to charge the price of an album for two singles. They forced the public to purchase twelve songs that they weren’t interested in, to get the two that they wanted. That’s not a consumer friendly business model, but it was very profitable. One of the attractions of file-sharing and downloading is that you just pick up the tracks that you want, and you don’t have to deal with all the stuff the record company stuck on there to make a more valuable product.

It was hard for major labels to face the fact that they might have to reduce the prices of their product, which they did later, although it took them a really long time. The arrogance of the majors is remarkable in that respect. It also has to do with the pure human fact that it’s really hard to let go of a thing that works. You see this now with the film industry, they’re having the same problem of letting go of the nice DVD business that’s giving them a lot of revenue right now. They aren’t managing it very smart, and it’s hard to see what’s going to protect them from the destiny of the record companies.

Subsidizing the high-tech industry
How do I see the future? The music industry needs to reinvent itself. I am not in the business of predicting, I’ve lived long enough to know that it’s pretty much impossible, but there are a couple of things that I’d like to say. I think there’s a chance at the moment to set things right, and one of the things that might help us in Europe is that the political landscape has changed. Politicians have realized that what they refer to as the creative and cultural industries – of which the music business is an aspect of, along with film, TV, advertising, books, newspapers, magazines, etc. – are crucial to them.

Once you add all these things together, you realize that section of the economy is much larger than had been assumed, around 4-5% of the Gross Domestic Product. Bigger than the automotive industry, or the chemical industry. For all these years, politicians have supported those industries, while the culture industries have been left on their own. Now they’ve realized that they’re going faster than the others, and have a better chance to survive in the next twenty years. Europe isn’t going to survive well in the shipbuilding industry, in competition with Korea or China who can do it at a much cheaper price. The steel industry is in a bad shape… but producing content – art, television series, books, music – is a business just like any other, and it has more future potential than any of them. This has become common knowledge lately, which is very positive.

Second, people have started to realise that the wide on-line availability of content is one of the biggest drivers behind the explosive growth in the high-tech industries for the past decade. This has been established by a lot of research; people will buy a new phone, a faster computer or a better broadband connection to access music and films on-line. What happened in the past decades was that artists and small and medium sized businesses working out of bedrooms all over – vulnerable businesses – have been subsidizing the development of the technology sector, which has been highly profitable. It’s obvious that an imbalance has happened, and I think that people have realized that.

Some very promising developments have happened lately. In France, Sarkozy has succeeded in bringing together the Internet Service Providers and the content providers, who now say that they should be working together. That they shouldn’t have one industry thriving while another dies. Looking at it from the French perspective, if they lose the creative structure there after the years it took to market and develop, they’ll get more of the destruction of independent distribution and record companies, which will in turn encourage the Anglo-American dominance of global culture. They’re saying: “We have a national interest here to preserve, which every country might have.” So they’ve signed an agreement, the ISPs and the content/ culture industry, to work together and address the issue of illegal file sharing and how it affects everybody. And that sort of thinking might actually get us somewhere.

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