Music 2.0 - Exploring Chaos in Digital Music

In a sneaky move by EMI to cash in on Radiohead’s unprecedented popularity, EMI had been running a scam ad campaign on Google until the end of last week, purporting to already have the new Radiohead album “In Rainbows” in boxset and CD versions for sale even before the official release in December. In an attempt to obviously mislead and cheat users, EMI used the phrase “Rainbow” in the ad which appears as a paid listing at the top of search results when users searched for the keyword “Radiohead” in Google.

Clicking on the ad instead led users to EMI/ Parlophone’s own site selling Radiohead’s back catalogue boxset of 7 albums with no sight of the promised new album “Rainbow”.

Guardian Unlimited Music first reported this yesterday and followed up with Parlophone to ascertain the source of the ad and were instead given a one line email by EMI publicist Chris Latham which stated,

“Parlophone were aware of the data source glitch and removed the link immediately.”

I’m not sure which is more pathetic and abhorrent, their cheating or trying to explain their machinations away as a “data source glitch” - especially as the phrase “Rainbow” should not even have existed in EMI’s marketing material as the album in question has already been assigned to XL Recordings. It is indeed insulting that they take the public for fools with this attempt to obfuscate - but unfortunately there are already victims of the truth as the BBC fell for it and summarized the incident as “A glitch on Google nearly sparked a war between Radiohead and their former label EMI.”
So now it’s someone else’s fault….(but at least Idolator & Pitchfork give fair accounts)

When new EMI chief Guy Hands noted in an internal memo recently that, “Rather than embracing digitalization and the opportunities it brings for promotion of product and distribution through multiple channels, the industry has stuck its head in the sand”, surely their efforts to now ride the digital gravy train should not misguidedly follow the tracks of Nigerian-419 type scams and pharmaceutical spam?

To call EMI’s management team’s honor into question over this incident might be a little harsh, but surely they should be held accountable for allowing an environment of stupidity to fester wherein their staffers could even entertain the thought, much less conceive a consumer campaign based on deceit, without giving due consideration to the fact that Radiohead and its products are under such intense scrutiny and public spotlight.

Even though Radiohead has tried to defuse the sorry situation with a band spokesman stating to NME that, “We accept that it was a genuine error and that it has been rectified”,
it has to be recognized that EMI still has Radiohead by the proverbial family jewels as they have in their grip not only the early Radiohead masters but are also the gatekeepers of Radiohead’s valuable back catalogue. If you value your kids’ well-being, it is unwise to piss off the babysitter just before you step out the house.

Ultimately, this is not just about “In Rainbows” sales only, but about a misleading ad by EMI seeking potential customers in a search environment in which the users are hitherto uninitiated about the product. Hence the users effort to search and find out more about the product in question instead leads them trickily to another place (even though we have to admit that this other place has fine products albeit an overpriced USB set) – there are advertising laws against this practice.

While major labels can claim a roll call of dishonour in the traditional world with dubious accounting practices and payola amongst others, it seems that they are quickly making up for lost time in the digital world with their recent rap sheets of rootkit fiascos, fake BitTorrent sites, stupidity and now, scam ads….

Thom Yorke called it a “decaying business model” and Trent Reznor called them “greedy fucking assholes…who have fucked themselves out of a job essentially, that now take it out on ripping off the public”.
Harsh words that describe the major labels and the music industry but which closely echo the sentiment of many music consumers. But it carries greater authority when spoken by two of the biggest acts in the music industry and now, as a further endorsement of this viewpoint, Guy Hands, newly appointed chief of EMI has called a spade a spade in an internal memo sent on Friday in the wake of Radiohead’s wake-up call to labels via their innovative distribution method:

“Rather than embracing digitalization and the opportunities it brings for promotion of product and distribution through multiple channels, the industry has stuck its head in the sand.”

If these words were spoken in 2000 by a head of a major label, I would have applauded it, but 7-8 years after they crucified Napster, mp3.com and bludgeoned all manner of digital developments, it recalls regret and lost opportunities expressed by a terminally ill patient during an administration of last rites.

Ian Rogers, the new head of Yahoo Music is to be applauded for making a strong stand on his blog

“How much opportunity have we lost in those 8 years?…..If the licensing labels offer their content to Yahoo! put more barriers in front of the users, I’m not interested. Do what you feel you need to do for your business, I’ll be polite, say thank you, and decline to sign. I won’t let Yahoo! invest any more money in consumer inconvenience. I will tell Yahoo! to give the money they were going to give me to build awesome media applications to Yahoo! Mail or Answers or some other deserving endeavor. I personally don’t have any more time to give and can’t bear to see any more money spent on pathetic attempts for control instead of building consumer value. Life’s too short. I want to delight consumers, not bum them out.”

Further expressing the view that unless there are major changes in the industry, more top bands will by-pass record labels and instead sell directly to their fans, Guy Hands’ sense of foreboding was further confirmed by this “Big News” as written by Trent Reznor on the NIN website yesterday:

After threatening to leave Universal after one more final album, it is probable that Universal/ Interscope hastened NIN’s departure to save themselves from the vitriolic and damaging attacks that Trent Reznor has unleashed on them this year. So there,.it’s finally happened, another A-list band has joined Radiohead in stepping out of the major label circus and the repercussions will be felt strongly, not just by labels, but as I had expressed in an earlier post, it might probably affect other artists too if the existing model is not changed. And as if on cue, Guy Hands has warned EMI off this well-trodden approach by asking,

“Why should they (A-list artists) subsidise their label’s new talent roster?”

And he has instead encouraged EMI to think like a VC in their approach, and do away with paying big advances and instead subsidise the cost of album production in return for a share of profits (or losses). The proof is in the pudding and the jury will certainly be out there to check if the labels concoct new accounting shenanigans to obfuscate the artist royalties on this new model too.

Even more damning is Hands’ questioning of current practices,

“Why should they subsidise their record company’s excessive expenditures and advances”.

According to a Telegraph report, he also expressed “surprised at the size of salaries paid to second-tier executives”. What is most despicable to all of us consumers as well as artists is the admission of excess that record company executives have been indulging in, which the further Telegraph notes as “bands complain that too much of their money is used to subsidise lavish lifestyles for label bosses”

Ignorance of all things digital is one thing, but to rip off consumers and artists is criminal, and unforgivable. Carrying on from Trent Reznor’s observation of high prices in Australia for NIN CDs, I myself noted that many dance CDs at HMVs in various countries in Asia are being sold at the exorbitant price of at least US$25 – do they really take us consumers for fools? The labels’ desperation to sustain their margins via a fading medium led Guy Hands to state that,

“The recorded music industry… has for too long been dependent on how many CDs can be sold”.

But in an almost universal act of retaliation, consumers simply ignore CDs and are no longer bothered by the accompanying high prices as they get their music fixes via free options. An average of 1 billion music files being traded monthly on P2P networks shows that music consumption is still very much alive but major labels are still clueless on how to get a piece of the action, and are slowly being led by the very artists whose interests they were supposed to look after.

In the week that Radiohead’s revolutionary new album distribution takes place, alongside indie-darlings Charlatans’ album giveaway, news of Madonna’s impending Warner defection and Trent Reznor’s final release from his major label shackles, the silence from one of rock’s other outspoken statesmen is deafening…Bono, stop fiddling with highfalutin aims and concepts outside of your natural area of expertise and fix your own backyard instead!

Now that we are probably over the initial amazement and exuberance at Radiohead’s innovative pricing and marketing model which seemed to involve virtually all of blogosphere, it may be time to look at further impact on the rest of the industry while we wait patiently for our donation enabled Radiohead downloads to materialize on 10 Oct.

The unbridled glee that greeted the Radiohead model was unabashedly accompanied by hopes that this would signal the death of the major labels.
Thom Yorke himself told Time shortly before Radiohead commenced writing songs for their new album,

“I like the people at our record company, but the time is at hand when you have to ask why anyone needs one. And, yes, it probably would give us some perverse pleasure to say ‘F___ you’ to this decaying business model.”

It might be a bit over the top but one cant deny the mob instincts that give rise to such sentiments - and such is the hatred that the RIAA has aroused in the blogosphere that it would be advisable for all to exercise restrain and take a rational look at the implications in the cold light of day.

Though indie artists are sometimes loath to admit it, there are many that aspire to be major label stars, but now the stars themselves aspire to go indie with a major difference – they already have the fame and cash to stand on their own, and are in all senses of the word, truly independent. And ironically, these A-list artists - including Radiohead, Prince, Paul McCartney, Garth Brooks and soon, probably Madonna too - who are all weaning themselves off their labels got a huge leg-up from their labels to get to where they are. And this is exactly the kind of position that lesser artists have to aspire to, and one of the fastest ways to get there would probably be by landing a plum major label deal.

However, it has to be realized that as more A-list artists go independent, the major labels are going to find it hard to keep up their investments and take risks with new artists without the supposed buffers previously granted by the mega-revenues pulled in by these A-list artists. It is believed that these revenues offset the labels’ losses with money losing artists in their stable.
Mile Copeland, former manager of The Police famously claimed in 2000

“So where does the public get the idea CDs are overpriced? Don’t they realize 19 out of 20 CDs released fail to make their investment back?”

So if this is really the case, the whole equilibrium in the existing ecosystem is going to be further messed up.

Though many customers and involved artists have the nagging doubt that some of the profits from the successful artist(s) are also used to enrich the label too, this greed factor has clouded the fact that there could possibly be some truth in this subsidy principle. Successful artist Trent Reznor himself expressed disgust at the practice,

“That money’s not going into my pocket, I can promise you that. It’s just these guys who have f—ed themselves out of a job essentially, that now take it out on ripping off the public”

Andrew Orlowski of The Register had a more damning view of the economics at play here,

“But successful artists have always been able to subsidise more interesting but less popular artists on the roster. …When the rich keep more for themselves, there’s less for everyone else.
How ironic that these impeccable liberals should be endorsing trickle down economics and contributing to a wider disparity in wealth.”

Martin Talbot, editor of industry paper Music Week re-emphasised the point in Time

“And without the income generated by big name acts, how will record labels support and promote lesser-known artists? If we keep moving down this particular route, companies will only release records that are sure home runs. That means either stuff by established artists or unknown artists doing cover versions. There is the danger that it will no longer be worth it for companies to invest in new, up-and-coming artists. And if record companies don’t invest in them, who will?”

This is not to suggest that a Marxist approach of equality and subsidies has to be implemented – mind you, the music industry was at its peak during the excess and hubris of the Ahmet Ertegun, Clive Davis and David Geffen era which also coincided with the advent of digital technology via the CD and with it, massive profits from superstar acts.
Now with the second act of the digital technology era proving to be the sharp end of the double edged sword by which the major labels seem intent on performing harakiri, profits have eroded with even the golden geese fleeing the nest in protest at the fleecing. The question remains on whether the major labels are going to the hang on to the vestiges of a bygone era and business model or can they adapt and mould newer artists with better and fairer reallocation of funds – failure to adapt might necessitate a total collapse of the industry in order to allow the proverbial phoenix to rise from the ashes.
Until a clearer vision is obtained, artists would do well to be slaves to the tour bus and possibly day jobs too to sustain their art while keeping alive the oft unspoken dream of being an obscenely rich and famous artist who can afford to give away their music for free one day!

Update: 12 Oct 2007
A week ago, Guy Hands, newly installed chief of EMI sent out an internal memo in the wake of Radiohead’s new distribution model where he also addressed how the new artist cross subsidy will be affected and exhorted the recorded music side to review business models that work in this new environment:

“In this note, I want to address what Radiohead’s decision means for EMI and what it means for artists generally. For EMI, this is a welcome reminder of the new digital world in which we operate and the need to focus on the services we provide to our artists. Those artists break down into three categories:
• Those who are already established and in whom we have invested heavily;
• Those with whom we are working to make really successful; and
• New, start–up bands.
EMI needs business models which work for all three categories, the reality being that the vast majority of the third category will fail to achieve commercial success and have historically been cross-subsidised by the first category………
We will need to give artists at all levels a deal that is fair to both sides, perhaps one that moves away from the large advances model of old and provides a true alignment of interests and transparency.”

Full memo here.