Facing the Music

More than a half-century later, another entertainment industry giant—the music industry and its label system—is under assault. Granted, the comparison only goes so far—it's technology and not government antitrust action that threatens the music business as usual. And advances in technology are causing trouble for virtually all of the consumer-based entertainment industries. But when it comes to impact on Tennessee in general and Nashville in particular, it's all about the music.

Outside of the businesses riding almost entirely on technological advances of the last 30 years—the Dells, the Blizzards, the eBays and Googles, etc.—one would be hard-pressed to find an industry more revolutionized by technological change than the music industry. Yet lately it's been less "Viva la revolution!" and more "Off with their heads!" as labels have battled to preserve their Old Economy roots while still harvesting the fruits of the Digital Age. Reconciling these two disparate directions without tearing the industry apart—well, that's the trick. Flagging sales, Web innovations and a fair amount of piracy are all exerting pressure on Nashville's multibillion-dollar music industry. With industry identity at stake, major labels and the recording lobby, the Recording Industry Association of America (RIAA), are fighting to preserve the status quo. But with technology sweeping onward, some think the music label system that has driven Nashville's historic success may be facing the same fate as Hollywood's now-defunct movie studio system of the 1920s-'30s. As important as that question may be, it immediately begs another: Would the death of the current system be such a bad thing?

It should come as no surprise that media industries historically resist leaping technological advancement. Before the RIAA brought down Napster, the peer-to-peer pioneer that opened the floodgate on file-sharing in the '90s, there was Sony's failed Supreme Court petition to outlaw Betamax in the '80s. And before that, well, no doubt the sheet music industry vigorously fought the introduction of the Player Piano a century ago.

According to a 2006 Belmont University study, the music industry in Nashville alone generates a total economic impact of well over $6 billion. The amount was comparable to the music industry's impact on Memphis, Austin, Seattle and the whole state of Georgia—combined.

But diminishing sales and market growth seem to indicate that multibillion-dollar industry is facing a potential disemboweling. The plummeting sales trend culminated in last year's results, which fell across the board 15%, according to industry tracker Nielsen SoundScan. It was the steepest drop since the company redesigned its accounting metric in 1993. Nashville's numbers followed suit, down overall about 16% despite a 53% jump in digital albums sales (roughly 10% of the total). Poor sales have hit Music Row, and not just in its bank account.

"Obviously the major record labels have gone through a couple rough years with layoffs and there are probably more coming," says Tim DuBois, former senior partner of Universal South and president of Arista Records/Nashville. "And it's not going to get better at the record-label level anytime soon." It's not just the suits who are anxious over the sales trend.

"[Songwriters] are at the bottom of the food chain," says esteemed songwriter Janis Ian. "When sales fall, we fall."

Though analysts in and out of Nashville point to rapidly declining music-retailer shelf space, a concentrated, hits-driven recording industry and an increasingly disillusioned consumer base for contributing to the sliding sales trend, industry lobbyists like to blame piracy. The RIAA has gone so far as to make a federal case against copying legally purchased CDs to one's personal computer. "They have some reasonable legal grounds on which to stand, but the result to which they lead and support is totally absurd," says attorney Craig Grossman, who heads the intellectual property division for Butler Snow in Memphis.

"The RIAA does not want us to live in a world where handheld digital music players are legal," Grossman says.

He disagrees with the notion that digital content and easily accessible portable mp3 technology propels pirate markets, pointing out that, "Where there is reasonable commercial access, piracy remains at traditional sub-rosa levels. Just compare DVD copying in this country where we have HBO, Blockbuster and Netflix versus other countries that don't."

As for the RIAA, its position on mp3 technology is a little confusing. On one hand, it claims piracy is a leading cause in the decline in overall sales (piracy pertaining both from illegal copying as well as illegal downloading). But that's not to say the RIAA disapproves of downloading—the organization maintains that it's perfectly fine as a means of distribution as long as it's from an RIAA-sanctioned site, which obviously disqualifies file-sharing sites.

Ian, one of the few successful voices in Nashville who doesn't carry water for the industry, contends the RIAA's education-through-litigation methods cause more damage than the actual piracy. She doesn't buy that illegal downloading contributes to the downturn of the music business or shrinking of the songwriting community.

"I'm in the minority," she admits via e-mail. "I don't think it's contributed at all. If you look at current stats, at least 70% of all worldwide digital content is counterfeit—AT LEAST—most of it coming out of China and that area. Yet no one goes after China—they just go after the consumer."

"[The policy] is negatively impacting every aspect of the music industry," Ian continues. "We used to be the good guys, the people who accompanied you from cradle to grave. Now the record companies just look like thieves, and those of us who go along with it, like accomplices."

The RIAA strategy is proving effective in some respects—many of the people who receive settlement letters threatening legal action accept the payoff price (which is much less than a legal defense would cost). But songwriters are not seeing any of that money. In fact, attorneys for the public-interest nonprofit Electronic Frontier Foundation (EFF) point out the revenue from settlements and lawsuits is used to fund the legal machine. Record labels, the EFF claims, are being disingenuous when they claim they're just trying to defend their respective artists' moral rights to safeguard creative work. But even if such claims are not disingenuous, they are, nonetheless, irrelevant. There is a harsh reality behind copyright law: artists have little to do with it.

"We have an economic, not an artist-/moral rights-driven system," says Grossman, one of the early peer-to-peer legal warriors. Before his stint heading the FedEx Institute of Technology, Grossman was in-house counsel for Scour, which waged one of the earliest P2P court battles in America, a losing battle against the Motion Picture Association of America.

"Copyright and patent are borne directly from Article 1, Section 8 of the Constitution: 'To promote the progress of science and useful arts,'" Grossman quotes. A copyright, the former law school professor explains, is essentially a monopoly granted to nurture business activity. "The government does not grant monopolies to make companies rich," Grossman continues. "That is the gestalt of the law." In a sense, advancements that will progress an industry should trump the perceived sanctity of intellectual property at some reasonable point. From an overall market perspective, it makes sense—monopolies eventually restrict development and progress. In the music industry, progress is in the distribution, which DuBois believes is the biggest development looming in the digital revolution. "The digital revolution," he says, "is painful for the record companies, but it's healthy for the local economy."

If a country music fan in Pittsburgh could buy a custom sequined shirt from Manuel's Exclusive Clothier on Broadway and, via technology heretofore only known in science fiction, have the garment teleported to his or her home instantly (either for a nominal fee or free), the technology would, among many other things, revolutionize the manufacturing industry. And unless it had a stake in the technology, even a billion-dollar behemoth like FedEx would quickly become obsolete.

But what is fanciful analogy for FedEx is an all-too-stark reality for the music industry. While it's not Star Trek technology, the Internet represents just as effective a technological dagger into the heart of the current distribution system and business model relied upon by label and listener alike for decades.

And make no mistake, it's the distribution model and not piracy that will make or break the current system.

"There were two barriers that allowed the labels to control as much of the market as they did, but now a big part of those barriers have been blown up [by technological innovation]," DuBois explains. "The first barrier was that labels, capable of spending a tremendous amount of money on media, were the only ones with enough capital to break artists." In other words, Britney Spears did not become a breakout star playing nightclubs and county fairs. "The second was physical distribution. If you couldn't get your album into the big-box retailers like Wal-Mart, it was very hard to compete."

Not long ago, artists like Ani DiFranco, who sidestepped the industry by selling self-produced recordings directly to fans, were the anomaly. Not long from now, they could well be the norm. Increasingly sophisticated Internet marketing and distribution mechanisms offer artists viable alternatives to the traditional distribution deal. Artists are increasingly able to choose from myriad models ranging from a partnership approach like that offered by Craig Wiseman's Big Loud Shirt (see sidebar, pg. 40) to DIY plans that exploit the multimedia elements of social networking sites like MySpace. Such developments do not bode well for the existing business model.

"The landscape is going to look very, very different," DuBois warns. "The long-term future is more about bands and managers having the power and controlling their futures."

Some in the business, he says, believe that trend will bring about a piecemeal liquidation of the large music corporations in Nashville and elsewhere, but DuBois doesn't agree. There is still a place for record labels. Grossman believes it's the editorial selection provided by music labels that will save them, much the same way publishers in the newspaper industry think its professional editorial selection will save it.

Fortunately, Nashville has time to consider its options. Country music is behind the curve in the digital revolution. Its fan base, older than that of other popular music genres, has not turned to downloading as quickly. This is likely part of the reason country artists are the target of less file-sharing piracy than rock, pop and hip-hop stars. But experts agree this trend with equalize as broadband continues to spread into rural areas.

"I don't know that it's an advantage to be lagging behind," DuBois says, "but it does give us a little bit of a window."

That's not to say there's plenty of time. DuBois point out that Music City record companies are still trying to prepare for the digital revolution, but the physical-product world, "the actual CDs," are going away faster than they expected.

All the while, a generation that believes music should be as free as the radio is growing up and influencing everyone around it.

So far, there is little consensus about exactly what will happen to the industry—whether, as DuBois believes, the major label system can keep its footing in the new cyber topography, or, as EFF and others contend, will topple and be recreated. But those worried the music label system could well go the way of Hollywood's old studio system can take solace—it's been more than half a century since the forced dissolution of that model, and yet movies still rake in billions of dollars and Hollywood's still in the center of it all.

Music Row 2.0?

Just what the industry will look like once the digital revolution's effect on distribution has taken control is unclear, but all agree it will look very different.

So different, in fact, that former pioneering Music Row executive Tim DuBois has started teaching classes this semester on the evolving changes in the music business to MBA students at Vanderbilt. "The idea of the class is to look at the entertainment model, using the music business as the main example, and look at how the digital revolution is impacting that model," DuBois explains, noting that students' music industry experience varies.

DuBois empathizes with the establishment currently going through what he calls a very painful, forced change, but notes that the evolution will ultimately produce a host of brilliant entrepreneurial endeavors. Some of those endeavors have already made an impact on the community, DuBois says, pointing to entrepreneurs like Echo Music.

But perhaps the most daring endeavor so far has been by acclaimed songwriter Craig Wiseman. ASCAP's Songwriter of the Year three of the last five years, Wiseman is arguably the most towering songwriter on Music Row during the last 15 years. The Grammy award-winner's credits include the chart-topping singles "Live Like You Were Dying" and "The Cowboy In Me" (recorded by Tim McGraw), "The Good Stuff" and "Summertime" (Kenny Chesney) and "Just Another Day in Paradise" (Phil Vassar).

That degree of success lent Wiseman the significant leverage needed to break away from the industry machine to launch the small, agile label alternative, Big Loud Shirt. The company, which its operators have holistically dubbed a "music house," aspires to be one of the models for the next generation of Music Row. It's too early to call it influential, but you can call the company successful. Just five years out, Big Loud Shirt's estimated economic impact on Music Row tops $5 million, according to Wiseman's attorney, Derek Crownover.

The major differences between Big Loud Shirt and a traditional label is the level of guidance, or mentoring approach to the creative process, as well as a true funding partnership afforded to participating artists, Crownover says.

"We are creating songs and considering new ways to get those songs to consumers outside of the old distribution models," says Marc Driskill, chief operating officer, Big Loud Shirt Music Publishing. The new distribution model will eventually eschew any physical product, a model much more inline with where the marketplace is heading, he says. "We are at the point where the first time anyone gets a physical product in their hands, is when they burn it themselves," Driskill says. Big Loud Shirt is preparing to apply itself to that new-world model, one that will release more product online than on a store shelf.

It will also feature more of the songwriters themselves, people many fans never really connect with unless they travel to Nashville to watch songwriter's nights at various spots around town. This connection to the creator, Driskill believes, will entice more people to pony up for the music rather than illegally downloading from a file-sharing Website. The interaction between songwriters and fans is expected to add value to the Web experience, too.

"You can have Fan Fair everyday [online]," he says, extolling the interactive virtues of the Web.

That leads to the question, how much is that really worth? So far, price points have remained steady because iTunes has a lock on the market. Now that Amazon is getting into the game, downloads could become much cheaper.

To gauge what effect all of this will have on the industry, and the future of "Music Row 2.0," DuBois points to the Long Tail concept, taken from the book by Chris Anderson. Distribution will evolve the music industry so that there are fewer megastars and more minor stars all totaling larger distribution volume.

"The future is selling less of more," he explains.

But who's to say how that "more" will be sold? It may be that a major label becomes an umbrella distributor.

Or maybe a multitude of Big Loud Shirts will find a way to scratch out a living collectively through a patchwork of referrals via social networking Web sites like MySpace. One thing is certain; it will look very different from today.

Strange Bedfellows

The contentious fight over copyright and piracy may be catching all the headlines but it's in the ongoing licensing negotiations that the industry stands to lose, or gain, the most.

Almost no one defends piracy—least of all music industry lobbyists the Recording Industry Association of America (RIAA), which likes to take the moral high ground of defending songwriters. However, when it comes to licensing money, they're kind of on the other side.

The music industry recently started legal negotiations that, though thus far less vitriolic, are still similar to the Internet republication fight between Hollywood and the screenwriters union. In this instance, you have on one side the Digital Media Association (DiMA), whose members include Microsoft and YouTube, which requested the courts to establish a set royalty rate for digital downloads as well as video syncs and generally wants to ease music licensing in the digital world so they won't be subject to massive copyright infringement claims. On the other side, you have NMPA and Harry Fox and other music composition licensors who are trying to get the most for their copyrights, according to Nashville entertainment attorney, Derek Crownover. In February, RIAA joined DiMA.

"DiMA and the RIAA are trying to exploit the underlying musical compositions in the form of sound recordings in physical and digital form and they want to keep the cost of licensing those recordings down," Crownover says.

According to Crownover, former chairman of the Tennessee Bar Association's Entertainment and Sports Law section, the outcome of this litigation will foretell the digital rates for music publishers. And hence could play a pivotal role in the evolution of industry business models.

Vanderbilt professor and former Music Row label executive Tim DuBois believes licensing is one of the biggest problems facing Nashville.

"We're kind of locked into having to sort those issues out first," DuBois explains, "and we have not done a good job sorting those out.

"You have two different sets of rights holders, those with the rights to a performance, usually the labels, and those with rights to the song, usually represented by a holding company. "And not all our interests are the same."

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