Hundreds of articles have been written about the fall of the music industry, but there’s a story I tell clients when the conversation turns to it.  I finally went back and researched the two articles I talk about.  This is Part Two.

In the five years that passed since the 1995 article I referenced in Part One, the recording industry was hell bent and singularly focused on establishing a new, higher quality format for music that would replace the CD and maintain the traditional album configuration.

In December of 2000, Mix Magazine dedicated an entire issue to this new format; DVD-Audio (A).  The DVD-A standard was 5.1 (five speakers and a subwoofer) with 24 bit resolution (the existing CD used 16 bit audio and two speakers).

I reference one of the several articles in this issue (Paul Verna, “DVD-Audio Arrives!”, Mix, December 2000, pp. 37-44.).   “DVD-Audio is finally ready for prime time; the Warner Music Group released its initial batch of DVD-A discs on November 7, 2000.  Those releases – on the Warner Bros., Atlantic, Elektra, Teldec and Erato labels- carry a suggested list price of $24.95, packaged in jewel boxes and clearly labeled as DVD-Audio titles.  More Warner releases, including titles on the Nonesuch, Giant and Rhino catalog imprint are set for a December 2000 and January 2001 release.  DVD-A players (prices range) from the low hundreds of dollars to $1,200 and up.  Most of the DVD-Audio players in the US incorporate the encryption technology mandated by the recording industry (RIAA) and some include a watermarking chip that is designed to protect music copyrights.”

As consumers, we were mostly unaware of some extremely important issues that either led up to, or paralleled the announcement.

1. For four years, the music industry had been locked in a serious battle with the movie industry concerning this format.  After all, films were already produced in Dolby 5.1.  It was basically equal in quality.  But, from a patent standpoint it didn’t financially benefit the music companies.
2. Sadly, over time, the product the music industry had begun marketing wasn’t music.  Music was just the advertising jingle for their real product which was the delivery medium.  Every time a new format was introduced, the industry banked on significant revenue as consumers upgraded their existing music catalogs.  Since we owned Frampton Comes Alive on vinyl, we would buy it on Cassette, CD and then again on DVD-A.
3. Not surprisingly, the DVD-A announcement was DOA.  In February of 2001 ( TWO MONTHS AFTER THIS MIX ARTICLE), the file sharing site Napster experienced it’s peak historical usage with over 25 million users and 80 million songs shared.

By July of 2001, the RIAA got the courts to shut down Napster, but the iceberg had already gouged the ship from bow to stern.  It turns out that consumers didn’t care about improved quality OR owning media.  The music industry lost site of the real product…music.  Incredibly, the industry at that time had no plan to take advantage of downloading technology.  Despite what is now obvious, they literally didn’t see it coming.  Their resultant solution was to bring legal action against consumers and providers of illegal downloads.  And make no mistake, this was illegal.  As a result, iTunes is now the largest record label in the world with estimated 2013 revenues of 13 billion dollars.  No wonder the recording industry has been so reluctant to release their catalogs!

Of the eight record labels mentioned in the article, only four still exist.  Ironically, an enitre industry whose business model was based on the fact that their consumers could hear… didn’t listen.

Hundreds of articles have been written about the fall of the music industry, but there’s a story I tell clients when the conversation turns to it.  I finally went back and researched the two articles I talk about.  This is Part One.

Don’t ask me how I remembered this article, but I did.  While that may seem miraculous enough, it’s nothing compared to the luck I needed in finding the story again.  …There were reasons that I kept these old industry magazines…  Those reasons elude me now… wait… isn’t that the definition of a hoarder?

Anyway, the story was buried  in between the pictures of million dollar studios and ads for the equipment featured in those studios.  The piece wasn’t listed on the cover, or even pushed to the back page as a final statement.  Borrowing the title of an older REM song, “The End of World as We Know it”, it was hidden in plain sight on page 26.

I was a subscriber to MIX magazine for about a decade beginning in the mid nineties.  At that time, MIX was generally accepted as the premiere industry magazine for recording and sound-for-film studios.  I remembered this article from one of the issues (Ken C. Puhlmann and David G. Lampton,”The End of the World as We Know It,” MIX  October, 1995, pp. 26-31, p 352) .  The authors did an excellent job of laying out the possible future for the audio industry.

“The advent of the World Wide Web marks the beginning of a new era, an era of shared knowledge and distributed computing.  Every day, billions of bytes of data are donated to online archives around the world.  It is not unreasonable to assume that nearly the whole of human knowledge will one day reside on networked computers.”  They go on to say, “The most popular service providers are Prodigy, Compuserve and America Online…most providers allow Internet access, and recently, some providers have added Web access; several have even provided the ability for individual users to create their own Web pages.”  The authors recommended using dial-up speeds of al least 14.4 kbps because “the relatively large file sizes would preclude slower connections”.

“One of the most dramatic changes engendered by the Web may be the dwindling role of the record companies themselves.  The Internet will spawn an online independent music industry in which the Web-savvy musician will no longer have to compete for the attention of a record company to disseminate music.”  Given the prior comments, their final paragraph would have seemed really over the top for 1995.  “The world has changed; to compete and participate, each of us must change as well.  The sword has been withdrawn from its sheath; the blade glitters in the flickering light.  Position the sword carefully.  Now, fall upon it.  Your re-birth awaits you.”

Among the many ads in this issue for now-defunct products and companies was a turnkey, computer recording system that boasted a 17″ CRT monitor…for the “unbeatable price” of $9,995.00.  Ouch!

The music industry had begun to think of itself as an institution.  They made the rules.  They told us what music to like, what music to listen to, and what music to buy.  What… do you think it was the independent-minded college radio DJ’s that discovered “the next big thing?”  Those stations were actively marketed to by major label subsidiaries.   The music industry was clearly in the drivers seat.  Sales were steadily rising, and by 1999, they would report all-time-high revenues of 14.6 billion dollars.  How could they go wrong?  What a lesson!  As business owners, we need to be careful not to tell our customers what they want.

In Part Two, we’ll jump forward five years to December of 2000.