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July 15, 2003

The Music Business and Its Gatekeepers


I read an interesting article on the music industry in The New Yorker of July 7 . Titled “The Money Note” by John Seabrook, it takes a meandering look at how Jason Flom, a 42-year-old multimillionaire executive at the Warner Music Group, is trying to make a “world star” out of an unknown 19-year-old French girl singer. The article's subtitle, "Can the record business survive?" refers to the decaying economics of the industry, where the volume of CDs sold keeps shrinking, quarter over quarter. To say that the story is a bit schizoid and unfocused is an understatement, but it does contain some rather suggestive pieces of information.

The article pretty much takes the music business' view of itself at face value; to wit, that a small number of “record men” (such as Mr. Flom) are essential to the process of picking out tomorrow’s stars and packaging them for mega-success, an activity which is becoming no less expensive but far less lucrative as a result of the Napsterization of digital music:

Successful record men are commonly said to have “ears” but prospecting for monsters requires eyes for star quality as well as a nose for the next trend. You have to be able to go to thousands of sweaty night clubs, and sit through a dozen office auditions each week, and somehow not become so jaded that you fail to recognize a superstar when you encounter one…Why should the latent capacity for superstardom in pop, which is perhaps the most egalitarian of art forms, be obvious to only a gifted few like Jason Flom—those great A&R (artist-and-repertoire) men whom the record industry celebrates as its heroes? (And they are invariably male.) After all, even the great record men are wrong much more often than they are right about the acts they sign (nine misses for each hit is said to be the industry standard). One wonders how much of the art of hit-making is just dumb luck.

Regretfully, the author doesn’t follow up on his dumb-luck scenario. He swerves back around to the notion that record men have unique noses for talent (no matter how many times they are wrong):

Arguably, the most important function that record-industry professionals perform…is filtering through the millions of aspiring artists who think they can sing or play and finding the one or two who really can.

Presumably, this statement (idiotic on its face) is meant to imply that the search is for “the one or two who really can move large quantities of CDs.” But Mr. Seabrook gives us some interesting statistics that cast doubt on the essential role of the record men:

Hit-making is an imprecise method of doing business. Of thirty thousand CDs that the industry released last year in the United States, only four hundred and four sold more than a hundred thousand copies, while twenty-five thousand releases sold less than a thousand copies apiece.

When I read that, a little bell went off in my head, and I remembered a posting I had written on Culture and Scale-Free Networks, which you can read here. One of the key distinguishing marks of a scale-free network is that the distribution of “connections” in one follows what is known as a power law distribution. In this case, we see a tiny handful of CDs selling huge numbers, the vast majority of CDs selling practically nothing, and in between we see the number of CDs selling at a given level dropping as the number of CDs sold rises. This constitutes a power-law distribution.

What characterizes networks with such distributions of connections—that is, scale free networks--are “hubs,” or key points that hook up to many, many other points. I went back through the article looking for what those “hubs” might be. They’re not hard to find. First, the record companies themselves:

Five global music companies control more than eighty-five per cent of the record business. (The remaining fifteen per cent is divided among some ten thousand independent labels.)

Second, the amount of promotion given to making some artists big stars:

On the basis of that half-hour meeting, and Flom’s gut feeling that the girl…had that special quality which can move a massive amount of product, Flom signed her to a million-dollar, five-album contract, and was prepared to do everything that a major label like Warner can do to make an artist a big star—“Whatever it takes to put her over,” Flom told me. He declined to say how much that would cost, but David Foster, another top hitmaker with Warner Music, told me, “It’s basically a five-million-dollar bet.”…“In an era like this,” Flom said, “when the audience has more distractions than ever, you have to reach critical mass to put an artist over. And the outlets you need to do that, the Teen Peoples and whatever, are not going to take you seriously unless they know you are putting a major push behind it.”

In short, it appears that the sales pattern of the industry may well simply reflect its structural underpinnings. That is, the business will always be dominated by “hits” when all the resources of the network are concentrated on selling a small number of "key" CDs, even if the public isn’t intrinsically all that that interested in the so-called “hit” on offer. And the centerpieces of that structure are “record men” like Mr. Flom, who act as gatekeepers for what is allowed on the big-time hubs of the network. (Of course, when one of their would-be hits turns into the real thing, which has got to happen now and then, it burnishes the reputation of the big-time record man's keen commercial sense.)

That would suggest to me that perhaps the recent sales decline of the record industry--the top ten CDs of 2002 sold only half as many units as the top ten CDs of 2000--may reflect the failure of these gatekeepers as much as the depredations of peer-to-peer file sharing systems like KaZaA, Morpheus and Grokster. It would also explain another oddity noted by the article:

…[O]ne of the most galling things about the piracy problem, if you happen to be in the record business, is that not only are the fans gleefully and remorselessly [stealing] the hits you make; they are doing so because they think you deserve it…As Malcolm McLaren observed to me, “The amazing thing about the death of the record industry is that no one cares. If the movie industry died, you’d probably have a few people saying, ‘Oh this is too bad—after all, they gave us Garbo and Marilyn Monroe.’ But now the record industry is dying, and no one gives a damn.”

Perhaps the lack of affection for the record industry is a reaction to bad, manipulative, self-serving gatekeeping, as well as a dim understanding that better music may well be out there but is being prevented from reaching its audience.

Gee, that would piss me off, for sure.



posted by Friedrich at July 15, 2003


This sounds awfully similar to the Blowhard rants about architecture and publishing---a small number of gatekeepers who then reap the bene's and limit the world's choices for their own reputations and wallets. The power does seem to have shifted from music group's managers (who were heretofore famous for ripping off their own clients) to music company execs, probably due to the stunningly escalating costs of promotion. Wonder how much Capitol Records had to invest in 1964 to "promote" the Beatles?? Sigh. The minute the world produces anything good, somebody always is figuring out how to limit it to get rich on it and then intrinsically ruin it by strangling it off. Yet...this is consistent with capitalism. Which FvB also believes in passionately. Genuine question: how do you reconcile?? What's the better solution??

Posted by: annette on July 15, 2003 9:00 PM

The better solution is already happening, thanks to the wonders of capitalism's creative destruction: to wit, the Internet distribution of digital music.

The music business for the past 40 years or so has been quite similar to movies and book publishing. In all three areas conglomerates have created oligopolies in the distribution and marketing end of the business. This has been accompanied by the (I believe related) pursuit of the blockbuster product in all three industries.

But this otherwise rosy scenario has a downside: marketing and distribution oligopolies are information supressors in the market...they're good at disseminating information on a limited number of products, and very very bad at disseminating information on most of their product, which is effectively dumped on the market in an information vacuum. (This is probably quite intentional, as they don't want the dumped product distracting customers from their expensively "branded" product.)

If their designated-hot product bombs, or even semi-bombs with the public, they're screwed, as is happening now. But they are, in essence, suffering from a self-created problem: they need monster hits, but only because of the way they've structured their costs, overheads, workflow, strategic relationships, etc.

The problems of the major record labels are quite analogous, in their own way, to the problems afflicting the major airlines: they're just not structured to compete with low cost competition.

Fortunately, since I don't own stock in either major airlines or entertainment companies, I am perfectly happy to watch their expensive, information supressing oligopolies be replaced by a better, cheaper, and more information-efficient system. Isn't capitalism great?

Posted by: Friedrich von Blowhard on July 16, 2003 2:06 PM

So, Fried, is there a record label with the Southwest Airlines strategy? (Before the recent major management change, I mean.)

Posted by: j.c. on July 16, 2003 3:31 PM

Yes, but you are assuming that what music fans are interested in is music, which seems naive. Young girls, especially, are looking for role models, older girls who seem to live out their fantasies. I bet that what the executives can judge better than listeners is the sheer resilience of a prospect. Being a modern diva in the Brittany Spears mode is incredibly hard work, what with having your picture taken constantly, changing clothes, intrusive press, etc. The record exec is trying to figure out how many years we can run this 19 year old through the ringer before she cracks up like Mariah Carey. Most people would be done for in three months, but a certain few can keep it up for years and years.

Posted by: Steve Sailer on July 16, 2003 6:04 PM

The discussion of "A&R" men immediately called to my mind the discussion of baseball scouts in the current bestseller _Moneyball_. In baseball, as in music, a corps of veteran 'scouts' look over prospects, selecting a few for development and rejecting the rest. These scouts insist that their experience and knowledge enables them to spot future stars. Yet the record shows that scouts frequently miss future greats while wasting high draft picks and millions of dollars on duds. A big part of _Moneyball_ is the battle between Oakland A's general manager Billy Beane and his scouts. The scouts prefer players who look good, which in their minds indicates potential; Beane wants players who have outstanding performance records, even if they look fat or gawky. Beane's success with Oakland suggests that the scouts don't really know what they're doing.

Baseball at least has the game itself as a touchstone. Those who can hit and pitch and field will win, regardless of who is 'promoted'.

Music's touchstone is the listener's ear; but there are lots of indiscriminate listeners out there. With enough packaging and hype and theory, mediocrity can be forced to hit status, artificially 'confirming' the scout's prediction.

Another factor in music (and books and film) is the lottery-ticket effect. The revenue from a really big hit is so attractive that publishers lose sight of anything else. They also fail to calculate the odds and expected return rationally. They become like the obsessed 'placer miners' of the Old West, who often spent decades searching for a 'big strike'.

The Internet has the potential to sweep away the big middlemen in music/books/film. There will still be middlemen, but there will be millions of them, offering recommendations to audiences that have learned to rely on them.

Posted by: Rich Rostrom on July 17, 2003 2:44 PM

The music industry recently settled a lawsuit for price fixing. They are actually paying people back who bought music in the mid to late 90's. I remember when CD's first came out, thet were the same price as albums but the word was CD's are so much cheaper to mass produce the price would go way down when production increased. Funny how that never happened.

There are some weeks when a CD like 'Journey's Greatest Hits' is a bigger seller than a lot of the new releases, but most of the hit charts don't include older albums. Instead of the industry responding to what people like they try to manipulate the public perception of what's popular, to tell people what they should like.

The executives in the music industry seem to prefer command economics.

Posted by: Matt L on July 17, 2003 6:34 PM

"Being a modern diva in the Brittany Spears mode is incredibly hard work, what with having your picture taken constantly, changing clothes, intrusive press, etc."

Geez...I think I'll save my sympathy for elsewhere. She can certainly give up all this unbelievably hard work any time she wants, poor little thing.

Posted by: annette on July 21, 2003 10:49 AM

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