Playback and payback series; (Part 4) answering to the stockholders and not the audience (continued)

In the 1950s, ‘60s, and ‘70s, before the corporate reports spotlighted the cash laid out for the practice, record companies had the leisure to develop artists. It took Bruce Springsteen three albums to develop a reputation beyond the Jersey Shore and his record company. Today he probably would never get the time he needed to make his breakout albums and become one of Columbia’s biggest sources of income from 1975 onward.

However, even the more successful independent record companies, where this talent could develop, saw fit to sell out to the corporate interests. There were many reasons why the smaller, independent record companies succumbed to the siren song of the majors, but when boiled down to their essence it was all reduced to one: money. Independent distribution left a lot to be desired, especially when a company wanted to compete toe to toe against the big boys. “In 1967 or ’68, we sold [Atlantic Records] to what was then Warner Seven Arts,” recalled Ahmet Ertegun.

When we first came, we didn’t have any distribution. That was created after the group got together, after Warners and ourselves, and then Asylum and Elektra, solidified. Then we set up our own distribution. Then my brother set up our international distribution, which is now one of the most formidable in the world.

Companies that relied mostly on deep catalogue often did well – Fantasy was independent for nearly half a century before being acquired by another, wealthier independent company, and then only after the company’s owner decided he’d rather make movies. But for the most part, independent record companies capitulated to either the lure of incredible amounts of money – like the half a billion paid to Herb Alpert and Jerry Moss for their A&M Records – or overextension of their assets, which is how the Sony Music Group came into possession of the CTI catalogue.

For those who are unfamiliar with the strange and somewhat melancholy tale of CTI: after leaving the ABC/Impulse Label that he founded, Creed Taylor started his own string of jazz labels in the late 1960s (CTI, Kudu, and Salvation), with moderate successes by George Benson, Milt Jackson, Chet Baker, Bob James, Freddy Hubbard, and dozens of others. With engineer par excellence Rudy Van Gelder behind the board and Taylor making the musical decisions, they managed to do quite well for about five years. Then they started to do even better.

“Deodato’s Prelude was the start of the success of the label, and the failure,” noted the label’s former operations manager Didier Deutsch.

The success of [Deodato’s] “Also Sprach Zarathustra” created the drive that propelled the label to the forefront, and also was the cause for the label’s eventual demise, because they overexpanded at that time. They tried, but with very few exceptions they did not succeed.

This is to say that they never again achieved the status of the Deodato single, which spent two weeks just shy of the top of the Billboard charts. Rather than accepting the single’s success as the freak occurrence that it was, Taylor made the fatal error of thinking it was precedent. Deutsch said:

It’s very nice to sell 250,000 albums, but for a small label, it’s quite a burden to have that kind of money. They got too much money at one time, and they decided to expand and go independent. In nine months, they opened something like nine branches, and all the money was gone. They spent money they didn’t have after a while. They were not able to sustain the success of Deodato’s album with other albums.

Ultimately, the CTI catalogue was absorbed into the vast CBS Records archives of recorded sound. There, it became further fodder for the reissue mills that helped grease the corporation’s more successful distribution channels. As the profitability of these channels became more and more evident, more and more of the big boys came out to play.

Beyond corporate entities that got the entertainment bug, like Ross’s Kinney, record companies had a certain appeal to companies that made the hardware for their music.

Phillips Electronics, for example, had long been in bed, corporately speaking, with the record business. It brought the technology to the relationship, manufacturing records and inventing the compact cassette and the CD. By 1980, along with its original holdings like Deutsche Gramophon, it owned Mercury Records, MGM Records, Verve Records, RSO Records, Casablanca Records, Decca Records, and London Records, all of which had become part of Phillip’s recording arm, PolyGram.

While a 1983 merger with Warner Bros. Got thrown out by both the German Cartel Office and the U.S. Federal Trade Commission over fears that it would create a monopoly, 15 years later standards seemed to relax. At that point, the sale of Phillip’s music software division to Seagram went through with much gnashing of music business teeth, but just a whisper at the FTC. Seagram, the liquor giant, had bought MCA – the entertainment conglomerate that had started in 1929 as a talent agency – in 1995.

By that time, MCA had already bought out (or acquired the assets of) such noted indies as Def Jam Records, Motown Records, Uptown Records, Geffen Records, Chess Records, and Universal Pictures. PolyGram, in the interim, had made high-profile purchases of A&M and Island Records. Seagram acquired PolyGram for a bit over $10 billion, and its music labels were put under the umbrella of the Universal Music Group. Only two years later, all of Seagram was acquired by the French media conglomerate Vivendi.

“Everything that’s wrong with the record industry today amplifies itself out of the hallways of Universal, and has since the company was glued together,” said one West Coast media executive. Helping to explain why he left the record business, he ran down a list of the company’s change-resistant key executives then:

Zach Horowitz, Doug Morris, Jimmy Iovine, Jordon Schur, Polly Anthony, and L.A. Reid are all dopes that are hanging on to an outdated model delivered on a 20-year-old format, that most people could care less about, now sold in stores that worry more about selling tires and washing machines… If you’re a major label senior executive, why would you want anything to change, especially the perks and the salary?

Like Philips, Sony manufactured entertainment hardware and wanted a foothold in the software end of things, especially after the fall of its Betamax standard as a consumer format for video. One of the reasons it failed is that Sony’s main competitor, Matsushita, owned film rights; Sony did not. “Sony wanted their own software,” Walter Yetnikoff said of the company’s 1988 purchase of the CBS Record Group, in part to feed the burgeoning market Sony had recently cultivated with the Walkman. “In that department, CBS Records was a gold mine.”

Two years earlier, the privately held German publishing and entertainment conglomerate Bertelsmann AG bought RCA Records and changed the company’s name to BMG Music. The sale included RCA Video, the company’s direct-marketing arm, and its custom pressing service, which would make CDs featuring mostly RCA acts for various companies (for example, songs about smoking for a tobacconist). The sale did not affect the joint-venture RCA Columbia Home Video club.

The video club, however, prefigured on a smaller scale the shape of things to come. On August 5, 2004, BMG and Sony announced the merger of their music divisions. “By pooling the resources of two of the most creative companies in the music industry we are perfectly positioned to help our artists realise their creative goals,” the new hybrid company’s CEO Andrew Lack (a television executive up until a couple of years earlier) said, “while at the same time providing greater value to music consumers around the world.”

One of the reasons for the merger was, of course, to remain competitive with the Universal Music Group, which took over the #1 record manufacturer position upon its merger. (Sony/BMG still fell short of pulling ahead by about half a billion dollars). Another reason was to jettison about 2,000 employees, cut its payroll, and enjoy savings of about $350 million.

All this corporate bedfellowing left Warner Bros. as the only U.S. – based major international record company, a distinction it maintains as of this writing (2006). This is not to say that the company has not changed hands and corporate identities perhaps half a dozen times since Steve Ross passed on in 1992. Warner Entertainment became a part of the Time Warner empire, then part of the AOL Time Warner family, before getting sold to former Seagram’s head Edgar Bronfman, who took the company public.

So the “big six” that started the 1980s has dwindled down to the big four “major” record companies, record companies with global distribution and clout: Universal, Warner, Sony/BMG, EMI. In terms of the economics of the new millennium, this is not unusual. “Like the major players in many industries,” Patricia Seybold, author of The Customer Revolution, observed, “these companies are in the process of consolidating.”

But even people in the record business agree this is not a great thing. “The consolidation has made the record business more about business,” said record Tom Corson. “Before, it was more about records.”