How collective idiocy left the record companies in bits
When the history of our digital times comes to be written, one of the questions that will puzzle historians is why the record companies missed the significance of the internet. Throughout the post-war period, theirs was a big and powerful industry making lots of money, and controlling just about everything -recording artists, publishers, distributors and retailers. By 1982, music had gone digital. (The first CDs went on sale that year.) So recording studios converted the sounds made by musicians into bitstreams - long sequences of ones and zeroes - while, at the consumer end, CD players converted those bits back into high-fidelity sound. The problem was: how to get the bitstreams from the recordingstudio to the consumer? The solution was to 'burn' the bits onto plastic disks which were labeled, packed in (fragile) plastic cases, boxed and shipped to distributors' warehouses. From there they were ferried to retailers, who removed the disks from their cases and filed them in shelves behind the counter while leaving the case and its associated sleeve artwork out for browsing by customers.Customers would take the empty case to the counter and hand over their money, after which the disk was fetched from its hiding place and replaced in the box. Once home, the customer inserted the disk in his or her CD player, and the sound of music filled the room. This palaver of 'shipping atoms to ship bits' (as IT guru Nicholas Negroponte dubbed it) was probably the only way to do it at thebeginning. But it was expensive, inefficient, inelegant and uneconomic: nearly 50 per cent of the retail price of a CD was taken up by the costs of manufacture and distribution. The internet as we know it today was switched on in January 1983, and at that point a light ought to have gone on in the heads of senior management of recording companies. For the net was effectively a vast machine for shippingbits from one place to another - efficiently, quickly and at virtually zero cost. As far as the record industry was concerned, it was a technology made in heaven; it held out the prospect of halving their costs and quadrupling their profits. So did the music companies fall upon the internet like ravening wolves? First, they ignored it. Then, when Shawn Fanning launched Napster - the originalfile-sharing service - they called their lawyers. Then they started suing file-sharers and companies which operated peer-to-peer networks. Then the bands themselves, notably rockers Metallica, joined in the legal action. And finally they all started prosecuting teenagers and intimidating their parents. And while all this was going on, CD sales went into freefall, revenues collapsed and profits eroded. AsTed Cohen, a former executive at EMI and Warner Brothers put it: 'The record labels had an opportunity to create a digital ecosystem and infrastructure to sell music online, but they kept looking at the small picture instead of the big one. They wouldn't let go of CDs.' It was one of the greatest examples in history of collective corporate stupidity.
A view from the industry
by MirandaSawyer Late in 2007, I was chatting to a friend who works at EMI. He was upset. EMI had just been taken over by Terra Firma, the private-equity company, and the ‘bean counters’ had arrived. My friend told me of meetings where the new executives asked people to explain exactly how their job worked, while the suits took notes. 'When the meeting ends, they go: "We've heard what you say and we've decidedwhat you need to do."' My friend paused. '"Stop signing acts that don't sell. Oh, how we laughed. No one in the music industry wants to sign an act that doesn't sell. But for every Winehouse, there's an army of wannabes; a label's ratio of hit-to-miss artists can be one in seven. Innocently - or not - the beady-eyed Terra Firma executives inquired of such unsuccessful acts: 'When do they pay the...