Talk about a possible Apple tablet has increased over the past week, starting with an Apple Insider story Friday and a Financial Times story yesterday. The sources for the FT one seem to be in the music industry:

The device is expected to be launched alongside new content deals, including some aimed at stimulating sales of CD-length music, according to people briefed on the project. The touch-sensitive computer will have a screen that may be up to 10 inches diagonally.

Those “content deals”?

Recording industry executives said Apple planned to use the larger screen to offer new services such as interactive booklets and liner notes that come along with purchases of entire music CDs.

While iTunes moved legal sales of digitised music into the mainstream, the digital take-up for full CDs has disappointed the industry. Consumers usually select just one or two tracks.

Wow—liner notes and interactive booklets!

Whenever I read the word “interactive” it reminds of me of last year, during the presidential campaign, when everyone I knew was following electoral college scenarios on various news websites. A friend of mine told me he liked the one at LATimes.com. “They have an interactive map,” he said.

It wasn’t until later, after more discussions, that I realized he didn’t know what “interactive”meant—that he could, in this instance, click on the states to turn them red or blue and so change the electoral vote totals. He just liked the colors and accepted that it was, somehow, “interactive.”

All of which is to say that such packages aren’t going to do anything for digital sales of full CDs. People buy just their favorite songs from their favorite artists because, now, they can.

In the great pop era coursing through the first decades of the last century, people bought sheet music—of songs, not albums. In the first ten or fifteen years of the rock era, too, they mostly bought songs, in the shape of 45s.

There followed, in a happy confluence of commercialism and art, the album era, which lasted right up until 2001. It was a good thirty years for the record industry—particularly when it got folks to rebuy their collections on cassette and then CD—but it’s over now. We’re back to people buying songs, and there’s no reason it’s going to revert.

My theory? Steve Jobs is tossing another handful of gossamer dust into the eyes of the industry. The last time was when he allowed the prices of music at the iTunes Store to rise.

It seemed like a defeat for Apple. In fact, to the extent the increase—up to $1.29, from its previous across-the-board 99 cents—drove people back to the file-sharing networks and undercut the music industry’s sales even more, it worked to his advantage.

(I won’t be surprised, should the fancy-schmancy new album packages come to fruition, if the labels charge a premium for them. How much more would you pay for an “interactive booklet”?)

Whether the tablet will be a hit or not no one knows—there’s an argument against it here—but I do know that music fans are not going to go back to shelling out $10-plus for filler-laden hour-plusses of music, interactive or not.

Via Twentyfourbit.com and the Daily Swarm—a rant in the Guardian from Kim Gordon against Radiohead’s In Rainbows pay-what-you-want model:

“[Radiohead] did a marketing ploy by themselves and then got someone else to put it out,” Gordon told The Guardian’s David Peschek. “It seemed really community-oriented, but it wasn’t catered towards their musician brothers and sisters, who don’t sell as many records as them. It makes everyone else look bad for not offering their music for whatever. It was a good marketing ploy and I wish I’d thought of it! But we’re not in that position either. We might not have been able to put out a record for another couple of years if we’d done it ourselves: it’s a lot of work. And it takes away from the actual making music.”

Gordon, like other artists, obviously hasn’t really thought about what it was exactly that Radiohead did. Community had nothing to do with it.

The idea was that, since the music was going to be available online anyway, why not try to get in front of the issue and make it as easy to pay for as get for free?

Did it work for Radiohead? It looks like it. In the end, the band’s publisher claimed three million “sales” for the album, which I guess is reasonable when you take into account foreign tallies, its own offering, and iTunes, which the group finally broke down and joined.

Since Radiohead released the thing on its own, taking far more from each transaction than the $2 or $3 it might have gotten from EMI, the financial take should have been correspondingly breathtaking, notwithstanding the fact that some fans paid less than they would have otherwise. (The group is also said to have unloaded 100,000 $80 special editions of In Rainbow on fans, representing another chunk of change.)

What does that total? $25 million?

Anyway, back to SY. Leaving aide Gordon’s double-reverse ironic/not-ironic patois, which I bold-faced above, Radiohead wasn’t devaluing its music. It was just dealing with reality, which, unfortunately or unfortunately, has devalued music period.

The question is whether the same opportunities are available to Sonic Youth. The answer is, mutantis mutandis, yes and no. Sure they can do it, but no, they’re not going to make as much money out of it.

Why? Because they’re Sonic Youth.

The real irony here is that the group is one of those bands who probably did better than they should have with its major-label deal, in this case with Geffen; it’s hard to imagine they ever made money for the label. The band seems to have left it amicably—i.e., without any money owing, though its hard to see how it could have recouped its advances from the heady Nevermind era. On the other hand, there’s been this or that re-release of things like Goo, which would presumably bring the band a little bit of money.

Then as now, one of Sonic Youth’s selling points has paradoxically always been its uncommerciality.

Today, on Matador, they would probably benefit from higher royalties, but get much smaller advances and of course benefit from less marketing, the corresponding fewer sales and, inevitably, much less interest from fans. That why it’s gotten on the “We’re gonna play one of our old albums in its entirety” bandwagon—and why it made that ludicrous deal with Starbucks.

Here’s Lee Renaldo, incidentally, explaining that little deal to the Guardian, which deserves credit for bringing it up:

“It didn’t take a lot of blood and sweat from us. We thought we’d try it and see what happens. There’s a certain side to this group that likes perversity, and that’s a pretty perverse concept. At that time, Starbucks were selling records when no one else was. The majors were throwing up their hands. The irony is, for all the spewing it caused on the blogs, it is our most rare record. I have never seen a copy in a store, and I’ve never met anyone who’s seen a copy in a store.”

Funny how Renaldo pats himself on the back for the creepy association, trying to spin it as being radical. (”I threw a drink in this woman’s face. I wasn’t being an asshole; I was being perverse.”) He’s just rationalizing doing a promo deal with a coffee shop trying to look hip. The fact that it wasn’t successful after the band pocketed its fee underscores again the fact that Sonic Youth has done pretty well in its career from the kindness of strangers.

The idea of the old-fashioned major keeping major artistes on board even when they didn’t make any money was always overstated; in the end, its difficult to separate out them from those to whom the labels just paid too much for, given their sales records.

But in the world we live in today cozy homes for the likes of Sonic Youth will be very rare; all it really has, in the end, is that cool factor, which will decline with each Starbucks deal. Gordon’s snipe at Radiohead, which after all is just doing its best to make its own place in that new world, is perhaps a sign of the pressure getting to them.

A short story in the NY Times says that Warner has refinanced itself with more than $1 billion in new bonds that won’t have to be paid back until 2016.

Here’s the interesting part:

Since the start of the year, shares of the Warner Music Group, the only publicly traded pure play on the recorded music business, have doubled, including a 23 percent gain just last week. Investors may be right in betting that the industry’s worst days are behind it, and that Warner is best positioned to capitalize, potentially by acquiring EMI.

Now, a 23 percent gain doesn’t mean much when the stock is trading at a fifth of what it was three years ago, and the “worst days” of the music business will remain a relative term. But it is interesting that the long-awaited EMI-Warner merger is back in the news:

The rejigged debt arrangements give Warner flexibility to do deals. And the timing of its coffer-filling exercise couldn’t be better. Its rival EMI is struggling under the $5 billion of debt borrowed by Terra Firma, the British private equity outfit run by Guy Hands, to take the company private.

In the past, EMI tried to buy Warner. But now the boot could be on the other foot. EMI, home of the Beatles and Beastie Boys oeuvre, is in no state to pounce. Moreover, its chief lender, Citigroup, would love to exit its position. When the two last talked, the potential synergies from a combination looked to be in the order of $250 million — which would carry a net present value of some $1.6 billion.

That’s reason enough for investors to begin their countdown to a Warner-EMI merger.

I’m chatting with Steve Knopper, whose new book, Appetite for Self-Destruction, charts the travails the music industry has been going through, Part I is here. Part II is here.

HITSVILLE: I was just thinking about your list of what a record company does: “signing talent, buying studio time to make albums, bribing radio stations to play the albums, bribing record stores to display them prominently and bribing journalists with free albums to write about them.” Let me add: Manufacturing and shipping CDs and doing muscular national marketing. Look at those two lists, and really, with maybe one exception, you could make the argument that, in theory, everything on them can either be done by any band or … isn’t really necessary any more. (I think that the argument that some strength in national marketing is still important, in terms of getting artists on magazine covers and TV shows and so forth.)

Now, I’d be interested to hear if you think that’s all really true, yet. I felt like I needed the weasely “in theory” in the sentence above because I think it’s clear we’re still in a transitional phase. Has a star yet been created outside the label system? I thought Clap Your Hands Say Yeah was a candidate, but their presence seems to have faded. Industry haters like me love to visualize a world in which the labels don’t exist. Will all that is solid in the record labels really melt into air? Or are they going to still be around and rambunctious?

KNOPPER: It depends on what you mean by “star.” Some acts have broken through via the Internet, like the one-man pop band Secondhand Serenade or the MOR singer Colbie Caillat, both of whom became experts in MySpace marketing before becoming big enough to attract a major label’s attention. But yes, even these examples speak to the reality that you need a major label to get REALLY big. That’s because the most efficient way to turn an unknown artist into a star remains the traditional route—sign with a label, use its connections to get on the radio. But with radio and the labels shrinking, I believe we’ll soon start to see bigger examples a la Secondhand and Colbie or even OK Go, a Chicago rock band that made it big based on a random YouTube gimmick sensation. (Curiously, OK Go were signed to Capitol/EMI at the time.) I don’t see labels melting completely. I mean, you and I could own the Beatles’ catalog and make enough money off it to be pretty dang rich. And you’re right, some of the marketing and publicity functions labels do are difficult to find elsewhere. But they’re shrinking, even more so with the recession, and we’re already seeing artist managers take over the traditional functions of some of the labels. That will probably continue to happen on a greater scale.

I’m chatting for the next week with Steve Knopper, whose new book, Appetite for Self-Destruction, charts the travails the music industry has been going through, Part I is here.

HITSVILLE: You do a great job of setting the scene. You don’t start with Napster: The roots of the industry’s decline go much deeper. It’s one of my cherished contentions that the industry is built on three footstool legs of fraud: Payola in radio, price-fixing at retail, and nonpayment of royalties to artists. If the digital age had never come, would things have ever changed?

KNOPPER: As I was writing the book I started asking myself, what does a major record label do (traditionally)? And I came up with: signing talent, buying studio time to make albums, bribing radio stations to play the albums, bribing record stores to display them prominently and bribing journalists with free albums to write about them. That system worked for a long, long time, and it had its merits — without it we probably wouldn’t have Thriller or Toni Braxton or Pearl Jam’s Ten. But the labels took it too far by the ’90s. Even before the Internet there were signs that people wouldn’t replace their LPs with more expensive CDs forever. As you know, in the late ’90s, the labels artificially went around this problem by selling entire CDs containing one good song, and that flowed into the teen-pop era. Consumers were complaining about this—as a fan of Smash Mouth’s “Walking On the Sun,” I know I was!—even before Napster. So there probably would have been some form of sales rebellion, or maybe new singles-only labels, or something, if there had been no MP3, Napster or Internet. But “if the digital age had never come… ” is a hard thing to speculate about! If cars had never come, would the perfectly reliable horse-and-buggy industry still be thriving today?

HITSVILLE: Yeah I think that’s a good point; some sort of exhaustion might have set in. When people talk about the benchmark from which CD sales have fallen, they often neglect to mention that the ’90s were also built on the Great CD Rebuying Spree, where the labels took music they’d already sold one and repackaged it for us at twice the price! You detail this delightful story in your book. Incredibly, it’s almost the story of a series of accidents. The CD revolution happened almost despite the industry. Were any lessons learned? And do you have any estimate of how much of the 90s bounty came from catalog sales?

KNOPPER: Good question. I went back to my ’90s Soundscan reports and couldn’t find any data on catalog sales. I think the ’80s were really the time, generally speaking because obviously I have no data, when people replaced their old LPs. By the ’90s, with desirable new artists like (at first) Nirvana and Snoop Doggy Dogg and (later) Britney Spears and Backstreet Boys, people were well ensconced in CD-buying habits. Top label executives learned exactly the wrong lessons from the CD adoption process and subsequent boom. They learned that if they could control everything, from distribution to retail, just like they did with LPs, they could make a LOT more money on CDs. They conspicuously did not learn that embracing a new technology, which of course they did with CDs, eventually, could help their industry and lead to even greater sales heights. This lesson could have proved useful when Napster et al. rolled around.

Steve Knopper’s new book is Appetite for Self-Destruction: The Spectacular Crash of the Record Industry in the Digital Age. It’s a delightful read for anyone with any interest in how the record industry got itself in the nasty little fix it’s in, and a great corrective device for anyone who thinks it doesn’t deserve to be there.

As I note in our chat below, he doesn’t start with Napster; he takes us back to the trouble’s origins in the go-go CD years, when companies could seemingly mint money, boy bands ruled, and larger-than-life figures like Yetnikoff, Geffen and Mottola stood astride the industry, their imaginations encompassing everything except the corrosive implications of music turned into little ones and zeroes set loose from shiny and expensive discs.

I’ve know Steve since our days running around seeing music in the early years of SXSW. Since 2002, he’s been Rolling Stone’s main industry reporter. Hitsville loves mocking Rolling Stone, but it’s true that the magazine has devoted a lot more space to industry reporting in recent years than it ever has.

I asked Steve if he had the time to talk about his book and he graciously agreed. We’ll be exchanging emails and I’ll be posting the results here this week and next.

——–

HITSVILLE: Congrats on the book, and thank you for a very fun read. Indeed, I think a lot of people will be talking about how exactly how to define the pleasure your tome affords. My offering: It was like watching a showboating asshole total his Hummer, and then crawl from the wreckage to the jeers of those watching. Here’s my first question: What’s the sense you get from the industry people you’ve been talking to, post crash? Are they humbled? Defiant? Determined? Depressed?

STEVE KNOPPER: Thanks, Bill! The answer is it sort of depends who you talk to. The Edgar Bronfmans and Doug Morrises are determined to push on with their big new digital ideas (from taxing the ISPs to selling albums in a multitude of formats, like ringtones and Guitar Hero tracks, not just the monolithic CD) and all I and everybody else gets out of them is chin-up happy talk. But that’s to be expected from CEOs, I guess. The lower-down people are obviously more depressed. They have far less resources than they used to have, not to mention distillations of their artist rosters to the sure-thing hitmakers, and their jobs are at risk. I got a lot of “thanks for writing this book but it’s so sad!” feedback from a variety of publicists and digital sources I talk to.

HITSVILLE: There’s a certain poignance to the industry right now, certainly. Record companies must seem so … 20th century to a young band. In the old days, of course, the companies could focus their attentions with big advances. Today, not so much. Do you have any sense of how day-to-day signings of new bands are going? Are they few and far between?

KNOPPER: I’m working on a story about this now for Rolling Stone. It’s hard to get hard numbers about day-to-day signings, but I’m learning just this week the recession has not been kind to major record labels. They’ve continued to cut resources and lay people off, including A&R (talent-signing) hotshots like Andy Karp of Atlantic and Kyambo “Hip-Hop” Joshua of Sony Music’s urban department and a former key guy at Jay-Z’s Roc-a-Fella Records. I guess you could argue that these high-salaried folks represent the old-school, big-spending music industry and that it’s imperative that labels get “leaner and meaner.” But I don’t see how laying off your best A&R people leads to more instinctive signings of great artists. It’s bad out there.

Many years ago, there was a big label called RCA, which was part of the RCA conglomerate, which also owned NBC; one of its biggest competitors was Columbia Records, which was part of the CBS conglomerate, which owned CBS the TV network.

As the industry consolidated in the 1980s and 1990s, RCA eventually got bought by GE, CBS by Sony. The networks and labels were pushed around and passed around like the wimpy kids at a schoolyard basketball game. RCA, home of Elvis, ended up bought by the Bertelsman Group, a German conglomerate.

As the 2000s proceeded and sales of CDs dropped and dropped again, the industry reconsolidated and consolidated some more. BMG and Sony merged their music units, creating Sony BMG; Universal reigned, with about 30 percent of the market, and as for the other former majors, well, everyone is still waiting for Warner and EMI to conclude its laborious courting and merge as well.

That will leave three labels—Universal, Sony, and Warner EMI—dividing some 80 or 85 percent of the industry, with the rest covered by what indies remain.

Anyway, the joint Sony-BMG venture ended today, with Sony buying out Bertelsman at a price that values the combined company at about $1.8 billion, according to the NY Times, and completing RCA’s debauching.

Wall St. Journal story ($) is here.

Why Sony would want the whole label is a mystery. The WSJ says this:

Sony has strategic reasons to double down in the industry.

Mobile-telephone companies, eager to differentiate themselves from competitors, have been striking licensing deals with music companies that could prove lucrative in the future. Sony BMG recently reached such an agreement with Nokia. Sony itself is a partner in Sony Ericsson, a mobile phone venture, and would like in the future to strike deals that benefit more of its divisions.

The acquisition also gives Sony a close relationship with the company that produces American Idol and other television shows that have been critical in creating new music stars.

Sony is also trying to tie together its consumer electronics business with entertainment content, through its PlayStation Network that lets gamers play each other. Its Bravia televisions can also download movies; Sony’s own “Hancock” is to be the first movie offered under that model. Sony has had difficulty launching a music download service. Earlier this year Sony closed down Sony Connect, a would-be iTunes competitor that included a line of portable music players and an online store.

Sony presumably has its reasons, but note that after “mobile phone deals” the rationales get pretty thin pretty fast.  And the back-end savings of the merger have presumably already been realized.

That’s the question John Marmaduke, CEO of Hastings, asks in the new issue of Billboard.

(This one I could find on the magazine’s sucky web site; the piece, an opinion column, is here.)

Hastings is a music and movies retailer in the south and west. Marmaduke has evidence that lower prices would mean higher sales:

Our everyday interaction with customers in our multimedia stores shows they still shop our music departments with enthusiasm and an increasing appetite for CDs priced for less than $10. […O]ur under-$10 business is up by double digits, while our over-$10 business is down by double digits. The difference is more than 30 percentage points.

Our recent merchandising experience had mid-lines increase fivefold when the price was lowered from $10.99 to $5.99. This makes a compelling argument: How much of the rapid decline in CD sales is a function of mispricing compared with digital cannibalization?

Emphasis added. If I may translate his bureaucratese, he’s saying people aren’t buying CDs because they are priced too high relative to digital downloads. (ITunes sells most albums for ten bucks; you can find some but not all CDs for that in many big box stores, and even fewer in traditional retail outlets like Hastings.)

There are some interesting forces at work in the music market. Sony can price a movie DVD anything it wants, right? But in the music world, artist contracts sometimes restrict what the company can wholesale a CD for. Marmaduke:

[L]abels need to rewrite their new and renewing recording contracts so that they can quickly adjust the price to maximize market demand, which will increase the artist’s exposure. Imagine how frustrating it is for a multimedia retailer like Hastings to see the videogame and DVD industries reducing prices within weeks if unit volume declines below the sales plan to maximize market share, while the music industry blames its contracts for lack of pricing action.

Again, to translate, he’s noting the phenomenon where recent movie and videogame releases can often quickly be found in the bargain bins. This isn’t entirely unknown in the music biz—that’s what cutouts used to be about, and there are bargain lines from most labels. The problem, besides the contracts that might tie the labels’ hands, is that what the music industry thinks is a bargain and what you or I might think are a bargain are two different things.

There are a lot of logistical problems in his proposal: The industry has a long and proud history of screwing artists out of royalties, so it would be very unlikely that a manager would give a label carte blanch to discount his or her artist’s product.

And what if they did start lowering practices to match demand? Wouldn’t fans just illegally download the new Coldplay album—or rip a friend’s copy—and then wait a few weeks for the price to come down?

Billboard runs its story on the music sales figures for the first half of the year. (The one in the magazine has a lot more depth than the one I found online the other day; I would link to it but it’s too hard to find anything on the magazine’s insane web site.)

Ed Christman tries to find a silver lining in the news; indeed, that’s the hed of the story—”Silver Lining.” He says that if you take all digital sales into account, overall album equivalents declined only by about 4.7 percent over the period.

He compares that to 2007, when the drop, year-to-year over the first six months, was 9.1 percent.  I guess it’s fair to say that the disaster was only as half as bad as last year’s.

But there’s other bad news for the labels as well. The rate of increase in the sales of digital tracks, while still hefty at some 30 percent, is by comparison a lot slower from last year, when it was 48 percent.

Another bad sign: The industry has a classification of “current albums,” basically those released in the last 18 months. Sales of those are down more than 16 percent, Christman says.

What the industry calls “deep catalog” sales, albums three or more years old, fell only 2.3 percent.

Those two figures side by side limn starkly the industry’s problem: A new generation of kids who just don’t buy albums. Indeed, if you look at those two figures, the chances are that “deep deep catalog,” albums five or ten years old say, might not be suffering much of a decline at all. (Catalog sales, like everything else, are down a lot from say 2000; it’s probably more accurate to say that they have finally plateaued.)

And finally, a separate story, by Tom Ferguson and Jenifer Netherby, details a punishing new development on the music DVD front—i.e., DVDs put out by bands. Sales of them are down 18.5 percent. DVD sales overall are flat, which means that fans are losing their interest in hard-copy music DVDs specifically.

File-sharing is of course responsible for a lot of that, but you have to figure You Tube is the silver bullet in this case. A dizzying panorama of video is available on the site for just about any current band you can think of; when everything is right there, why bother with the hard copy?

Here again, though, music industry greed possibly plays a part. I’ve always found them overpriced. It costs relatively little to film a couple of shows for a live DVD; why do they cost more than a feature film?

Pitchfork interviews Bruce Pavitt and Jonathan Poneman, the founders of Sub Pop, on the 20th anniversary of the opening of the label’s office in Seattle. (Pavitt is no longer with the label and the pair were interviewed separately, which is why there is a disconnect between their comments.)

Lots of interesting details about the scotch-tape-and-staples financial arrangements the label had to finagle to survive. But first, about Nirvana….

Bruce Pavitt: … By ‘88, selling 5-10,000 copies a record was considered doing very good business. The idea of selling millions of records was almost inconceivable… I remember Bleach in its first year selling 40,000 copies, which was amazing.
Pitchfork: It’s platinum now, right?
Bruce Pavitt: Bleach is almost double platinum, yeah. And it cost $600 to record, so…I would venture that, just from a business point of view, the return on investment from Bleach might make it the most profitable record in the history of the world. $600 for two million in sales, that’s pretty unusual.

Pavitt doesn’t mention that the band had to pay that $600 itself. Sup Pop did pretty well with Nirvana, considering the initial outlay of zero dollars. (My source is Heavier than Heaven, Charles Cross’s Cobain bio; he says the band borrowed the $600 from a friend … and never paid him back. In the indie world of the 1980s, every great fortune was based on a petty crime.)*

On the other hand, there’s this:

Jonathan Poneman: To give you an example of the sort of choices we had to make: A lot of the bands in Sub Pop’s early years went on to have early success and attract the interest of larger labels. In the early 90s, bands got scooped up by larger labels in this belief that “alternative music” was going to be the soundtrack to a generation, yadda yadda yadda. So a lot of bands we would work with for, you know, budgets of a thousand or two thousand for an album– and that’s the high end– would end up signing quarter-million, half-million dollar record deals with larger labels. One of the decisions that we had to make along the line was: We have two thousand dollars. Do we either pay that as a retainer to a business attorney who helps legitimize our business, or do we turn around and put out three or four singles? More often than not, we would make the latter choice, because that allowed for the momentum to continue. There was so much great music at the time—first and foremost, we wanted to document this music that was vital. Then somewhere along the line we also had to start taking care of the business of being a legitimate operation.

That’s a fair comment, excusing even the Sub Pop singles club, an entirely unnecessary scene accouterment. (The interview also has a lot of interesting background on the label’s selling 49 percent of itself to Warner.)

Pavitt goes out with a shot at the sellouts of today:

Pitchfork: The rise of indie culture and how it’s more visible now—is it comparable in any way to the grunge hysteria of the 90s?
Pavitt: [pause] It’s different. It’s matured into a really…it’s a cool scene, there’s a lot of a diversity. You look at the festival you’re putting together, there’s a lot of diversity there and a lot of people going to see it. I don’t think it has the insane buzz of what was going on in Seattle. At the same time, there’s so much material out there and it’s a really healthy industry, people have jobs selling records and making records and promoting them. Because there is so much material, I don’t think it’s having the same cultural impact as the late-70s punk rock scene. If you walked into [Chicago record store] Wax Trax in 1978, 79, the whole vibe was so against the grain that it was revolutionary. Indie rock is very healthy, there’s a lot of diversity and a lot of creativity, but it does not have the revolutionary spirit of the late-70s punk scene in regards to design and politics and fashion and stuff like that. I really miss that, and I’m looking forward to a youth musical cultural scene that’s a little more revolutionary, where indie bands aren’t vying for McDonald’s commercial spots.

Emphasis added—the Shins, one of Sub Pop’s biggest latter-day successes, of course, did a McDonald’s commercial. Poneman, who still runs the label, rationalizes things this way:

Pitchfork: What went into that decision of pushing artists toward licensing?
Poneman:  Well, we didn’t really push them that way. We said, the choice is yours. We understood that there was an ethical dilemma. If you’ve read Fast Food Nation, which I did at the time, you’re going, “Eww, McDonald’s.” But on the other hand, there’s a couple of other things to consider: First, the nature of radio play, which up to that point had always been the holy grail. Radio essentially is the same thing– you’re padding the advertising with music. The music brings people to listen to the radio, but the reason why advertising and radio stations themselves actually want people to listen to the radio is not so much for the music, but for the advertising because that is what pays the bills. This was put on its side to a certain degree, or seen a different way. This was kind of the same premise, but the artist gets cut in more directly on the revenue side.

The other thing is, as formats change—through CD burning, through music being made available through different means, and the channels of music distribution loosening up—a lot of the revenue that was coming from sales is actually…more bands are relying on the revenue derived from film and TV licensing than ever before. It also comes down to where the music is positioned in the culture, because there was a real feeling that the music was sacrosanct, back in the 1960s. “How dare you use this Jefferson Airplane song to market blue jeans or cosmetics or whatever.” But now, while I totally understand and respect those feelings, as a practical matter there’s so much cross-pollenization of media at this point anyway, that it just seems to me to be another facet of that. If that makes any sense.

It doesn’t, but whatever.

* Bleach has probably sold a lot more overseas, as well. The only other record I can think of in the same realm as Bleach’s profitability is the Offspring’s Smash, which has supposedly sold over ten million worldwide. It too was recorded at the height of the DIY days, but since it wasn’t the band’s first album wasn’t put together on quite so much of a shoestring.

Todd Martens, on his LA Times Extended Play blog, has one of the smartest articles I’ve seen recently on the music industry: He tracks the decline in the price—or value if you prefer—of the record album or CD.

“Less than 10 years ago,” he notes “it was common for albums to cost $15 and above.” And today, he says, Amazon is now running specials on old Coldplay albums and selling them in download form… for $1.99! (Link via The Daily Swarm.)

(He even notes that the service has already been trying to unload Madonna’s newest at $3.99.)

His mini-history, a must read, calls attention to an often overlooked aspect of the trouble the record biz is in: Not only are consumers buying fewer CDs; they are paying a lot less for the ones they do buy.

Martens reviews the so-called MAP program of the 1990s, which was essentially a price-fixing program the labels enforced on retail stores. Once the FTC started to look into this, the labels backed down. That opened the door for the big box retailers to start using CDs as loss leaders, which was the first, crippling shot at the foundations of the nation’s traditional record store infrastructure, and ultimately saw the closing of everything from hundreds, if not thousands, of neighborhood stores to, in the end, mighty Tower.

But it opened up the era of the $9.99 CD, with $7.99 for new releases not infrequent these days.

(The MAP program, in turn, reminds us again that the record industry’s traditional way of doing business was based on three legs of, basically, criminality: Pay radio stations to play your music, price-fix to keep prices up at retail, and then screw the artists by not paying royalties on the back end.)

You can read all of this and feel a little bit sorry for the labels, I suppose. But you have to think back to those corporations’ salad days—the 1970s, 1980s, and 1990s, where list prices would go up a dollar every year or two, lead by so-called superstar releases. For those big albums, the labels would jack up the wholesale price 50 cents or a dollar, on the (correct) assumption that fans desperate for the new release by their faves would swallow the increase. The came the CD era, which basically doubled the cost of albums overnight, and the vast majority of the sales coming from the catalog.

It was kinda like free money, but also kinda like crack. So when the digital era, in turn, came around, you cold hardly blame the labels for being unable to visualize a world in which they couldn’t slap an $18.98 sticker on a CD and make their customers like it.

In the UK, if you’re a kid between the ages of 14 and 24, the number is about 800 tracks, and it accounts for half of your music, a new British study has found:

Teenagers and students have an average of more than 800 illegally copied songs each on their digital music players, the largest academic survey of young people’s music ownership has found.

The average digital music player carries 1,770 songs, meaning that 48 per cent of the collection is copied illegally. The proportion of illegally downloaded tracks rises to 61 per cent among 14 to 17-year-olds. In addition, 14 per cent of CDs (one in seven) in a young person’s collection are copied.

(Link via The Daily Swarm.) One would assume that British kids are less technologically attuned than U.S. ones and that the figures would be higher over here. (On the other hand, music is traditionally more expensive in Britain; will investigate broadband penetration there vs. here.)

Read further and you can see this is part of an industry push to drum up support for either subscription-based music services or a de facto tax on ISPs, to compensate the labels for the money lost to file-sharing:

British Music Rights [a UK artists group] argues that the solution partly lies in developing new legal services that make breaking copyright unappealing.

[Group capo Fergal] Sharkey [yes, that Fergal Sharkey] said: “The positive message is that 80 per cent of downloaders said they would pay for a legal subscription-based service, and they told us they would be willing to pay more than a few pounds a month.”

British Music Rights declined to release the exact amount but it is believed to be about £10 a month.

The organisation is trying to help the record companies to persuade internet service providers to sign up to a new type of music service, in which vast catalogues of songs are available for an add-on fee to a broadband package. Agreements with providers such as Virgin Media are expected in the next few weeks.

In France last week, Orange, France Telecom’s mobile arm, reached agreement with all four main record companies to provide downloads of more than a million songs to mobile phones and home computers for ¤12 (£9.40) a month.

Music sales have been falling steadily and the big companies are desperate to strike subscription-based agreements rather than rely on one-off CD and download sales.

A long, very weird story in the NYT about Guy Hands, chief of EMI, whose antics since his firm bought the fabled label have been watched with dismay in the industry. Little in the story makes one optimistic about the label’s future.

I say “weird” because it’s full of both interesting tidbits and discordant notes.

For the latter, after mentioning the Beatles, it describes the label’s artist history thusly: “Frank Sinatra, the Rolling Stones and Marvin Gaye have all called EMI home.” It’s fair to mention Sinatra, who was of course on Capitol, part of EMI; the Stones have been on the label since EMI took over Virgin ten or fifteen years ago, but the few albums the band released under its aegis—winners like Bridges to Babylon—aren’t very memorable. (The story also mentions the Stones’ back catalog, but of course EMI didn’t release it originally, and the Stones aren’t a particularly big catalog seller.) I don’t understand the reference to Marvin Gaye, who I thought spent his career on Motown and Columbia, at least in the U.S. You’d think a story about EMI would mention the artists that actually sold some records for it, like the Beach Boys, Paul McCartney, Pink Floyd and, I don’t know, Garth Brooks?

Anyway, some of the tidbits:

The company now wobbles under a huge debt load, a leadership vacuum—it has no chief executive and most major decisions are made by Mr. Hands—and low morale among many of its employees. Mr. Hands said about 80 percent of the $6.4 billion paid for EMI was for the music publishing unit, which owns copyrights and provides a steady flow of cash.

It is the other side of the business, recorded music, that he says he overpaid for, and could wind up selling if market conditions do not improve.

This I assume increases the likelihood that Warner and EMI will ultimately find their destiny together; indeed, later the story details some complex financial details, concluding that Citigroup, which funded Hands’ takeover, might ultimately force the long-awaited merger with Warner.

The story has even turned comical at times. After Mr. Hands discovered that some employees were laundering costs for things that were illegal (drugs and prostitutes, he said), by itemizing them on expense reports as “fruit and flowers,” he set a strict travel and entertainment policy that required receipts for every expense.

One is tempted to snicker that he was shocked, shocked to discover there was gambling in Casablanca, but this is an interesting aside. Payola is on the outs now in the industry. (The labels can’t really afford it any more.) The story doesn’t say if EMI before Hands bought it was a holdout in this area, whether the, ah, “promotional material” was for radio or retail, or whether the activity took place in the U.S. or the U.K.

Some bleak figures:

[…A]ccording to Mr. Hands, the company was doing worse than commonly thought. An analysis by McKinsey and KPMG found that EMI had lost £750 million ($1.5 billion) from selling new music over the last five years.

“We didn’t believe it at first,” he said, explaining that the figures that EMI previously reported counted sales of re-releases of music from old acts like the Beatles as new music revenue.

“They were doing everything they could to hide the fact that they were losing huge amounts of money in new music,” he said.

All of the major labels are having problems, but amid everything else, EMI’s U.S. market share has dropped nearly 20 percent, the story says. And what would an industry story be without some over-optimistic forecasts?:

[Hand’s company] projected that EMI’s earnings before interest, taxes, depreciation and amortization [Ebitda] would grow from £167 million ($325 million) in 2007 to £580 million ($1.1 billion) in 2010, growth that seems at odds with industry trends. (Merrill Lynch, for example, projects that the Ebitda of Warner Music will decline slightly over that time, from $461 million to $444 million.)

Yesterday, the RIAA withdrew one of its many cases against legal file sharers, instead of facing the potential of getting its little legal nose spanked on the “making available” issue in front of a pesky judge. (This is the state of affairs where it can get file-sharing judgments against people without actually showing that they, you know shared files—that they just made files available.)

Details on that case, Warner vs. Cassin, here.

Today, the organization refiled the same suit against the same family, without telling the new judge it had withdrawn the old one.

Details at Ray Beckerman’s intrepid Recording Industry vs. the People blog.

Also in Billboard, the mag’s legal expert, Susan Butler, spends some time in the RIAA’s war room. Her story ($) is a dispassionate account of how exactly the organization wastes its time in a pointless, debilitating war on its own customers pursues its legal rights against wholesale copyright violations:

Deep inside the national headquarters of the RIAA is a purple room. Tinted windows shade the faces of young men and women working behind computer screens. They are part of the team investigating the illegal sharing of music files over peer-to-peer (P2P) networks, and they protect their identities carefully.

Such precautions are a reflection of the charged environment in which the RIAA is operating. The trade group views anti-piracy enforcement as vital to the recording industry’s future.

There are some …. interesting facts:

Despite the RIAA’s efforts, data suggests that demand for pirated content remains strong. A recent NPD Group report estimates that 19% of U.S. Internet subscribers 13 and older download free music from P2P services, barely less than the 20% reported when the RIAA began its user litigation campaign in 2003.

(I find the idea that file-sharing has in any way decreased in the last few years entirely far-fetched, but whatever.)

Here’s how it all works:

When a consumer rips a song from a CD and gives the digital file a name, the computer hardware, ripping software and other digital data together create a digital file identified by a distinct hash code. If the user rips the same song with an older computer—even with the same software—the file will have a different hash code. The slightest change in the music source, computer hardware, ripping software, P2P protocol, file name or length of recording will change the hash code identifying the resulting MP3 file.

For example, while searching for a Madonna song at the RIAA offices, dozens of users were sharing the same Madonna title over LimeWire—but six users were sharing the digital files with identical hash codes. Since it is highly improbable that more than one user would have the exact combination of equipment and timing to create identical hash codes, the investigator says, the six users are likely sharing copies of the same file that one person originally uploaded to the Internet and that was later downloaded and shared by other users.

And goes on from there:

Once the popular hash is identified, the MediaSentry program makes contact with the user through a “TCP handshake”—essentially a conversation between the Web server and the Web client, like LimeWire, via the Internet transmission control protocol.

“Are you online and do you have this hash code?” the program asks. If the user’s program says “yes,” then the user is pegged. Just one digital file is enough for the RIAA to send a take-down notice.

A column in the latest Billboard ($) by the mag’s retail expert, Ed Christman, has some interesting facts about the Virgin music stores:

1. The Times Square store in Manhattan is going to shut down next year.
2. The 14th Street outlet is going to as well.
3. That will leave the chain with eight left around the country, but …
4. … the two big NYC stores collected half of the chain’s revenue.

The chain is co-owned now by a Manhattan real estate operator named Vornado; a rep from there says, “We bought the Virgin business to wind it down to get a hold of the real estate.”

Christman ties this news in to the departure of Handleman, one of Wal-Mart’s two main distributors, from the music business. He asks whether even solvent retail operations will start to liquidate, figuring the time to get out of the business is now.

He blames the labels, which he says didn’t help land retail operations get out in front of the digital train:

What would have happened if the majors had agreed on a CD evolution or replacement technology three years ago when retail asked them to? What would have happened if the major labels actually took their head out of the sand and heard the consumer tell them—over and over again, louder each time— that the CD is not worth more than $10 retail?

The Billboard Boxscore column this week is topped by a show featuring Kenny Chesney, Keith Urban, Sammy Hagar (!) and Gary Allan at a football stadium in Phoenix. It grossed $3.15 million. Artists can’t live on such paltry paydays alone; fortunately the same lineup did just south of that a week earlier in Cleveland.

Country has a reputation for keeping ticket prices cheap, but both shows had a $75 average ticket price. (And I assume the reported one doesn’t include Ticketmaster fees, a good chunk of which typically go back to the artist.)

Dueling stories on the new Wal-Mart exclusivity deals in the WSJ ($) and the NYT today. Unfortunately for the Times, the Journal is ahead of the curve on the story on two counts:

Veteran rockers AC/DC are set to become the next major band to sell a new album only through Wal-Mart Stores Inc., according to people familiar with the matter, a move that highlights the growing music-industry clout of Wal-Mart.

The AC/DC deal, however, comes at a time when the retail giant—the largest seller of compact discs in the nation—is signaling it may rock the music world by stocking fewer CDs. Such a move is part of a trend that would further accelerate the already steep decline of CD sales as consumers make the transition to digital music.

The Times story focuses mostly on Irving Azoff’s Front Line Management; it details the boost some of the company’s artists, like the Eagles and Journey, have gotten from the retailer, and doesn’t mention AC/DC:

The deals highlight the changing dynamics of the music industry as once-powerful labels decline because of the migration to digital downloads. To fill the gap, musicians are scrambling to connect with fans, and Wal-Mart is using these exclusive deals to assume a new role: hit maker.

The Eagles’ double disc, “Long Road Out of Eden,” sold 711,000 copies in its first week and three million since its release, according to Nielsen SoundScan, impressive numbers at a time when CD sales are declining. Journey sold 45,000 albums in its first three days on sale, and Irving Azoff, founder and chief executive of Front Line Management and a music industry veteran who ran MCA Records in the ’80s, predicted that it would sell more than 80,000 copies in its first week. That is probably enough to debut in the top five, and significantly more than its last album sold in total.

As Hitsville had mentioned before, the trouble with these single-outlet deals is that they are based on novelty. The Eagles’ status is unique at this point—no one would have guessed they would sell three million copies of that dreadful Eden album—but it’s hard to believe their next release will do that well. As for Journey, well, this is probably going to be their last hurrah. (The band’s distinctive lead singer, Steve Perry, left the band some time ago and it has used fill-ins ever since.)

With Starbucks, the acts that can take advantage of its sale potential begins with your Lucindas and Elvis Costellos and Norah Joneses and starts to get thin after that. For Wal-Mart, there’s the Eagles and Fleetwood Mac, AC/DC and Steve Miller, maybe Tom Petty and Eric Clapton in a few years, and then that potential pool gets shallow as well.

The artists deserve the money—and it’s smart to make an end-run around the labels. (Though note that that’s not what AC/DC, which is still on Sony, is doing.) But in truth, these are just the sort of one-off deals bands in their twilight have always done, as the half-life of their celebrity brings them back, periodically, to public attention.

Reports Silicon Valley Insider:

Warner Music Group (WMG) has pulled its catalog out of Last.fm’s “on demand” free streaming service, which the CBS-owned service launched to great fanfare in January. Users can still hear Warner artists via the site’s “radio” option, which doesn’t allow you to select individual songs. But you can’t order up individual songs from WMG artists.

Why is this important? Two reasons. One, it underscores the fragility of the appeal of these streaming services, whether they charge a monthly fee or not. All this talk about the “millions of songs” promised in the ads obscures the fact that the universe of songs the vast majority of people want or are interested in is a much smaller one—I’m guessing, but let’s say 100,000 songs, representing maybe 10,000 CDs—and that the services in question at any given time are lacking a lot of those.

(This is anecdotal, but consider Hitsville’s essay on covers of “Walk Away Renee”: The iTunes Store has a lot more versions than I expected it would—and blew my mind by having the Gabor Szabo rendition. But it still lacks four or five fairly high-profile covers of it—Rickie Lee Jones, Vonda Shepard, Terry Reid—… and the Left Banke’s original.)

Losing the songs from a huge label like Warners can only hurt.

And secondly, there’s a simmering debate in the industry about where the money companies are getting from such services is going. Is it being apportioned back to the artists—and if so, by what accounting method? (A traditional ten to twenty percent royalty payment, or the fifty percent “licensing” standard?) And a lot of the time, of course, the money just goes into the label’s general fund and isn’t given to the artists at all.

There may be a Catch 22 developing here; the value of the services increases with comprehensiveness, but if each label begins nickel-and-diming the services, they will never reach critical mass—dashing the dreams of those in the industry who think the subscription model is the only thing that can save it.

That’s what a judge in Los Angeles has ruled, according to Cnet. The company is Torrent Spy. The story said the company earned the judge’s enmity by allegedly destroying evidence:

According to the court, TorrentSpy operators had intentionally modified or deleted directory headings naming copyrighted titles and forum posts that explained how to find specific copyrighted works; concealed IP addresses of users; and withheld the names and addresses of forum moderators. The company had previously been fined $30,000 for violations of discovery orders and were warned of severe sanctions if they continued to ignore the orders.

The fine was based on a $30,000 fine for each of more than 3500 movies or TV shows torrented.

The company’s response:

TorrentSpy’s attorney, Ira Rothken, called that ruling “draconian in nature and unfair.” He said he did not believe any data was intentionally destroyed, and that some actions were taken to protect the privacy of TorrentSpy users.

Rothken also said at the time that TorrentSpy would appeal any decision on damages.

Such rulings are pointless; there are a dozen other torrent search sites coordinating the transfer of untold gigabytes of music and movies every hour, most of them based outside the U.S. The case is another petulant move by Big Content, in this case the MPAA, to take as many small fry down down with it as possible.