"I'm going to keep making money," the top-selling rapper Snoop Doggy Dogg boasts on his new album. He may be the only person in the pop music industry feeling that optimistic. The business is in one of the most perplexing crises it has faced in decades.
Growth in the $12 billion record industry, which for more than a decade has ranged from 12 to 20 percent annually, has slowed to nearly a standstill, and people in the business can't agree on why. All that is certain is that a malaise is sweeping every facet of music - its production, distribution and consumption.Several of the country's largest record-store chains and hundreds of independent music shops have declared bankruptcy, gone out of business or put their stores up for sale. New albums by well-known pop acts like Hootie and the Blowfish, R.E.M., Pearl Jam, Sheryl Crow, Bryan Adams, Nirvana, Tom Petty and Phil Collins have fallen far short of their projected sales figures. Five of the industry's six major record labels have made extensive staff cuts; MTV is overhauling its programming; and concert promoters are suffering from lackluster ticket sales.
Even though holiday shopping has been full swing, music executives are counting their pennies.
Record labels still expect to take in at least $11 billion this year, but too many businesses are competing for a piece of a market that not only is barely growing but is also failing to create stars with durable careers, people in the industry say. Executives say they expect the problems to last 12 to 18 months longer as the industry levels out after a period of overexpansion and misplaced optimism.
In the first half of the decade, record labels were confident as sales of alternative rock and country music boomed. But the presidents of several record labels said they felt they had since lost touch with their audience. They blamed themselves for this, saying that by chasing hit singles instead of building long-term success for bands, they had turned off many consumers.
"Record companies used to be very good at predicting the tastes of record buyers, but their ears are clouding up a little bit," said Russ Solomon, the president of Tower Records, which has had flat sales all year. "We don't have any teen idols, which in the past has been very important. Record companies have been busy trying to create new technology like the mini-disk and the digital cassette, which have been flops, instead of focusing on the music."
Others contend the lull has less to do with record label negligence than with a changing music audience. "We do a lot of audience mood-checking," said MTV Networks president Judy McGrath, "and the 17- to 24-year-olds we've been talking to are not that dissimilar from people in other age groups. They're re-electing the same president and not feeling that enraged. A huge percentage of them live at home and are happy to. They don't say, `My parents aren't cool and I don't want to live with them and I hate their music.' The us-vs.-them thing seems to be disappearing. People are more complacent."
Many executives say that when music fans are complacent, they don't seek out new bands and styles of music to listen to, thus forcing the industry to constrict.
In the past 10 years annual sales in the record industry have gone from $4 billion a year to $12 billion, according to the Recording Industry Association of America. This was in large part because consumers were replacing their old vinyl albums with more expensive compact discs. With the explosion of alternative rock after the success of Pearl Jam and Nirvana in 1991 (along with the increasing audience for country, hip-hop and Hispanic music), the industry expanded and fragmented even more as radio stations and music fans took more chances on newer acts.
But the boom has ended and growth has skidded nearly to a halt. Record store owners say that the replacement CD market has been exhausted, severely affecting classical and jazz sales, and back-catalog purchases in general are down by as much as 25 percent. Meanwhile, alternative rock fans have been turned off by the glut of interchangeable new bands constantly being thrust at them.
One executive, speaking on condition of anonymity, said, "The whole business is built on rock-and-roll, but what's selling now is urban music," by which he meant hip-hop and rhythm-and-blues-based music. "A lot of us are in our 40s and we're into what we think is cool. But when we see the pop charts, there are always a few bands we have never heard of. And every one of them is an urban group with a record that's beating ours. This is troubling, because we're supposed to be making money."
Traditionally, the music industry has been immune to recessions, wars and politics. Only disco could stop its growth, which it did in 1979 as record labels threw more disco records into stores than anybody cared to buy. That was the only period in the last 50 years when record labels have seen annual sales decline.
"If we have one hit on our label, we're lucky," said the president of one major label, who spoke on condition of anonymity. "But we neverhave another one. It's like disco all over again."
It's not that dire yet. So far this year growth in music sales has shrunk to 2 percent, according to Soundscan, a company in Harts-dale, N.Y., that tracks retail sales. This wouldn't be so catastrophic if, at the same time, music retailers had not been drastically reducing CD prices and record companies had not been giving huge deals to bands. (Warner Brothers signed R.E.M. to a five-album contract for over $80 million in August.)
The falling price of CDs has been a last-ditch attempt to attract customers and compete with discount chains like Best Buy and Circuit City, which sell some CDs as loss-leaders.
Ed Christman, the retail editor at Billboard, the leading music industry magazine, said that store profit margins had dropped to 36 percent from 41 percent per CD in the past few years while the price consumers believe CDs to be worth has shrunk from $15 to $10 or $11.
"Business may be up 2 percent," Christman said. "But when you look at this year, you can't point to any major breakaway hits. Most of the sales appear to be from albums that were released in 1995. Most of the rest are superstar releases that don't have the individual sales power they once did, but collectively have an impact."
Already, in the past year and a half, three of the country's largest music chains, Camelot Music, Peaches Entertainment and Where-house Entertainment, have filed for bankruptcy protection. Blockbuster Entertainment, which owns 500 record stores, has sold 10 percent of its outlets and put the rest up for sale.
And Musicland, the country's biggest record chain with some 800 outlets, reported a loss of $16 million in its third quarter, which ended Sept. 30. Many in the industry predict that if Musicland does not recoup its losses this Christmas, it too will file for bankruptcy.
A major problem for retailers is that the number of music outlets has significantly increased while the number of customers has not.
"The marketplace isn't the same as it was a few years ago," said Jim Donio, a spokesman for the National Association of Recording Merchants, a trade group representing most music retailers.
"Many of the executives and leaders have changed. There are different kinds of outlets selling music: the Internet, kiosks in airports, even Burlington Coat Factory."
Though these bankruptcies are severely affecting record companies, many labels seem to be having internal problems of their own. Recently, Polygram issued a warning that its profits would be static or down this year and that it would be cutting 400 jobs worldwide; Warner Brothers dismissed half its black-music department, and Atlantic Records has dismantled several of its auxiliary labels and dismissed more than 60 staff members.
What is keeping some labels solvent, many executives agree, is hip-hop and contemporary rhythm-and-blues. Rock bands that were successful in the recent boom years - the Gin Blossoms, Stone Temple Pilots, Better Than Ezra, Belly, Candlebox, the Presidents of the United States of America and dozens of others -are unable to follow up on their hits.
In the world of pop the only sure thing this year seems to be Celine Dion, whose current album, "Falling Into You," has sold 4.7 million copies to become the best-selling album released this year.
In the meantime, this year's biggest deals have been for hip-hop. MCA has moved from one of the industry's weakest major labels to one with the strongest market share by paying $200 million to buy a 50 percent share in Inter-scope Records, which a few weeks ago tallied not only the No. 1 album (by the rock band Bush), but also the No. 2 (by Snoop Doggy Dogg), the No. 3 (by the ska band No Doubt) and the No. 4 (by Makaveli, an alias for Tupac Shakur).
But urban music, which tends to evolve quickly and be more trend-based, generally does not foster career longevity or back-catalog sales, two factors crucial to the long-term health of the industry.