Grammys Find Sales in a Funk

The Grammy Awards are a valentine the music industry gives itself every February, a confection of celebrity, commerce and art. But the 44th annual edition of the gala arrives at Staples Center on Wednesday amid an industry chill that goes well beyond the champagne buckets at the after-parties.

“It’s grim, the most grim it’s been since I’ve been around the business,” is the flat appraisal of David Geffen, perhaps the most famous music mogul of the last three decades. “It’s a very, very challenging time.”

The challenges come from all sides, but each cuts to the bottom line. Music sales are sagging, hundreds of layoffs have demoralized record company staffers and superstar artists have united for a public revolt against the industry’s business practices.

And, more troubling in the long run, consumers are embracing new technologies that threaten to scatter the industry’s musical commodities like coins spilled on a busy street. Last year, blank CDs outsold all music albums in the U.S. for the first time, and, as the Napster saga showed, tens of millions of fans are willing to grab their music online without paying. Jim Guerinot, a top rock manager, called the combined issues “a perfect storm” that could threaten the creakiest of the industry’s corporate ships.

In the short term, the industry is obsessed by a lack of star power. “There’s nervousness right now because we haven’t seen a new crop of stars like we’ve been having over the last couple of years,” said Tom Calderone, MTV senior vice president for music. “Whether it was Fred Durst (of Limp Bizkit) or Kid Rock or Britney Spears or ‘N Sync, we had wall-to-wall stars for a while. . . . There are a lot of great songs out right now, but we went from superstars to a group of potential superstars.”

Why did music sales drop last year for the first time since the mass introduction of the CD? A range of industry leaders pointed to the cooling of the youth pop sensation, the absence of new releases by mega-sellers such as Celine Dion and Garth Brooks and the spread of the Internet downloading culture.

Even the most optimistic among those interviewed, Clive Davis, who shaped the recent successes of Carlos Santana and Alicia Keys, agreed that the technological issues are worrisome. But Davis, who now heads J Records, says the other problems are not so different from those that have always cropped up in the industry’s peculiar and bruising playground.

“It’s not a grim time for music. There’s not a question if music is as vital in people’s lives as much as it has ever been or more so . . . . These other things are challenges,” he said.

Davis will have a reminder of another of those challenges Tuesday night, when he hosts his famous Grammy week party at the Beverly Hills Hotel. The event’s usual monopoly of star wattage will be challenged by four local benefit concerts the same night. Those shows feature such big names as the Eagles, Sheryl Crow and No Doubt, and their goal is to raise money for a political battle against what they call the industry’s unfair contracts.

Artists’ Campaign Seen Hurting Business

The Recording Artists Coalition hopes to secure stronger copyright protection and free agency status for performers. “I don’t understand these people,” said Lyor Cohen, president and chief executive of Island/Def Jam Music Group. “I think it’s very selfish. They are going to hurt art and cause a further contraction in the business.”

The timing of that campaign has darkened moods at record companies. “Prozac, the whole industry should be on Prozac right now,” said Arnold Stiefel, longtime manager for Rod Stewart.

The overall financial woes have a famous face as a symbol: Mariah Carey, who was jettisoned last month from the roster of the EMI Group after recording just one album on the label. No major music company had ever abandoned a superstar pact so quickly, but Carey’s album was a major flop, and corporate pressures within EMI have mounted.

The music business is not the only entertainment sector limping through a weak economy, but, unlike Hollywood, it has not had recent blockbusters akin to “Shrek” or “Harry Potter and the Sorcerer’s Stone.” The music funk may be peaking now, but it began in earnest a decade ago, when the consolidation trend among record labels began, according to Guerinot, who worked at the celebrated independent label A&M; Records.

“When big companies swallow up other companies, they start looking at head counts and redundancies and things like that. . . . It really started being less fun,” he said.

Guerinot said A&M; tapped special artists and loyally fostered their careers. “You don’t see a lot of that today; that doesn’t really exist.” But Guerinot does not count himself among the pessimists. His artists--Offspring, Beck and No Doubt--are among the most vocal in the artist rights push, and he is a strong proponent of embracing new technologies.

“For those protecting and guarding the status quo, it’s probably a very frustrating and difficult time because of this perfect storm, this triumvirate of problems,” Guerinot said. “But the best people out there are going to turn it into great opportunity. It’s not the end of the world; it’s a challenge to change.”

Comparisons to Europe at Dawn of WWII

A less optimistic view is offered by Miles A. Copeland III, the former manager for Sting who now heads Ark-21, a world music label. He said disaster may loom and compares the situation to Europe before World War II.

“This has been the year where a lot of problems have come to the point where people are commenting on it, but we’re still in 1938,” Copeland said. “Somehow we think it’s all going to go away. We know ‘Mein Kampf’ is there, but we’re afraid to read it. We know the Germans are building up, but we’re still thinking somehow that things are going to be OK.”

Copeland says many of the top executives at the five major music conglomerates (Vivendi Universal, AOL Time Warner, Sony, Bertelsmann and EMI) are shaken but publicly reticent.

“The digital revolution with the Internet and then the CD burner in the last couple of years, you now have this license to steal,” Copeland said. “It has . . . scared the hell out of everybody, and nobody knows how to respond. Everybody is afraid to say anything because ifthey say what they think, it might affect the share value of these public corporations. Can you imagine if any of these companies announced that the record business is doomed?”

Both Geffen and Capitol Records President Andy Slater said the unrelenting focus on corporate and technological topics distracts from problems even harder to address: the quality of today’s music and artist career-building.

“At the end of the day the biggest challenge to the record industry is the quality of the music, which has been deteriorating,” said Geffen, a founder of DreamWorks SKG. “There is some great music--there is in every period of time. But there was more great music prior to this period of time. I think the era of the great songwriter and the great song seems to be something more of the past than of the present.”

Looking for Today’s Bruce Springsteen

DreamWorks Records has a number of critically acclaimed songwriters, including Elliott Smith and Rufus Wainwright, on its roster, but so far they remain commercial afterthoughts. Geffen looks around and sees few other companies faring much better. He asked: “Where are this generation’s Bruce Springsteen, Bob Dylan, Joni Mitchell, the Beatles--who are they today?”

Slater was both manager and record producer for younger artists such as the Wallflowers, Macy Gray and Fiona Apple before taking the reins at Capitol last year, and he has a more upbeat view of today’s talent. He worries, though, that after a decade of consolidation and bottom-line emphasis, music companies now strip-mine young careers. If the industry can regain the patience to foster young artists, Slater says, the other problems will fall away.

“There used to be a thing in the business we talked about: ‘This artist is making a great third album,’ ” Slater said. “It’s the third record where Bruce Springsteen is going to break, it’s the third record where Tom Petty is going to do the ‘Damn the Torpedoes’ or R.E.M. or Prince is going to make that record. Can you remember the last artist we [the industry] were patient enough to even have get to a third record? It becomes a one-act show.”

Production and promotion costs are rising (executives say a high-profile album now may fail to yield a profit if it cannot crack 1 million in sales, a lofty total) even as the parent corporations of the big music conglomerates cut costs in the face of an uncertain economy. Sales of music declined 3% in 2001, which sounds like a modest dip, but it marked the first decrease since SoundScan introduced a credible sales tracking system to the industry in 1991. And, in an intriguing statistic, unit sales of prerecorded albums (762.8 million albums) trailed considerably the sales of recordable CDs (1 billion units).

‘They’re All Freaked Out’

A closer look at the music album sales of 2001 shows that the vital sales of blockbuster releases were well off too. In 2000, seven albums sold more than 5 million copies (and Eminem’s smash “The Marshall Mathers LP” nearly lapped that impressive total with 9 million), but in 2001 no album managed to crack that threshold.

All of that makes the view from the rear of the limo seem a bit bleak on Grammy night. Some of the more iconoclastic figures in the business, though, are thrilled to be living in interesting times. Cohen, the colorful Israeli-born president of the Island/Def Jam group, says he’s having an “enormous amount of fun” and is sick of the gloom and doom from his peers.

“They’re all freaked out. I’m a mama’s boy, and my mother always said, ‘Stop kvetching.’ All these gloomy people. They should take a chill pill. OK, so there’s some problems. So? Let’s break some new artists. Let’s have some fun.”