Behind the festivities, a troubled industry

Mark Kates boarded a train in Philadelphia on Sunday that brought him here for the 45th annual Grammy Awards, but the journey covered far more mental terrain. He reflected on his “ultimate experience” as a music executive -- the 1996 edition of the Grammys when his artist, Beck, won two trophies and thanked Kates from the stage -- but also contemplated his current status as one of the industry’s dispossessed.

Kates was a star in the 1990s when he signed Beck and worked with acts such as Nirvana and Sonic Youth. But he walked away five years ago over his anxieties about his then-employer, L.A.-based Geffen Records, and the music industry as a whole. He was right about the Geffen label -- it was folded into a conglomerate in 1998 -- but even his most pessimistic view of the major labels wasn’t as grim as their current state.

Since he left, thousands more have lost or quit their jobs as sagging sales, piracy and other challenges have undermined the making of gold and platinum records.

“Those jobs,” Kates says, “aren’t going to come back. The entire industry is shrinking.” Kates now lives in Boston, where he runs a small independent label called Fenway Recordings and is also trying his hand in the advertising world. He was in Philadelphia checking out a club band. He attended the Grammys on Sunday to see old peers and spread the word about his label’s young acts. But if his advertising efforts click, putting out records may well become merely a side job.

The uncertainty facing the major labels has led a wave of others to seek new paths, either voluntarily or involuntarily. Some, like Kates, keep music as the focus, but many others are so exasperated they have walked away altogether.

For two decades, Steve Tipp was in the business of promoting music to radio stations, and his specialty with alternative rock took him to a senior vice president job at Reprise Records and a vice president spot with Columbia in Los Angeles. In June 1999 he left to join ArtistDirect, an online company that hoped to shape the 21st century model for the music industry.

“I wanted to go find the front edge,” Tipp said of his dot-com dreams. “But the wind was blowing this way and then it was blowing that way. And then there was no wind at all.”

Now Tipp is a Realtor in Woodland Hills. Almost all of his clients are old friends from the music business, and as Tipp helps them move in or move out, he hears the same refrain.

“All my friends say, ‘You did the right thing,’ ” Tipp said. “Nobody I talk to leads me to believe I’m missing anything. I’m not in a career now that’s rooted in the past and not geared to the present and certainly not geared for the future.”

Tipp said the cause of the crisis is as plain as a “For Sale” sign. A whole generation of young music fans uses the Internet to pluck songs for free, and many put them on blank CDs, which, in fact, last year outsold CDs with prerecorded music.

“It’s a business without a business model today because unfortunately it’s predicated on people actually buying CDs,” Tipp said. “I don’t know about you but my 12-year-old, he’s burning them pretty fast. That’s the reality and it was coming and everybody closed their eyes to it.”

One veteran music executive said the current industry mood varies by one’s rung on the corporate ladder: At the very top, the highest-paid executives are resigned to further implosion but have the best chance to land on their feet. At the bottom, young label employees are along for the ride while it lasts and many hope for a quick-strike opportunity amid the upheaval. “It’s the middle that is really terrified,” the executive said. “They are midcareer, with families and homes.”

Last year, U.S. album sales dropped more than 10%, and nothing in 2003 suggests a turnaround. The major labels are signing fewer artists, and the recording studios in Los Angeles and New York are feeling the pinch. The impact of dire times on music retailers is visible far beyond the company towns: “Last week, they closed the Tower Records in Boston,” Kates said. “This is real.”

To Kates, the gloom and doom are not overpowering, however. “I think musically it’s a great time. The business just has to shrink. And it is. But for music fans, I think there’s a lot to be excited about.”

Indeed, the Grammys showcased a number of young artists who have scored commercial and critical success amid the malaise, among them Norah Jones and Avril Lavigne. And just this month, sales of the debut album by rapper 50 Cent --1.7 million copies in 11 days -- made for one of the most impressive showings ever by a new artist. It was, however, rushed into stores early as a last-ditch effort to foil online pirates who were bouncing it between their hard drives before the CDs were even shipped.

That landscape represents “the wild, wild West” of today’s entertainment marketplace, says Bryan Turner, who in 1985 launched Priority Records, one of the defining labels in rap music, a maverick force boasting Ice Cube and Master P’s stable of stars. Now Turner is another of the industry’s expatriates. He walked away from Priority in November 2001, three years after his label came under the control of the conglomerate EMI.

The Beverly Hills businessman had no regrets about the break, but he was antsy outside the industry. “At first I felt like I had to get back in, that I’m not Bryan Turner anymore,” he said. Instead, he declined several job offers from major labels and looked for a new arena. He found it scanning the sales of DVDs, whose scorching sales are gobbling up display space from CDs in many stores.

On March 4, his new Melee Entertainment, a joint venture with DreamWorks Records, will have on store shelves 100,000 copies of a DVD that features Laker star Kobe Bryant and players from the street basketball scene, as well as from rap music. Turner said the music industry might find insight in that hybrid approach. “It’s the space that ultimately might be the cure for the record business,” he said. “They need to do something. The record business, to me, has AIDS. There can be a cure, but it’s not known yet.

“For sure, sales are down and, for sure, small record shops in college towns are closing down, but the record companies also have to look in the mirror and ask how many really great albums they are putting out. When people buy DVDs today, they’re thrilled when they get home and they think they got their money’s worth.”

There remains a healthy debate over the measure of misery inflicted by online piracy, and in some quarters there’s an argument that file sharing should be viewed as a promotional boon. Some in the industry point to the advent of the major-conglomerate era in the late 1980s as creating a quarterly report mentality that works fine for the sales of widgets but can seem like a science shoehorned into the mercurial business of making music and music stars.

Joining Kates at the Grammys here was another of the dispossessed, Jay Boberg, who resigned last month after seven years as president of MCA Records. That high-profile change came on the heels of Thomas D. Mottola’s departure from Sony Music Enterprises, where as chairman and chief executive officer he was among the most prominent executives in the business. Like so many others looking back on the major labels, Boberg is unsure about his next move.

Before MCA, Boberg caught the industry’s eye with I.R.S. Records, which started with “two guys with a phone” and became a blueprint for how independent labels could become major players. One of I.R.S.’ signature artists was R.E.M., and Boberg noted that, in today’s corporate setting, that band might not have blossomed.

“You have to enable those acts to have a playing field where they can build their audience. Sometimes it takes more than a year,” he said. “Sometimes it takes more than two years. Look at R.E.M. It took me probably four years to get them to a point where they were considered a major band.”

Before leaving Los Angeles for the Grammys, Boberg said he expected a lot of conversations to be devoted to the question of what’s next for the industry, and he has had scores of conversations with industry players about his approach and alliances in the future. After the gala ended, Boberg planned to rub shoulders with a less glamorous but perhaps more prescient crowd.

“I’m going to be speaking at universities, going to [the Austin, Texas, music conference] South by Southwest, going to chat rooms and calling people up,” Boberg said. “I’m going to spend the next six months with my kids and learning. And then after I see the whole picture, I’ll know what I’m going to do. Hopefully.”