Appetite For Self-Destruction Part 6

Mys.p.a.ce began in 2003 as an improvement on the early social networking website Friendster. Like YouTube, the website soon became an internet phenomenon, racking up more than 100 million accounts within three years. Although artists from middle-of-the-road pop singer Colbie Caillat to one-man band Secondhand Serenade would soon break after generating tons of publicity through their Mys.p.a.ce pages, major record labels initially reacted in a familiar way. In 2006, Universal Music sued the company, alleging it encouraged users to infringe their song and video copyrights by providing free music.

But label executives, seeing just how much publicity a familiar or unknown act can generate by providing free music on its Mys.p.a.ce page, changed their att.i.tudes over the next few years. "We've had relations.h.i.+ps with [the labels] since the beginning of Mys.p.a.ce, but we never came up with a concrete business plan that we could present to them that shows a big win for our users that also makes sense for the music business," Chris DeWolfe, one of the company's founders, said in early 2008. "We needed to create this utopian service in such a way that the music companies are starting to make money. That took a little while to do. Att.i.tudes have definitely changed over the years, and music companies are wanting to experiment more. They're more daring and more creative." In April 2008, Universal dropped its lawsuit, and three of the four major labels partnered with Mys.p.a.ce Music later that year, selling downloads and streaming songs for free. At the time this book went to press, EMI Music, reeling from layoffs and a corporate takeover, was expected to join the partners.h.i.+p, too. In the social networking world, Mys.p.a.ce compet.i.tors like Facebook and Last.fm also relied heavily on music, and labels made deals with them, too. In spring 2008, venerable rock band R.E.M. released its comeback, Accelerate, Accelerate, for free via iLike, Facebook's music application. It sold 115,000 copies of the alb.u.m (that's combined sales of CDs plus online alb.u.ms) in its first week, hitting No. 2, R.E.M.'s highest chart debut since 1996. Later in 2008, iLike made a deal with the Rhapsody subscription service to stream millions of major-label-owned songs for free via Facebook. for free via iLike, Facebook's music application. It sold 115,000 copies of the alb.u.m (that's combined sales of CDs plus online alb.u.ms) in its first week, hitting No. 2, R.E.M.'s highest chart debut since 1996. Later in 2008, iLike made a deal with the Rhapsody subscription service to stream millions of major-label-owned songs for free via Facebook.

"When we started out in 2002, the major labels didn't take our calls-there was panic about anything having to do with the word MP3 or online music generally," says Martin Stiksel, cofounder of Last.fm, which CBS bought in 2007 for $280 million. "It took until about 2006 to see services like ours as something other than an enemy." In part, this was because the att.i.tudes of major label executives changed, over time, as they saw CD sales dropping no matter how aggressively they tried to stop online piracy. But in part, it's because what Robin Bechtel, Syd Schwartz, Ty Braswell, and others were saying for years in meetings with their bosses about the importance of the internet finally started to catch on.

DURING THE 1990S- 1990S-THE heart of the CD boom-Sony Music Entertainment chairman Tommy Mottola built the most bulletproof hit machine in the record business. Sony sold more than 50 million of Mariah Carey's records in the US alone, and 11 million of Celine Dion's heart of the CD boom-Sony Music Entertainment chairman Tommy Mottola built the most bulletproof hit machine in the record business. Sony sold more than 50 million of Mariah Carey's records in the US alone, and 11 million of Celine Dion's t.i.tanic t.i.tanic soundtrack. With the help of Sony, little-known Seattle punk bands Pearl Jam and Alice in Chains turned into the world's biggest rock stars. The Sony team shared one overwhelming philosophy: It takes money to make money. "If a record wasn't selling, they would apply a little bit of muscle to get it in the front of a store-and it would start selling," says Randy Sosin, a longtime executive at compet.i.tor Interscope Records. "It was a little bit of old school." Sony routinely spent $1 million on a new artist, knowing full well that few of these artists would come close to making money. The ones that did paid for the ones that didn't-and Sony's team was masterful at boosting the odds. Like almost every other major label, Sony lost ground to Clive Calder's nimble Zomba Music Group in the era of boy bands and Britney. But as always, Mottola's team fought back: For singer Jessica Simpson's 2001 CD release, Mottola threw a sw.a.n.ky party on a yacht in the East River near New York City. "He did spend a ton of money," says Barbara O'Dair, party attendee and editor-in-chief of soundtrack. With the help of Sony, little-known Seattle punk bands Pearl Jam and Alice in Chains turned into the world's biggest rock stars. The Sony team shared one overwhelming philosophy: It takes money to make money. "If a record wasn't selling, they would apply a little bit of muscle to get it in the front of a store-and it would start selling," says Randy Sosin, a longtime executive at compet.i.tor Interscope Records. "It was a little bit of old school." Sony routinely spent $1 million on a new artist, knowing full well that few of these artists would come close to making money. The ones that did paid for the ones that didn't-and Sony's team was masterful at boosting the odds. Like almost every other major label, Sony lost ground to Clive Calder's nimble Zomba Music Group in the era of boy bands and Britney. But as always, Mottola's team fought back: For singer Jessica Simpson's 2001 CD release, Mottola threw a sw.a.n.ky party on a yacht in the East River near New York City. "He did spend a ton of money," says Barbara O'Dair, party attendee and editor-in-chief of Teen People Teen People. Simpson made a respectable third-place showing in the teen-diva arena, after Spears and Christina Aguilera.

However, the "It takes money to make money" philosophy works only if a company is making money. making money. After ripping and burning, Napster, online piracy, and the industry's hamhanded response to it all, US alb.u.m sales were down 17 percent in 2002. By early 2003, Mottola's bottom line looked shockingly ordinary. Sony Music lost $132 million during the first half of that fiscal year. The label's American market share dropped from 16.6 percent in 1998 to 15.7 percent in 2002-and would fall to 13.7 percent in 2003. After ripping and burning, Napster, online piracy, and the industry's hamhanded response to it all, US alb.u.m sales were down 17 percent in 2002. By early 2003, Mottola's bottom line looked shockingly ordinary. Sony Music lost $132 million during the first half of that fiscal year. The label's American market share dropped from 16.6 percent in 1998 to 15.7 percent in 2002-and would fall to 13.7 percent in 2003.

Ordinarily, none of this would have fazed Mottola. He had endured a similar sales dip in the early 1990s. The difference this time was that while Mottola had been so deft at manipulating Norio Ohga and other Sony Corp. executives to wrest power away from Walter Yetnikoff, by 2003 his heart just didn't seem into the politics. At age fifty-three, his attention was elsewhere. He'd survived a divorce from Mariah Carey after five years of marriage.* He remarried, to the golden-haired singer and Mexican soap-opera beauty Thalia, and built a $4 million villa for her in Miami. He remarried, to the golden-haired singer and Mexican soap-opera beauty Thalia, and built a $4 million villa for her in Miami.

By 2002, the tolerant Ohga had left the company. His replacement, n.o.buyuki Idei, was not so easily impressed by flashy American record executives. Moreover, Mottola had an uneasy relations.h.i.+p with his direct boss at Sony Corp., CEO Sir Howard Stringer, a Welshman with a tough-minded business reputation. Stringer was an active hobn.o.bber and skilled party host, remembering his guests' names and showering them with hugs. But just as Yetnikoff had referred to his superiors with crude bon mots like "the Jew Upstairs," Mottola's nickname for Stringer was "the Buffoon." He kept Stringer away from Sony stars, refusing to dole out good seats at concerts and never inviting him to Grammy Awards parties. "Tommy didn't 'manage up' well with regards to Howard Stringer. He didn't include him enough and operated independently. And he was just on a roll-for years and years, he couldn't be touched," says a major label source. "As soon as the company started losing money, they used that opportunity to get rid of him. [Mottola] didn't ma.s.sage the relations.h.i.+p. If he had let Howard Stringer play in his sandbox, and had him up in the pictures with his artists and vetted him at awards shows, he'd still be there."

Stringer frequently complained to his brother, Rob, a Sony UK executive who'd risen through the ranks on his own, according to New York New York: "Why the f.u.c.k am I dealing with this guy? Why the f.u.c.k are we paying this guy? Tell me what this guy does. Tell me what this guy does. Tell me what this guy does Tell me what this guy does." Why, indeed? Mottola announced in 2002 he wanted a new contract, but got no response from his superiors. Idei stopped inviting him to j.a.pan. Stringer started to make public hints that Sony would not renew Mottola's contract. Finally, not wanting Mottola to make an embarra.s.sing public scene, as Clive Davis had done earlier in the decade with BMG, Sony bought out his five-year contract. Mottola's fall finally went public on January 9, 2003, in the form of a faxed press release.

The rest of the music business was shocked. "The Tommy-Donnie-Michele management structure was viewed by everybody, without question, as the most stable management structure in the business," says Jim Guerinot, a former A&M executive who manages Gwen Stefani, Nine Inch Nails, and others. "They got a lot of momentum and strength from that stability. Those guys had been in place a long time. n.o.body seemed more invulnerable. They really appeared omnipotent." And then Mottola was gone.

Within a day, his replacement had been named-and it wasn't Donnie Ienner, his heir apparent. Stringer went outside the company, to an old friend who'd worked with him at CBS, making doc.u.mentary films in the 1970s: Andrew Lack, fifty-five-year-old president of NBC. Lack had no experience whatsoever in the music business, a fact that was even more conspicuous at a major like Sony, where for decades the powers-that-be had artist-centered pedigrees stretching back to Hall and Oates, Blood, Sweat and Tears, even Elvis. As a bone to the Mottola-team remnants, Stringer made Ienner president of Sony Music US. Frustrated with his high responsibility but low autonomy and prestige, Ienner turned around and created some politics of his own. Within months, the longtime Columbia exec indulged his rivalry with sibling label Epic and purged many of its holdover employees, sources say.

The power s.h.i.+ft was symbolic. Tommy Mottola represented the heart of the spend-money-to-make-money CD boom. That's not to say there were no CEOs left with this philosophy-the music industry's grand old man, Clive Davis, was still spending lavishly at BMG.* Antonio "LA" Reid jumped from Arista to Island Def Jam, taking his private jets and legendary artist payouts with him. (Reid's son Aaron was a star of MTV's Antonio "LA" Reid jumped from Arista to Island Def Jam, taking his private jets and legendary artist payouts with him. (Reid's son Aaron was a star of MTV's My Super Sweet 16, My Super Sweet 16, throwing a lavish party including a concert from hot Island Def Jam rapper Kanye West and an appearance by Diddy. His invitations to guests came via MP3 player.) But in the post-Napster world, these old-school record men started to give way to new-school cost cutting-layoffs, dropping artists, even the dreaded scaling back of expense accounts. Sony Music had already started shrinking, from 17,700 employees in 2000 to 13,400 in 2003. And Tommy Mottola wouldn't be around to ride the hydrogen bomb down to the ground, like Slim Pickens in throwing a lavish party including a concert from hot Island Def Jam rapper Kanye West and an appearance by Diddy. His invitations to guests came via MP3 player.) But in the post-Napster world, these old-school record men started to give way to new-school cost cutting-layoffs, dropping artists, even the dreaded scaling back of expense accounts. Sony Music had already started shrinking, from 17,700 employees in 2000 to 13,400 in 2003. And Tommy Mottola wouldn't be around to ride the hydrogen bomb down to the ground, like Slim Pickens in Dr. Strangelove. Dr. Strangelove. In a press release, Stringer called him "an icon of the music industry" and referred to his "legacy to be envied." Mottola would restart a record label with a familiar name-Casablanca, the disco label whose excesses almost killed the entire industry in the late 1970s. Casablanca signed actress Lindsey Lohan and had a few hits, but as of this writing, Mottola's career as a hit maker is over. "It was the end of an era," says a record company source. There was no longer enough money left in the record business to support Tommy Mottola. In a press release, Stringer called him "an icon of the music industry" and referred to his "legacy to be envied." Mottola would restart a record label with a familiar name-Casablanca, the disco label whose excesses almost killed the entire industry in the late 1970s. Casablanca signed actress Lindsey Lohan and had a few hits, but as of this writing, Mottola's career as a hit maker is over. "It was the end of an era," says a record company source. There was no longer enough money left in the record business to support Tommy Mottola.

One of the first things Andrew Lack did as head of Sony Music was something his predecessor almost certainly would have never done: He started a friends.h.i.+p with a rival. Rolf Schmidt-Holtz was chairman of BMG, which, not so long ago, had fought like a prize fighter against Sony and the other major labels. Schmidt-Holtz had been a journalist and political talk-show host before becoming a media executive in Germany. Lack had been president of NBC, overseeing Today Today and and NBC Nightly News NBC Nightly News. Both were outsiders, s.h.i.+fting from TV to music. Both were cutting costs from their record labels at a time when online piracy and CD ripping and burning had ravaged a gigantic business. "We speak the same language," Schmidt-Holtz told the Wall Street Journal. Wall Street Journal. "Personal trust allowed us to overcome a number of obstacles." "Personal trust allowed us to overcome a number of obstacles."

Bertelsmann, the German publis.h.i.+ng company that owned BMG, had survived its misadventures with Thomas Middelhoff and Napster, but just barely. Teen pop, its music mainstay in the late 1990s, was over. Reeling from a drop in CD sales, Bertelsmann was merger-happy. In 2003, its executives approached AOL Time Warner, whose own merger was on the verge of catastrophe, and offered a 5050 deal to combine BMG with Warner Music. Warner was interested, but both sides immediately grew stubborn. AOL Time Warner insisted its catalog of Madonna, Frank Sinatra, and Led Zeppelin tunes was far more valuable than BMG's catalog of Elvis Presley and the Dave Matthews Band. Bertelsmann's offer was $100 million, but Warner demanded an extra $150 million-too much for the German company. That's when Schmidt-Holtz and his superiors turned to Sony, using Lack as their initial connection and conduit. After weeks of talks, Schmidt-Holtz met with Sony's n.o.buyuki Idei and Sir Howard Stringer and Bertelsmann chief executive Gunter Thielen for ninety minutes at a New York airport in October 2003 and hashed out a merger. Regulators were concerned Sony BMG would form a cartel and violate international ant.i.trust laws. But they ultimately agreed Big Music wasn't so big anymore and the major labels didn't control as much money as they used to. They approved the deal in July 2004.

On paper, the new Sony BMG looked like a powerhouse. They had Bruce Springsteen and and Britney Spears, Barbra Streisand Britney Spears, Barbra Streisand and and Elvis Presley. Combined, their market share, at least in the US, added up to around 30 percent, a few points above even dominant Universal Music. The only bad news was a few thousand layoffs, but that's the price of making two companies stronger, right? But the executives miscalculated. Sony's Lack and BMG's Schmidt-Holtz may have been pals, but in the ranks underneath them, some of the fiercest compet.i.tors in music industry history were suddenly partners, conducting business with tight smiles. Clive Davis, who had started his career nurturing Bob Dylan and Streisand at Columbia and had discovered Whitney Houston with Arista Records in the 1980s, was the head of BMG. Don Ienner, a Sony Music company man who had been one of Tommy Mottola's loudest and most cutthroat loyalists, was in charge of Columbia and Epic. Making matters worse, Ienner had worked for Davis in the early 1980s at Arista, and had no intention of taking a subservient role this time. Things were uneasy whenever they found themselves at meetings together. "One side of the room was Clive and his people. The other side was Donnie and his people," recalls Joe DiMuro, executive vice president of the merged company's strategic marketing group until he left in late 2006. "There was a level of cordiality, but you could tell there was a dividing line. It was palpable." Elvis Presley. Combined, their market share, at least in the US, added up to around 30 percent, a few points above even dominant Universal Music. The only bad news was a few thousand layoffs, but that's the price of making two companies stronger, right? But the executives miscalculated. Sony's Lack and BMG's Schmidt-Holtz may have been pals, but in the ranks underneath them, some of the fiercest compet.i.tors in music industry history were suddenly partners, conducting business with tight smiles. Clive Davis, who had started his career nurturing Bob Dylan and Streisand at Columbia and had discovered Whitney Houston with Arista Records in the 1980s, was the head of BMG. Don Ienner, a Sony Music company man who had been one of Tommy Mottola's loudest and most cutthroat loyalists, was in charge of Columbia and Epic. Making matters worse, Ienner had worked for Davis in the early 1980s at Arista, and had no intention of taking a subservient role this time. Things were uneasy whenever they found themselves at meetings together. "One side of the room was Clive and his people. The other side was Donnie and his people," recalls Joe DiMuro, executive vice president of the merged company's strategic marketing group until he left in late 2006. "There was a level of cordiality, but you could tell there was a dividing line. It was palpable."

Lack, who had been appointed boss of the newly merged company, found himself in a no-win position smack in the middle of these two suspicious cultures. He might have made it work if he'd had the clout and charisma of a Davis or a Mottola, but his lack of record business experience rankled the more seasoned executives below him. One of those was Michael Smellie, a BMG executive since the mid-1990s who'd worked his way up to chief operating officer in the merged company. "The two of them, in many cases, were like oil and water," DiMuro says. "Michael, at times, was reporting to Andy, and Michael became frustrated and disenchanted. There was a level of noncommunication. They shut down at times." (Some on the Sony side believed the compet.i.tive Smellie did everything he could to set up Lack for a fall.) Lack was no technology expert-his comments before Congress likening peer-to-peer services to child p.o.r.nographers weren't exactly forward-thinking-but he was smart enough to grasp that technology represented the future of the business. For a time around 2003, Lack developed an interest in selling songs through those very same peer-to-peer services-this time using "fingerprinting" technology that could separate the customers from the pirates. He started contacting people who knew about this kind of technology-Talmon Marco, head of iMesh, which the RIAA had sued in 2003; Vance Ikezoye of Audible Magic; and Wayne Rosso, the cigar-smoking record-business veteran who, as head of Grokster, had likened record executives to Josef Stalin. Rosso spent some time with Lack, introducing him to the key players and acting as a go-between for meetings with Sony executives. "Andy was the key mover and shaker in loosening things up," Rosso says. "He was trying to do the right thing. He met with resistance all the way through." Lack's efforts failed, as did his other clumsy high-tech innovations. He flooded stores with new releases using the CD-plus-DVD DualDisc format. They didn't help sales, and the format basically disappeared. What cut off his head at Sony, though, was a very traditional decision-Lack resigned Bruce Springsteen, who was inarguably past his prime in selling new alb.u.ms-for $100 million.

Lack could have been the greatest record executive in the world, and he still wouldn't have been able to pump up Sony BMG's bottom line as piracy and iTunes cannibalized CD sales. He kept cutting costs, which stopped the bleeding somewhat but didn't exactly improve employees' spirits. Publicists, for example, watched budgets for artist photo sessions drop from $25,000 to $5,000 in just two or three years. No longer could they spend more than $5,000 to fly an artist to New York or Los Angeles for a prominent late-night TV appearance. Instead of giving away thirty tickets to a concert, they could give away eight. And their coworkers kept losing their jobs, day after day. Sony's US market share dropped from 30 percent to 27 percent in 2005. Finally, Sir Howard Stringer decided he'd had enough.

In early 2006, he switched the jobs of Schmidt-Holtz and Lack, giving Schmidt-Holtz chief executive power over the entire company, and turning Lack into a "nonexecutive chairman" with relatively little power. Although he remained with the company, Lack was, for all intents and purposes, done as a record mogul. By summer, so were Don Ienner and Michele Anthony, the two primary holdovers from the Tommy Mottola era, who couldn't stand it anymore and left. Their replacement was Stringer's younger brother, Rob. Within a few short years, the Mottola team of experienced, hard-nosed music executives was gone. Some in the business mourned the departure of the cla.s.sic record men. Others wondered why it took so long to get rid of Tommy Mottola's team, which was about as far as the record industry could get from technology gurus.*

THEN THINGS GOT really bad. really bad.

In the iTunes era, old-school distribution and manufacturing were suddenly relics. Since the early 1970s, record-making plants had been cash cows for major labels. So had complex s.h.i.+pping networks of warehouses and branch offices around the world. But in 2004, EMI closed CD-manufacturing plants in Jacksonville, Illinois, and Uden, in the Netherlands, and laid off 900 workers. Around that time, AOL Time Warner sold the company's once-mighty CD-distribution arm, WEA, to a Canadian company called Cinram International for $1.05 billion-a.n.a.lysts called it a steal, until CD sales dropped 15 percent in 2007. Later, with backing from a wireless company called Glenayre Technologies, former Warner and Island Def Jam executive Jim Caparro formed the Entertainment Distribution Company and bought what was left of Universal Music's plants and warehouses, plus the employees who worked in them, for $122 million. The deal worked great for a few years, until the company posted a net loss of $11.4 million, forcing Caparro to step down in 2008. "Darwinian evolution took hold," Caparro says of the record industry, which he lambastes for not embracing digital music quickly enough. "Things changed." As for CD-manufacturing plants, some remain open, including Sony's pioneering one in Terre Haute, Indiana. It survives not on CDs but DVDs. But maybe not for long. Even US DVD sales dropped 3.6 percent in 2007-although Sony executives have said the movie industry's adoption of the Blu-ray format in February 2008 may lead to expansion of the 1,200-employee Terre Haute plant.

Old-school marketing fell just as hard. For as long as anybody in the business could remember, labels relied on MTV, radio, and record stores for exposure. Push the gatekeepers at those places aggressively enough-in some cases, bribe them-and you've got a hit. The first to go was MTV. Beginning in the late 1990s, the channel's executives realized they could snag higher ratings with self-produced reality shows like The Real World The Real World and and Road Rules Road Rules than by actually playing music videos. Labels went from spending $1 million on a typical video for an MTV-worthy artist in the early 2000s to $100,000 or $200,000 in 2007. "It's a very precarious and somewhat unfortunate development," says Randy Sosin, Interscope's senior vice president of music video production until he lost his job in late 2007. "The cost of making a film has gone up, but the dollars that they're spending have gone down." MTV still breaks artists like emo-pop band Paramore and rapper Common, but often through tiny commercial snippets in the middle of shows like than by actually playing music videos. Labels went from spending $1 million on a typical video for an MTV-worthy artist in the early 2000s to $100,000 or $200,000 in 2007. "It's a very precarious and somewhat unfortunate development," says Randy Sosin, Interscope's senior vice president of music video production until he lost his job in late 2007. "The cost of making a film has gone up, but the dollars that they're spending have gone down." MTV still breaks artists like emo-pop band Paramore and rapper Common, but often through tiny commercial snippets in the middle of shows like A Shot at Love with Tila Tequila A Shot at Love with Tila Tequila.

Then the major labels' long-standing relations.h.i.+p with radio stations. .h.i.t a cataclysmic snag. For decades, they relied on independent promoters to "persuade" radio programmers to add their singles to their playlists. By the 1990s, the big indies were corporate, clean-image types like Bill Scull and Jeff McClusky, who figured out they could make the most money by hooking up with one big radio company, like Clear Channel or Entercom. By 2001, the mathematics of indie promotion looked like this, according to Eric Boehlert of Salon.com: Of 10,000 commercial US radio stations, 1,000 were the tastemakers that broke hits and moved CDs; those stations added roughly three new songs per week; labels paid indies like Scull and McClusky between $1,000 and $8,000 to add a song to a station's playlist. So the top indies, a handful of entrepreneurs including Scull, McClusky, and Bill McGathy, received roughly $3 million every week every week.

This lucrative relations.h.i.+p lasted as long as major labels had that kind of money to spend. But in the early 2000s, as McClusky remembers, "Costs start becoming more of a consideration." They stopped wanting to pay independent promoters-for real this time. It helped that senators such as Democrat Russ Feingold started to look into "legal payola," finding it uncomfortably close to actual actual payola. Congress pressured the big media companies, like Clear Channel Communications, which owned 1,225 stations and received millions of dollars a year from major labels through indie promoters. In 2003, just before the Federal Communications Commission voted on a measure to relax rules for radio, payola. Congress pressured the big media companies, like Clear Channel Communications, which owned 1,225 stations and received millions of dollars a year from major labels through indie promoters. In 2003, just before the Federal Communications Commission voted on a measure to relax rules for radio,* the San Antonio company turned against indie promo. Most of the other big radio companies followed. Thus did onetime power players like Scull and McClusky resign themselves to, well, making less than millions of dollars per week. "We were too greedy," Scull says today, with resignation. the San Antonio company turned against indie promo. Most of the other big radio companies followed. Thus did onetime power players like Scull and McClusky resign themselves to, well, making less than millions of dollars per week. "We were too greedy," Scull says today, with resignation.

It was nice, for the bean counters at major labels, to give up a budget item of millions of dollars every year. It was not so nice for label promotion departments with singles to break. They decided to keep up the pressure on radio programmers-only without the middlemen who knew what they were doing. They went back to $50 handshakes or their modern equivalents. At one point, an Epic Records executive spent $5,000 on New YorktoMiami trips to get rock bands Franz Ferdinand and Good Charlotte on the air. Another time, two Epic executives wrote a memo to programmers listing "fixed billing rates" of $500 to $1,000 for 75 or more airings of a record, or "spins," on a station. One especially indiscreet Epic promotions director asked a Clear Channel radio station employee in an email: "WHAT DO I HAVE TO DO TO GET AUDIOSLAVE ON WKSS THIS WEEK?!!? Whatever you can dream up, I can make it happen!!!" In another email, a Top 40 program director for a Rochester, NY, station wrote: "I'm a wh.o.r.e this week. What can I say?" Some labels paid radio programmers thousands of dollars in cash, Las Vegas airline tickets, laptops, and Walkmans to push artists from Audioslave to J. Lo into heavy rotation. Whatever you can dream up, I can make it happen!!!" In another email, a Top 40 program director for a Rochester, NY, station wrote: "I'm a wh.o.r.e this week. What can I say?" Some labels paid radio programmers thousands of dollars in cash, Las Vegas airline tickets, laptops, and Walkmans to push artists from Audioslave to J. Lo into heavy rotation.

This bald-faced bribery continued until Eliot Spitzer, attorney general of New York, found himself a new campaign issue. A Democrat who had successfully crusaded against investment-banking researchers over their Wall Street conflicts of interest, Spitzer was on the path to becoming governor, and payola was the perfect issue for him. It was secret and widespread, fit snugly into headlines, and made important people like FCC commissioners and US senators good and angry. Spitzer subpoenaed all of New York's major record labels, as well as the big radio companies. He demanded emails and doc.u.ments, and they complied. His staff interviewed tons of people. His evidence was enough to strong-arm the major labels. They settled. Sony BMG was first, coughing up $10 million in July 2005. Sony Music's top executives, Don Ienner and Charlie Walk, fired sacrificial lamb Joel Klaiman, head of radio promotions for Epic Records, allowing Spitzer to say he drew blood from the record business. But shortly after Spitzer's investigation became public, the Los Angeles Times Los Angeles Times broke an extraordinary story based on anonymous sources, reporting that Walk and Ienner "condoned or partic.i.p.ated in pay-to-play." One source claimed to the paper: "Donnie would tell you: 'Do whatever it takes. Get the song played.'" Another source added that Ienner would say, "I've approved $50,000 this year for that [program director], and when we're developing this baby band, we get nothing. Tell him if we don't get spins, we're cutting his support." Ienner and Walk denied the allegations to the broke an extraordinary story based on anonymous sources, reporting that Walk and Ienner "condoned or partic.i.p.ated in pay-to-play." One source claimed to the paper: "Donnie would tell you: 'Do whatever it takes. Get the song played.'" Another source added that Ienner would say, "I've approved $50,000 this year for that [program director], and when we're developing this baby band, we get nothing. Tell him if we don't get spins, we're cutting his support." Ienner and Walk denied the allegations to the Times Times and did not respond to interview requests for this book. In any case, after the Sony BMG settlement came Warner, later that year, paying $5 million; EMI, Universal, and several big radio companies added more millions later to New York charities devoted to music education. and did not respond to interview requests for this book. In any case, after the Sony BMG settlement came Warner, later that year, paying $5 million; EMI, Universal, and several big radio companies added more millions later to New York charities devoted to music education.

Spitzer, of course, would bring a few secrets of his own to the governor's mansion in New York. As most of the world knows by now, this crusader against corruption was disgraced in early 2008 when he was caught paying for a high-priced prost.i.tute. Ironically, the woman, Ashley Alexandra Dupre, was an aspiring singer-songwriter, and after the Spitzer scandal broke, she received more than 7 million hits on her Mys.p.a.ce page. The resulting 98-cent song downloads, according to the New York Daily News New York Daily News, added up to more than $206,000 in pure profit.

But hookers and political scandals aside, the Spitzer-led payola settlements suddenly left major labels without a crucial radio tool beginning in 2005. Soon, promotion executives at labels noticed stations around the US were becoming more conservative, adding fewer new singles, repeating more of the old, popular ones, and keeping their label contacts at arm's length. For the first half of 2006, Radio & Records, Radio & Records, a trade magazine that uses computers to study airplay, noticed newly added radio singles were dramatically down-in most of the big formats, from rock to hip-hop to country to adult contemporary. Spitzer's investigation made programmers paranoid. Radio companies made their vice presidents of operations sign a form whenever a programmer received a box of CDs. "Songs aren't just getting on the radio as quickly as they did before," says Doug Podell, operations manager for Detroit rock station WRIF, adding that the bands Flyleaf, Powerman 5000, and Army of Anyone were victims of this new conservatism. "The labels are scrambling," a source at a major label said at the time, "and we're all freaking out." Radio was still the most reliable way to break an international hit-hard-rock band Flyleaf, R&B star Chris Brown, and pop acts James Blunt and Maroon 5 broke on the air over time-but this key promotional outlet was no longer a sure thing for big-spending major labels like it had been in the 1980s and 1990s. a trade magazine that uses computers to study airplay, noticed newly added radio singles were dramatically down-in most of the big formats, from rock to hip-hop to country to adult contemporary. Spitzer's investigation made programmers paranoid. Radio companies made their vice presidents of operations sign a form whenever a programmer received a box of CDs. "Songs aren't just getting on the radio as quickly as they did before," says Doug Podell, operations manager for Detroit rock station WRIF, adding that the bands Flyleaf, Powerman 5000, and Army of Anyone were victims of this new conservatism. "The labels are scrambling," a source at a major label said at the time, "and we're all freaking out." Radio was still the most reliable way to break an international hit-hard-rock band Flyleaf, R&B star Chris Brown, and pop acts James Blunt and Maroon 5 broke on the air over time-but this key promotional outlet was no longer a sure thing for big-spending major labels like it had been in the 1980s and 1990s.

With MTV and radio changing, only one huge, reliable promotional outlet remained: record stores. Surely, thought label executives, chains like Tower, Wherehouse, and Sam Goody would push new music like they had since the 1940s. Unfortunately, during the CD boom, labels had s.h.i.+fted their resources away from these steady music-only chains and towards mega-sellers such as Best Buy, Wal-Mart, and Target-which were in the mood to slash prices and cut CD shelf s.p.a.ce. Hundreds of record stores went out of business. In January 2006, Musicland went bankrupt, taking the venerable Sam Goody chain with it into anachronistic oblivion.

And then came the fall of Tower Records, the red-and-yellow chain that had become an inst.i.tution. Founder Russ Solomon, a big music fan, first began selling records in 1941 in the back of his father's drugstore in Sacramento. He opened his first store in Sacramento in 1960, and emphasized deeper catalogs than his compet.i.tors. He started branching into other cities in the late 1960s, notably San Francisco, where he stumbled onto a Fisherman's Wharf "for rent" sign while nursing a hangover. He leased the s.p.a.ce, opened a store, and turned it into a hangout for Haight-Ashbury musicians such as Carlos Santana, Steve Miller, and members of Jefferson Airplane. Its most famous location, on the Sunset Strip in Los Angeles, opened in 1970, and it became a local music centerpiece-Axl Rose of Guns N'Roses once worked there as a night manager, and the store opened early for Michael Jackson to shop by himself during the Thriller Thriller era. Elton John and the Beach Boys' Brian Wilson were among the best-known customers, and the Hollywood location took on its own mythology. Rose's onetime bandmate Slash has a childhood photo of himself in the store, begging his record-collecting parents for certain alb.u.ms in the aisle. A few years later, he was arrested for stealing ca.s.settes. Still later, he worked with a crew of big-haired metalheads at the video store across the street. "We happened to be funny-looking, but met the right requirements," he recalls. "It was something they should have made a movie out of, like era. Elton John and the Beach Boys' Brian Wilson were among the best-known customers, and the Hollywood location took on its own mythology. Rose's onetime bandmate Slash has a childhood photo of himself in the store, begging his record-collecting parents for certain alb.u.ms in the aisle. A few years later, he was arrested for stealing ca.s.settes. Still later, he worked with a crew of big-haired metalheads at the video store across the street. "We happened to be funny-looking, but met the right requirements," he recalls. "It was something they should have made a movie out of, like Clerks Clerks, but a little bit more rock 'n' roll and a little bit more mayhem."

Like the rest of the music industry, Tower boomed in the 1980s and 1990s, as music fans replaced their LPs with CDs. But at the peak, in the mid-1990s, Solomon expanded a bit too aggressively-by his own recollection-opening stores in expensive retail s.p.a.ces all over the world. "I lost a lot of money in Argentina and Mexico, even England and Taiwan and Hong Kong," he says. Like a lot of people in the record business, Solomon figured the good times would last forever. But Tower filed for bankruptcy in 2004. Solomon and his family lost their controlling stake. A new CEO, Allen Rodriguez, rubbed Solomon and other longtime Tower employees the wrong way. "What these cuckoo, MBA-style managers did-they tried to turn Tower into a chain store," Solomon says. "Every single inch of s.p.a.ce [in the store] is taken up by who's paying for it-price and position and signs and s.h.i.+t. Everything was wrong." For years, the company worked on a prototype for an iTunes-style online retailer, but that never went anywhere. "Russ Solomon didn't believe in digital music," recalls Lisa Amore, who handled publicity for Tower for many years. In 2006, the company finally succ.u.mbed, holding going-out-of-business sales, closing its 89 stores, and laying off 3,000 employees.

Executives at the major labels had unwittingly planted the seeds for Tower's demise. They could only watch helplessly as Tower fell. The following year, in 2007, US CD sales dropped almost 15 percent. All year, label sources promised blockbusters for the all-important holiday shopping season-Eminem! U2! Madonna! Green Day! Metallica! None of them materialized, save one from R&B singer Alicia Keys, a heavily hyped alb.u.m-release rivalry between rappers Kanye West and 50 Cent, and the first new studio alb.u.m in twenty-eight years from the Eagles, who bypa.s.sed record labels completely and sold Long Road Out of Eden Long Road Out of Eden exclusively through Wal-Mart. In 2007, Wal-Mart reduced its shelf s.p.a.ce by 20 percent, dropping the number of music t.i.tles at the chain's biggest stores to about 4,000, and Best Buy cut its music s.p.a.ce as well. The following year, sources at major labels predicted Wal-Mart would cut back another 20 percent on music t.i.tles. exclusively through Wal-Mart. In 2007, Wal-Mart reduced its shelf s.p.a.ce by 20 percent, dropping the number of music t.i.tles at the chain's biggest stores to about 4,000, and Best Buy cut its music s.p.a.ce as well. The following year, sources at major labels predicted Wal-Mart would cut back another 20 percent on music t.i.tles.

That meant more pain. EMI Music, owner of the lucrative Beatles and Beach Boys catalogs, took the brunt of it. A British equity firm, Terra Firma, bought the company for $5 billion in May 2007 with the intent of cutting costs and turning things around. But by September, Terra Firma's chief executive officer, Guy Hands, was calling the major label "the worst business...in the most challenged sector." One source who does business with EMI predicted a "bloodbath" for the label in 2008. The famous EMI-owned Capitol Records tower in LA, shaped like a stack of records and built in 1956 as a testament to the vibrancy of the record industry, was sold to a New York condominium developer in late 2006, although what was left of Capitol's staff continued to work there.

Also reeling was Warner Music, which for decades had been the ideal record label, with well-respected top executives from Ahmet Ertegun to Joe Smith to Mo Ostin signing career megastars like Neil Young, Jimi Hendrix, Prince, R.E.M., and Metallica. When Time and Warner merged in the early 1990s, Warner Music was generating tons of money and was an industry powerhouse. After a series of corporate changes and post-Napster malaise, the music division had grown into exactly the opposite. The sad fact was Warner Music never really recovered from the AOL Time Warner merger in 2000. By the time the merger imploded in 2003, and Time Warner reestablished control of the company, the music division was in trouble. Time Warner spent months trying to dump its music division.

Finally, Edgar Bronfman Jr. led a group of investors to buy the label. He was coming off problems of his own. Having purchased MCA and PolyGram and created Universal Music in the late 1990s, the Seagram Co. heir sold Seagram's stock for $42 billion in shares in media giant Vivendi International in 2000. At the time, the head of Vivendi was Frenchman Jean-Marie Messier, who quickly ran the company into the ground. Bronfman's family fortune dropped from $6.5 billion to $3 billion, and he resigned as a Vivendi director. He tried and failed to buy Vivendi Universal, and failed to hang on to the company's US entertainment a.s.sets. But he recovered. "I remember my mother saying as I was a kid, 'It's not a question of being thrown from the horse-it's whether you get back on,'" Bronfman said in a 2007 interview. "And I think that's true in life as well. The question is, Are you going to climb up on another horse?"

Still enamored of the record business, Bronfman found a new horse. He put together a group of investors who bought Warner Music for $2.8 billion in 2004. As he'd done at Universal during better times, he a.s.sembled a halfway decent team-including Lyor Cohen, who had started out as Run-D.M.C.'s road manager and risen through the music industry to become head of Island Def Jam Records. Warner's new brain trust refas.h.i.+oned themselves as futurists, pus.h.i.+ng employees at every level of the company to think digitally. At first, it almost worked-the Red Hot Chili Peppers gave fans a chance to preorder concert tickets after downloading their double-CD Stadium Arcadium Stadium Arcadium via iTunes in 2006, and stars from rockers Green Day to rapper T.I. created custom ringtones to go with their latest CDs. Bronfman also cut costs and took the company public, and its stock price initially went up. "Technology allows more people to get more music in more places than ever before-I just have no question in my mind that that bodes positively for the content businesses," Bronfman said. "I just think you take a snapshot of the business in 2000, and take a snapshot in 2010, you'll see a picture of a healthy business. In between, it's not so great." via iTunes in 2006, and stars from rockers Green Day to rapper T.I. created custom ringtones to go with their latest CDs. Bronfman also cut costs and took the company public, and its stock price initially went up. "Technology allows more people to get more music in more places than ever before-I just have no question in my mind that that bodes positively for the content businesses," Bronfman said. "I just think you take a snapshot of the business in 2000, and take a snapshot in 2010, you'll see a picture of a healthy business. In between, it's not so great."

"Not so great" is exactly how investors would describe some of Warner's business decisions after Bronfman bought the company. Warner wrote off $18 million in 2007 for an investment in Bulldog Entertainment Group, which put on $3,000-a-ticket summer concerts in the Hamptons by Billy Joel, Prince, Tom Petty, and others. The company also paid $73 million to buy hard-rock hitmaker Nickelback's independent label, Roadrunner Records, just to inherit the two or three alb.u.ms the band had left on its contract-and watch the band sign with concert promoter Live Nation in mid-2008. Warner's stock dropped more than 50 percent in 2007, to a little more than $8 a share, and the company reported a $37 million loss in the second quarter of 2008. The label spent 2007 laying off 400 employees, including talented A&R people like Atlantic's Leigh l.u.s.t, who signed Jet and many other hit acts over the course of his seventeen-year career. "This industry is like George W. Bush getting elected to a third term," says Steve Gottlieb, president of independent label TVT Records, which broke Lil Jon and other hip-hop stars before succ.u.mbing to legal problems of its own in early 2008 and filing for Chapter 11 bankruptcy. "We can't undo past mistakes without the industry's current administration getting voted out." Yet Bronfman and other top Warner executives continue to pay themselves exceedingly well. Bronfman's earnings in fiscal year 2007 were $1 million in salary and $2.4 million in stock dividends; Lyor Cohen drew a $1.5 million salary, $1.5 million in bonuses, and almost $1.4 million in stock. These lavish salaries and bonuses may explain why the top executives at major labels have taken so long to develop a new business model.

FOR A LONG time, one major record label escaped the carnage: the Universal Music Group. time, one major record label escaped the carnage: the Universal Music Group.

The company's success began with Bronfman, who bought MCA and PolyGram and merged them into one superlabel in the late 1990s. He had no music business experience other than his own small songwriting successes, but he turned out to be good at finding executives to do the dirty work. He made two smart decisions right away.

The first was hiring chairman and chief executive officer Doug Morris, who had a lifelong track record of building hits, from writing the Chiffons' "Sweet Talkin' Guy" in 1966 to working with the Rolling Stones and Led Zeppelin as the head of Atlantic and Warner.

The second was buying Interscope, the hip-hop record label that flourished in the 1990s thanks to gangsta rap. Interscope was available to Bronfman because its previous owner, Warner Music, had certain image issues. In the wake of the Ice-T "Cop Killer" controversy, Time Warner shareholders railed that too much hip-hop was profane. C. DeLores Tucker, head of the National Political Congress of Black Women, made it a personal crusade to prevent Interscope's next alb.u.m, Tha Dogg Pound's Dogg Food, Dogg Food, from coming out. (It was actually quite a tame alb.u.m, by gangsta rap standards, although it did contain a song subt.i.tled "b.i.t.c.h Azz n.i.g.g.az.") Bob Dole, then a US senator and Republican presidential candidate, accused Time Warner of putting out musical "nightmares of depravity." Time Warner caved. It divested from Interscope. from coming out. (It was actually quite a tame alb.u.m, by gangsta rap standards, although it did contain a song subt.i.tled "b.i.t.c.h Azz n.i.g.g.az.") Bob Dole, then a US senator and Republican presidential candidate, accused Time Warner of putting out musical "nightmares of depravity." Time Warner caved. It divested from Interscope.

That left Interscope on the free market, and Bronfman's company scooped it up. Bronfman got lucky. The head of Interscope was Jimmy Iovine. Born in Brooklyn, Iovine was the son of a longsh.o.r.eman. He'd started his career in the music business at age nineteen, as a gofer in a Times Square studio-and was fortunate enough to befriend John Lennon early on. "If you bring somebody tea one hundred times and get it right each time, they get to like you," Iovine liked to say. He used his connections to get close to Jon Landau, Bruce Springsteen's well-connected manager. Iovine was a hardworking engineer for a demanding singer in the process of agonizing over his cla.s.sic 1975 alb.u.m Born to Run Born to Run. Iovine survived the experience and parlayed it into important studio gigs with U2, Tom Petty and the Heartbreakers, and Dire Straits. Iovine talked fast, tough, and funny. When members of Interscope band U2 told him one day the band wanted to make house music, he responded, "You don't want to make house music house music. You want to make music to buy a house with buy a house with."

In the 1980s, Iovine had befriended Ted Field, heir to the Marshall Field family, who had moved to Hollywood to open a film production company. With an initial stake of $15 million from Field, the pair founded Interscope Records in 1990. Two fortuitous events made Interscope a player: Marion "Suge" Knight founded Death Row Records, and he recruited Andre "Dr. Dre" Young from the Compton, California, gangsta rap group N.W.A. Knight was pure muscle. In order to release Dr. Dre from his contract with his old label, N.W.A. member Eric "Eazy-E" Wright's Ruthless Records, Knight and some friends allegedly showed up at the Ruthless offices with pipes and bats. (Knight has denied this.) Later, in September 1996, video cameras in a Las Vegas hotel lobby captured Knight and one of his artists, megastar rapper Tupac Shakur, beating a rival from another gang. (Shakur was not a gang member; Knight had been affiliated with a sect of the Bloods dating to his roots in Compton.) About two hours after the beating, in an incident that may or may not have been related, Shakur was shot and mortally wounded in the pa.s.senger seat of a BMW sedan. (Knight was driving.) Knight's a.s.sault, a parole violation, ultimately landed him in prison for five years.

In the early days of Interscope, n.o.body wanted to touch Knight's label, even though it was about to release a sure hit, Dre's solo debut The Chronic The Chronic. But Iovine entered into a distribution agreement with Death Row. Of course, Iovine himself never engaged in Suge Knight's questionable business practices, but there's no question he made a lot of money off them. "He did a deal with the devil," says a music business source. Ultimately, the Death RowInterscope connection gave Iovine a working relations.h.i.+p-and lifelong friends.h.i.+p-with Dr. Dre, who turned out to be a hip-hop production genius and talent scout extraordinaire. Thanks to Dre, Iovine signed Eminem, 50 Cent, G-Unit, and D12 to his Aftermath label, whose products were distributed by Interscope. By 2005, these artists had sold a combined 61.6 million alb.u.ms in the United States.

Universal was the House That Dre Built, and it was a big house. In the post-iTunes era, when almost everybody else was reeling, the label became the hit machine Warner, Sony BMG, and EMI had once been and were unlikely to be again. Its market share hovered around 30 percent in the US, more than double that of its compet.i.tors-although Sony and BMG came close to catching up after the merger. "Many people say these [record] companies are a bunch of ugly ducklings," Doug Morris said in 2005, less than a year after his company released holiday season blockbusters by Eminem, U2, Gwen Stefani, and Shania Twain. "I don't feel that way. I feel our company is a Tiffany company."

Universal was the most obvious and widespread success in the post-iTunes era, but there were others. Fox's. .h.i.t reality show American Idol American Idol was a starmaking machine, turning unknowns like Kelly Clarkson, Clay Aiken, Carrie Underwood, and Daughtry into CD-sales juggernauts for Clive Davis's J and Arista labels. Disney took a page from Lou Pearlman's book and created a new wave of teen pop superstars, building the was a starmaking machine, turning unknowns like Kelly Clarkson, Clay Aiken, Carrie Underwood, and Daughtry into CD-sales juggernauts for Clive Davis's J and Arista labels. Disney took a page from Lou Pearlman's book and created a new wave of teen pop superstars, building the High School Musical High School Musical soundtrack into 2006's best-selling CD and following up with recording stars such as Ashley Tisdale of soundtrack into 2006's best-selling CD and following up with recording stars such as Ashley Tisdale of High School Musical High School Musical, Miley Cyrus of Hannah Montana, Hannah Montana, and the Jonas Brothers. And it turned out the internet, despite its unfortunate tendency to enable worldwide piracy, was a pretty good marketing tool. YouTube and Mys.p.a.ce broke numerous artists, including OK Go, for EMI, and pop singer Colbie Caillat, for Universal. TV commercials-taboo for pop and rock musicians for years until Sting sat in a Jaguar in the late 1990s-started to pay off. Newer acts can make roughly $2,500 per TV or movie license, while veterans routinely pull in as much as $3,000 for TV shows, $100,000 for movies, and $25,000 for commercials. Video games from and the Jonas Brothers. And it turned out the internet, despite its unfortunate tendency to enable worldwide piracy, was a pretty good marketing tool. YouTube and Mys.p.a.ce broke numerous artists, including OK Go, for EMI, and pop singer Colbie Caillat, for Universal. TV commercials-taboo for pop and rock musicians for years until Sting sat in a Jaguar in the late 1990s-started to pay off. Newer acts can make roughly $2,500 per TV or movie license, while veterans routinely pull in as much as $3,000 for TV shows, $100,000 for movies, and $25,000 for commercials. Video games from Madden NFL Madden NFL to to Guitar Hero Guitar Hero generate the same kinds of paydays, with a promise of even greater exposure, since players can listen to these same songs a collective 1 billion times or more. generate the same kinds of paydays, with a promise of even greater exposure, since players can listen to these same songs a collective 1 billion times or more. Guitar Hero Guitar Hero and and Rock Band Rock Band sold a combined 14.8 million copies in 2008. Fans have paid two dollars each to download roughly 44 million songs, by artists from Aerosmith to Motley Crue, during the brief history of those games. Universal's partners.h.i.+p with Apple Computer led to publicity via iPod and iTunes ads and extra sales for U2, the Black Eyed Peas, and Mary J. Blige. sold a combined 14.8 million copies in 2008. Fans have paid two dollars each to download roughly 44 million songs, by artists from Aerosmith to Motley Crue, during the brief history of those games. Universal's partners.h.i.+p with Apple Computer led to publicity via iPod and iTunes ads and extra sales for U2, the Black Eyed Peas, and Mary J. Blige.

If these opportunities were good news during a dismal time, ringtones were extraordinarily good news. With cell phone users all around the world using customized snippets of music as fas.h.i.+on accessories, worldwide ringtone revenues jumped from $3.2 billion in 2004 to $4 billion in 2005, according to Juniper Research. Crazy Frog's "Axel F" hit No. 1 on the British music charts-as a ringtone.

But the malaise finally caught up to Universal. Eminem retired. Jay-Z retired. Then he came back, but without the same sales power. (Jay-Z stepped down in early 2008 from his post as president of Universal's Def Jam Records; according to the New York Times, New York Times, the label did not want to boost his previous salary, which had amounted to a total of $10 million.) Watching the the label did not want to boost his previous salary, which had amounted to a total of $10 million.) Watching the Billboard Billboard pop charts every week started to feel like counting the dead. An alb.u.m thought to have smash-hit potential would make a strong first-week debut, then plunge the following week-such as Alicia Keys's pop charts every week started to feel like counting the dead. An alb.u.m thought to have smash-hit potential would make a strong first-week debut, then plunge the following week-such as Alicia Keys's As I Am As I Am, which hit record stores before Thanksgiving 2007, sold 742,000 copies in its first week, then dropped by 53 percent the following week. And when there were no Alicia-level hits? Well, those weeks were just ugly.* In one week in January 2007, the In one week in January 2007, the Dreamgirls Dreamgirls soundtrack sold 66,000 copies, the lowest for a No. 1 alb.u.m since SoundScan started keeping track of these things in 1991. For Universal, Christmas 2007 was a disaster. Expected hits from Eminem, the p.u.s.s.ycat Dolls' Nicole Scherzinger, and Mariah Carey (who by now had relocated from her postTommy Mottola label, EMI, to Antonio "LA" Reid's Island Def Jam) failed to materialize. soundtrack sold 66,000 copies, the lowest for a No. 1 alb.u.m since SoundScan started keeping track of these things in 1991. For Universal, Christmas 2007 was a disaster. Expected hits from Eminem, the p.u.s.s.ycat Dolls' Nicole Scherzinger, and Mariah Carey (who by now had relocated from her postTommy Mottola label, EMI, to Antonio "LA" Reid's Island Def Jam) failed to materialize.

Labels began to drop their facade of sunny optimism. In a late 2007 conference call announcing that Warner Music Group's fourth-quarter profits had plunged an astonis.h.i.+ng 58 percent, Bronfman declared it "a year of real challenge in the recorded music industry" and announced CD sales were rough and digital sales were slower than expected.

Universal laid off more employees after that. Island Def Jam Records fired a dozen or so people, including a onetime rock savant, A&R man Rob Stevenson, who had signed hit bands like Fall Out Boy and the Killers, which suffered through soph.o.m.ore slumps during a critical business period in 2007. Geffen, Interscope, and Sony BMG followed with dozens more layoffs. And as of this writing, EMI was rumored to be hacking dozens more employees. "Going into a major record label is like you've just boarded a plane where the pilot is at 30,000 feet and announces you're going to be making a water landing. And everybody has their heads between their knees," says Jamie Kitman, manager of OK Go, which records for the EMI-owned label Capitol Records. "I mean, it's grim." From 2000 to 2007, the music business laid off 5,000 employees.

Many have adapted to this carnage. Simon Baeyertz lost his job as head of international affairs for V2 Records when the company restructured in 2007; today he and his wife are building El Blok, a 22-room hotel and bar in Vieques, an island off Puerto Rico. Robert Wieger was vice president of marketing for Atlantic Records until he was downsized in the AOL Time Warner merger in 2001; as door captain at the Bacara Resort & Spa, in Santa Barbara, California, he occasionally encounters hotel guests he used to work with, such as singer Barry Manilow. Barry Feldman, who used to oversee blues and jazz reissues at record labels from Verve to Columbia, perceived no future in the music business after the 2004 Sony-BMG merger and quit to become a full-time financial adviser.

Then there's Debbie Southwood-Smith, whose indoctrination into the record business began when she was a promotional secretary at MCA Records in the 1980s. She moved up the old-fas.h.i.+oned way-scouring dingy New York City nightclubs for the best talent, finding a few worthy candidates, and turning them into hits. One of them-Blessid Union of Souls, a Cincinnati rock band-caught on when its. .h.i.t "I Believe" dominated radio playlists in the early 1990s. The success gave her a golden ticket for A&R jobs at major record labels. She was good at finding and nurturing bands, and over a twenty-year career with EMI, A&M, and Interscope, she worked with Uncle Tupelo, the Yeah Yeah Yeahs, Queens of the Stone Age, and Monster Magnet. She loved it, holding court at concerts in her spiky blond hairdos, Chuck Taylors poking out from underneath her dresses. It was what she was meant to do.

One of the last things Southwood-Smith did as an A&R executive at Interscope was sign TV on the Radio, a s.p.a.cey, experimental, electronic rock band she was always convinced could turn into the next R.E.M. given time, resources, and patience. She never got to finish the project, though, because her boss, A&R executive Mark Williams, badgered her to meet with him one day in November 2005. When they finally sat down in her office, he closed the door and said, "We have to talk." She rolled her eyes and said, "Now what?" He laid her off. "Rock records aren't selling," he said, "so we're firing rock A&R people." By December 2007, Williams was gone, too. "I was a woman who could find, like, art art artists and make them commercially viable," Southwood-Smith says. "And there wasn't room for that too much anymore." artists and make them commercially viable," Southwood-Smith says. "And there wasn't room for that too much anymore."

So what do you do when you work for the record business and the record business collapses? "If you spent twenty years in the music business, like I did-I started as a kid, and I'm forty-four now-we're not trained in anything else. That's our skill set," she says. "But I'm lucky. I only have an English professor boyfriend, and we only have, like, cats and dogs."

Southwood-Smith enrolled at Fairleigh-d.i.c.kinson University to get her education degree and, in September 2008, was to become an English teacher at Ferris High School in Jersey City, New Jersey. It turns out even a forty-four-year-old woman can speak to teenagers if she has spent her adult life signing bands that appeal to teenagers. "Maybe something will come along in the entertainment field that will speak to me," she says. "But if that happens or not, I still need something to fall back on."

Big Music's Big Mistakes, Part 8Sony BMG's RootkitThe Bad Plus, a jazz trio that turns rock and pop hits like Nirvana's "Smells Like Teen Spirit" into bebop workouts, never planned to sign to a major record label. But when a Columbia Records scout caught a concert at the Village Vanguard in 2002 and offered a contract, the band went for it. At first, the deal went perfectly. The Bad Plus's Columbia debut sold 53,000 copies. The follow-up did a respectable 34,000. In 2005, the band released what it regarded as its best record, Suspicious Activity? Suspicious Activity?, and hit a very hard wall.That wall was called a rootkit, rootkit, a series of files that would infiltrate a computer's registry, the internal brain that allows Windows to operate a computer. A rootkit, according to a series of files that would infiltrate a computer's registry, the internal brain that allows Windows to operate a computer. A rootkit, according to Technology Review, Technology Review, is "software that tricks an operating system into overlooking worms, viruses, and any other files a hacker might want to conceal inside a user's computer." When rootkit files work successfully, they provide a pa.s.sageway for outside hackers to install viruses and other malicious programs onto somebody else's system. To the shock of the Bad Plus-as well as other artists such as veteran singer-songwriters Neil Diamond and Burt Bacharach, Trey Anastasio of Phish, and Southern rockers Van Zant-Sony BMG released 4.7 million CDs containing rootkits between January and November 2005. Many of these problematic discs actually allowed malicious programs, l