THE LEFSETZ LETTER: The Sony Debacle

Can you say PERRIER? I bet you most people under thirty can't. Because they don't remember when water was synonymous with this brand. Before traces of benzene contaminated the product and the company's water was recalled from the shelves. AFTER the French enterprise said it was no big deal, that a little benzene wouldn't hurt you, that it wasn't their fault.

Sony BMG has been irreparably harmed. The whole MUSIC business has been irreparably harmed. By the inane actions of ignorant people under the moniker of saving the music.

You want to save the music? Make stuff people want to own for decades. And sell it to them in a way they want to listen to it.


Bob Lefsetz, Santa Monica-based industry legend, is the author of the e-mail newsletter, "The Lefsetz Letter". Famous for being beholden to no one, and speaking the truth, Lefsetz addresses the issues that are at the core of the music business: downloading, copy protection, pricing and the music itself.

His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to music business honchos like Michael Rapino, Randy Phillips, Don Ienner, Cliff Burnstein, Irving Azoff and Tom Freston.

Never boring, always entertaining, Mr. Lefsetz's insights are fueled by his stint as an entertainment business attorney, majordomo of Sanctuary Music's American division and consultancies to major labels.

Bob has been a weekly contributor to CelebrityAccess and Encore since 2001, and we plan many more years of partnership with him. While we here at CelebrityAccess and Encore do not necessarily agree with all of Bob's opinions, we are proud to help share them with you.

Now Congress isn't even going to pay attention to the record labels when they cry they need protection. Not when their constituents' computers have been compromised by Sony's rootkit software. Elected officials walk away from crises. They only want to be involved if they can grandstand to great effect. Defending the labels is not going to benefit them with the public. And, they get more money from Microsoft and the Silicon Valley players than they do from these old wave mafia-type operators in the music industry.

How did things go so horribly wrong?

1. The major labels developed a sense of entitlement.

They believed that sales could never go down, that people NEEDED music, that MTV would break acts forevermore.

But Tom Freston told me videos have moved to the Web. You might decry the lack of music on MTV, but the station can't compete with video on demand on the Web. Which is why MTV's beefed up content on ITS Website. Albeit late compared to Yahoo!

The Web is like cable TV. It's about niche product. No act dominates when the public has choice. Therefore, the concept of selling ten million copies of one album has gone out the window. It's got NOTHING TO DO with ripping, burning or stealing. You just can't dominate the public consciousness the way you used to. But rather than face this reality, and retool for a new environment, the labels, in a parody of their customers two decades before, claimed I WANT MY MTV!

2. Boy bands were a mania.

Sold to the baby boomlet. To believe this would go on forever is delusional. But rather than build on what the boy bands represented, which was great songs, with melodies and hooks, sung by skilled singers, the labels just tried to sell this aging demographic hip-hop and thrashing hard rock. It would be as if AC/DC came after the Beatles. And, not being able to tolerate the new sounds the majors were purveying, the youngsters went back to the CLASSICS! Everything from Led Zeppelin to Chicago. (Washington Post)

The labels were under the illusion that they could sell these albums to kids the way they sold them to their parents. Over time, one by one. But ravenous kids wanted them all NOW! So, they just downloaded everything P2P. They were NEVER going to buy the complete set of the Doors. But, at a low incremental price, they went for it. Unfortunately, there WAS no price! The new paradigm is more people with much more music at a low price. Sure, Rhapsody and Napster deliver this to a degree, but YEARS after ownership of MP3s became de rigueur, and in a format incompatible with the market dominating iPod. Believe me, if they started mass-marketing automobiles running on vegetable oil today, they wouldn't dominate tomorrow, because there's no INFRASTRUCTURE! No vegetable oil stations on every corner. Furthermore, vegetable oil cars run better than portable subscription software/hardware.

3. Ignorance of technology.

To believe that you can keep people buying albums on CDs is as delusional as believing that people should continue to purchase music on wax cylinders. Why is it that after a history of progress, killing old formats as new technologies appeared, NOW the industry wants to stay in one place and hold on to the past? Didn't albums blow up the business? Didn't CDs blow up the business? Isn't it RATIONAL to believe that the NET would blow up the business? But instead, you've got Sony and the rest of the major players trying to SHRINK the business back to what it once was, by limiting use of their product. Sales were at their height during the heyday of the original Napster. If lawsuits and copy protection were working, wouldn't sales be HIGHER?

And speaking of sales…

The labels are under the illusion that every track traded and every track ripped and burned is a lost sale. This is HOGWASH! Nobody was going to buy these records. I've known about Argent's "Liar" for thirty years and NEVER purchased the album, because I didn't want to pay in the neighborhood of ten bucks for one track. But, I took the song IMMEDIATELY from Napster. If only the companies had conspired to charge me three extra bucks at the ISP level for this privilege, and had divided the ultimate monies along the ASCAP/BMI model, then we'd ALL be happy.

According to the "New York Times", the CD recall is going to cost Sony BMG TENS OF MILLIONS OF DOLLARS! (New York Times) Take THAT hit to the bottom line. Wouldn't it have been wiser to figure out how to charge people for their present uses rather than try to eliminate them? Knowing that all that ripping, burning and trading illustrates DEMAND? FEED demand, don't eviscerate it.

But worse than the cash to replace the CDs is the loss of good will. From this, I doubt the major labels will ever recover.

You've got "Fortune" saying the Sony BMG merger was flawed in conception. (Fortune Magazine) You've got Thomas H. Lee losing its shirt on Refco.

Suddenly, all these powers look extremely vulnerable. Like maybe everything they've been telling us has been based on flawed evidence. I mean do you trust the business sense of people who PERPETRATED the rootkit debacle? FIRST they diverged from the CD standard. Not realizing that standardization insured the success of the format. Not looking back at corporate history and seeing that the non-standard Betamax ultimately failed. THEN, they altered operating systems. Which is akin to identity theft in the world of tech. And what's worse, they had no idea they were doing this. They just trusted their tech partner in the U.K. Isn't this like the Administration trusting Chalabi?

Where does the buck stop?

It should stop with Andy Lack. Who should make a public announcement. Do a mea culpa.

But Andy Lack can't be wrong. It's all about HIM, and HIS career, screw the public.

The major labels haven't been trustworthy for eons. But, there was no single event for the public to rally around, place its hat upon. The rootkit debacle is the music industry's Katrina. Doesn't matter what happens now. They've lost the public's confidence. It didn't happen overnight. It's been brewing for years. Starting with one good track on an overpriced album. It's not the public that's ripping off the labels, it's the labels that are ripping off the public. And now everybody knows it.

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