LOS ANGELES - Sure, there will be lots of smiling faces when the 44th annual Grammy Awards are broadcast tonight. There always are. But behind the smiles, a particularly troubling set of circumstances has put the record industry in dire straits on almost every front.
The major labels depend on three things to survive: fans' money, the artists' music and the support of the multinational corporations that own them. But the labels suddenly are realizing they can't depend on any of these. For the first time in recent memory, everyone across the board seems cynical about the future of record labels as we know them. "If the industry doesn't change the way we do business," said Val Azzoli, co-chairman of Atlantic Records, "we're going to be bankrupt."
While music sales were down 5 percent last year, this is the least of the music business' woes. What is most disturbing isn't yesterday's sales but tomorrow's profits, and panicked executives are hurling recriminations in all directions: at the downloading of music from the Internet; at the increased ease of duplicating CDs on home computers and stereos; at artists fighting their record companies, and at multinational companies that demand quick profits and instant hits.
The heads of major labels say that while attention has been focused on Napster's creation of a generation of fans used to getting free songs on demand, a bigger worry is the practice of CD burning. Last year, sales of blank CDs reportedly outnumbered recorded CDs. This may be one additional reason that catalog sales, which once saved record companies from a bad year, are in sharp decline, down by as much as 20 percent to 30 percent.
However, what looks bad for record executives and artists might not be bad for the music economy as a whole. Instead of buying records, young people are investing in expensive large-storage hard drives and memory cards, signing up for broadband services and snapping up CD burners, dual-tray CD recorders and MP3 players. All this assures continual innovation from the electronics and computer industries and creates large sales - which could more than make up for the current flagging CD sales.
So, if Sony is paying for the lifestyles of such longtime stars as Michael Jackson, Bob Dylan and scores of others in this extremely cost-ineffective industry, the company might gross $4.6 billion a year, but only about 5 percent of its artists are considered successful. And profits from these rare few must pay for the failures of the other bands. As the head of one major label said: "Profit margins are shrinking. In 1994, we were making a profit margin of 30 percent. Now we're probably making 10 or 8 percent."
So, again, if Sony is making $4.6 billion in music sales, but taking in $40 billion in sales from electronics, who will it listen to: the music industry complaining about people downloading music without authorization, or the electronics executives trying to make better, more expensive CD burners and MP3 players?
One result is that while music executives and the Recording Industry Association of America (RIAA, the record labels' trade group), are informing the public of the illegality of downloading music, technology companies are advertising the increased music storage on MP3 players and the latest version of Windows - with folders specifically for sharing audio files.
"We're told that by saying, 'You can't steal our product,' we're impeding technology," said Peter T. Paterno, a lawyer representing Dr. Dre and Metallica. "I'm so fed up with that mentality. If I was running a record company, as opposed to the wimps that are running one, I'd say, 'I have no interest in compromising, and I'm going to go sue little Johnny who's downloading this stuff.' "
The combination of all these factors has resulted in major cuts in the music industry, particularly at Sony and EMI, where the label is being dismantled piece by piece, and such superstars as Mariah Carey and David Bowie are being sent packing.
This is all unraveling with the intensity of an action film. Now that the industry is weakened, here come its artists. And they are angry. They have finally realized that the RIAA doesn't represent their interests.
So they are taking matters into their own high-profile hands. Last night, more than 15 superstars - including Billy Joel, the Eagles and the Dixie Chicks - were scheduled to perform at four California concert halls to benefit their own advocacy group, the Recording Artists Coalition. The artists want to legally limit contracts with their labels to a maximum of seven years, but their long-term goal is to get more money from the record companies. If an act sells a million albums and has a No. 1 hit, chances are that, on the books, the artists are still in debt to their label.
But the tables may be turning. In January, just a week before she died, Peggy Lee was one of several hundred artists who won a class-action suit against their former label, and were awarded $4.75 million in royalty refunds. Current acts, including Courtney Love and the Dixie Chicks, have lawsuits pending over accounting practices.
"It's bizarre that when you audit a record label, in 99.99 percent of the audits, the labels are found to have underpaid the artist," said Simon Renshaw, who manages the Dixie Chicks.
All this is reaching critical mass just in time for the Grammys.
It will be interesting to see how the industry's escalating tensions and doomsday scenarios bubble to the surface on live TV. Tomorrow, when the cameras are off, we'll find out who's still smiling.