Technology Is Movies’ Angel, but Record Industry’s Devil

If you walk into Best Buy, Wherehouse or any of the other chain stores I’ve visited lately, the CD racks are deserted--the action is across the aisle in the DVD and video game departments. While the music business is in a tailspin, trying to battle Internet piracy and fan alienation, DVDs have become a giant cash machine for Hollywood.

Consumers are on pace to spend $11 billion on DVD sales and rentals this year, making it the fastest-growing home-electronic product ever. DVDs routinely make more money in their opening weekend than comparable theatrical releases. Video games aren’t far behind, with sales reaching $6.3 billion last year, nearly double what they were five years ago. The record biz, whose sales were off 10% last year, is in such bad shape that even Entertainment Weekly’s summer music issue was full of ads ... for DVDs!

So why are movies and video games booming while the music business, pop culture’s trend-setter of the last several decades, is in such a funk? The people who run record companies gloomily blame the Internet. But if you ask music and movie lovers, you get a very different answer. Consumers adore DVDs, which offer cool packaging and lots of interactive extras; they loathe CDs, which they say are grossly over-priced and padded with filler.

Pocketbook issues have a lot to do with DVDs’ ascension. Two years ago, most new DVDs were priced between $25 and $30. Now new DVDs sell for $19.95, with hundreds of older movies going for $9.95 and $14.95. But even though music sales are down, the record companies aren’t cutting prices-- in fact some CD prices have, if anything, gone up. New CDs by everyone from Britney Spears to System of a Down go for $17.99, with older CDs selling for $14 or $15. The only CDs that regularly sell for $9.99 or 11.99 are by little-known new artists. When I walked through Best Buy the other day, I was amazed to discover that the DVDs for “Austin Powers” and “Rush Hour” cost exactly the same as the movies’ CD soundtracks.

New technology is supposed to create new revenue streams, as it has with DVDs. But the music business views its new technology, the Internet, as the enemy. With pop radio ruled by a handful of conglomerates more interested in ad revenues than good music and MTV abandoning music videos for lifestyle programming like “The Osbournes,” file sharing has become one of the few ways for fans to hear new music.

Unfortunately, the music business has spent more time trying to stamp out file sharing than aggressively pursuing ways to make money from it.

For all of the impact the Internet has had, it seems impossible to ignore the obvious: If consumers have a limited amount of money to spend, and they buy their home entertainment in the same stores, they are often going to make a beeline for the DVD section, repository for the most enticing software and the best deals. The biggest-selling DVDs have been movies like “X Men,” “Gladiator” and “The Fast and the Furious” that appeal to the same young male audience that dominates the music business.

“Our core audience is such a similar demographic that we’ve got to be impacting the music business,” says Craig Kornblau, president of Universal Studios Home Video. “We’re giving consumers lots of extras, but we’re also creating collectible packaging. When you’re in a store, if you go to the DVD section, you’ll see all sorts of shapes and sizes. It’s a really involving consumer experience.”

But top music executives, such as Jim Urie, president of Universal Music and Video Distribution, still contend that CDs are a great product.

“The dissing of CDs is just a ridiculous self-justification for stealing the music,” Urie says. “I hate to see what’s going to happen when DVD burning becomes as prevalent as burning CDs. How are people going to justify stealing a movie by saying it isn’t any good after the movie’s already a $100-million hit?”

Urie says his company doesn’t heavily research consumer attitude, noting, “We tend to ask how can we make more money and sell more product, not deal with consumer gripes.”

I almost wish I had taken Urie along when I visited a 15-year-old boy’s room the other day, hearing him and four of his friends gripe about record companies while listening to Rancid at high volume. You know your industry is in trouble when your core audience is as scornfully dismissive of your business as their parents are about scandal-ridden companies like Tyco and Enron.

“There’s not a person I know who doesn’t download music,” said one of the boys (because rumors abound that the industry will soon take legal action against active file-sharers, I’ve avoided names). “It’s free and easy and I can record it on a blank CD that costs nothing. Even my dad asks me to download music for him.” When asked if musicians weren’t being hurt by the loss of income, another boy explained, “Come on, if you watch ‘Behind the Music,’ you always hear how bands got [ripped off] by their record company. So how am I hurting them?”

The boys buy CDs, but only from artists they respect, like Rancid and Eminem. They say if CDs were cheaper--say, $8 or $9--they’d buy more. “Price is the only reason I don’t buy CDs,” says a third boy. “Why would I ever pay $18 for a CD? I could see two movies for that.”

In fact, paying for movies is a bigger priority. Most of the boys can download entire movies, but they prefer to watch them in a theater with other people. They are contemptuous of possible legal action from the record industry. “They’re not that stupid,” says the first boy. “If they prosecute everyone who’s downloading music, they’d bring down the entire American economy.”

Hearing them talk, I couldn’t make up my mind if these kids were the offspring of “Clockwork Orange” or “Butch Cassidy and the Sundance Kid.” Are they spoiled, self-satisfied droogs, the byproduct of an advertising-drenched consumer culture that has promised them an inalienable right to every Apple computer, Nike high-top, MP3 and iPod they could possibly desire? Are they the offspring of every American outlaw from Jesse James to Abbie Hoffman, full of a vague anti-authoritarian contempt for corporate profiteering?

Or are they just products of an Internet culture that has them believing that whatever’s on the Web is free for the taking?

Even though Universal made hip-hop crooner Ashanti into a star overnight in part by offering retailers a rebate, allowing them to sell the CD for $11.99, Urie argues that lowered prices won’t make a dent in downloading, saying, “The fact that consumers can steal music sort of trumps anything else we can do.”

DVD mavens like Kornblau aren’t sitting on their hands. One day, as he was driving his 12-year-old son to school, Kornblau heard him complaining about record companies. “I asked him what he would do if I shut off our DSL and gave him all the money he needed to buy all the CDs he wanted,” Kornblau recalled. “And he didn’t want that. He wants to download. It’s clearly not just about the money, it’s about the subversive challenge.”

Believing he should get to know his enemy, Kornblau is bringing his son into the office to meet his marketing team and show them the sites he visits. “If he’s grown up downloading music, imagine what it’ll be like with the kid who’s grown up downloading movies,” he says. “It isn’t that far away.”

It sounds awfully ominous until you recall that when Sony introduced the VCR, it was sued by Universal, which claimed that unlawful copying would destroy the movie business. The business not only survived but, thanks to DVD, it’s flourishing. In the entertainment business, it’s fashionable to talk doom and gloom, but sometimes it’s darkest just before dawn.

*

“The Big Picture” runs every Tuesday in Calendar. If you have questions, ideas or criticism, e-mail them to [email protected].