Interview: Fred Goodman’s Fortune’s Fool: Edgar Bronfman Jr., Warner Music, and an Industry in Crisis

Tell-All Author Riffs on Music Industry in Crisis
By Eliot Van Buskirk/Wired July 14, 2010
Fred Goodman, author of Fortune’s Fool: Edgar Bronfman Jr., Warner Music and an Industry in Crisis.
First of two parts

When Fred Goodman was looking for one music-industry figure whose story would be fodder for his next book as a metaphor for the industry at large, he saw only two clear choices: Apple CEO Steve Jobs and Warner Music CEO Edgar Bronfman Jr.

In the end, the former Rolling Stone senior editor chose Bronfman over Jobs for Fortune’s Fool: Edgar Bronfman Jr., Warner Music and an Industry in Crisis, in no small part due to the intense motivation exhibited by the heir to the multibillion dollar Seagram throne to transform his family’s liquor-derived empire into an entertainment company.

Why, when he could have spent his life playing tennis, did Bronfman persevere? And why does he continue to believe in the value of recorded music, despite having shown the poor timing to invest in the major-label system not long before Napster introduced the world to file sharing, causing the financial worth of recorded music to decline?

Goodman’s well-researched profile functions as history of the major-label system, from its origin through the boom, up to the declining returns and shrinking investment of today, while elucidating the personal motivations of Bronfman and other important figures at the storm’s vortex. He doesn’t mince words:

The sorry fact was that record executives had no personal financial incentive to be forward-thinking. In an industry where bonuses were based on chart performance and market share, incentives were tied to creating hits and not to addressing the fact that the CD business was being rendered unnecessary and needed to be reinvented. With a lethal myopia, the industry went around its day-to-day business and made sure all its windows and doors were locked, completely indifferent to the fact that its house was on fire.

Since he had already done his research — the book is rich with detail, dialogue and description — I decided to pick Goodman’s brain about what he learned about Bronfman and the major labels over the course of writing his book (published Tuesday, Simon & Schuster).

The first installment of this two-part interview (edited for length and clarity) covers Edgar Bronfman Jr.’s timing in entering the music business, what a lack of investment in recorded music could eventually mean for fans, and the recorded music business’s chances for succeeding with the cellphone where it failed with the internet.

Acquisitions, Bad Timing, ‘Wall Street’s Whipping Boy’
Wired.com: What was your goal with this book, and did that change as you went along?

Fred Goodman: I was looking at the problems the industry was facing, and wondering, “Where are they going to be addressed, and what are the chances that they will be addressed?” As a writer, I’ve always believed that the best stories are personality-driven. I was trying to decide who the people are who are rolling up their sleeves and really involved, and there were only two choices: Steve Jobs or Edgar Bronfman.

With Bronfman, from the standpoint of “here is this person with something to prove,” he’s had this incredible implosion at Vivendi that has destroyed his reputation. The New York Times, which is eminently fair and reasonable, is calling him “Wall Street’s favorite whipping boy.” His reputation is in tatters. There’s a line in the book: “He’s got the worst reputation of any businessman not sent to prison.”

I thought he would have something to prove, so when he and his partners bought into Warner, I thought “O.K., this guy’s going to be more motivated than anybody to deal with what’s going on.” So I went to him and basically said that, and he was willing to let me look over his shoulder.

Wired.com: “Wall Street’s favorite whipping boy” — there are three other major labels that are having trouble, and it’s hard to find an example of somebody in the recorded-music business who wouldn’t make a good whipping boy for Wall Street if their companies were public.

Edgar Bronfman Jr.’s official photo/Courtesy Warner Music Group
Goodman: I think they weren’t really talking about his adventures in the record business so much as what he does at Vivendi [which merged with Seagram in 2000]. The things he had done at Seagram were controversial. There were a lot of people both in his family and among the shareholders who did not like the idea of becoming an entertainment company. They did not like him selling DuPont, and he got beat up all up and down the line for things he did.

My feeling was, generally, that the only major mistake he made was the Vivendi deal. I didn’t think buying MCA was a mistake. Buying Interscope was a good idea — and Polygram.

You could ask, “if he’d known whether Napster was coming, should he have made those deals?” The answer is, no. But nobody knew Napster was coming.

At the time, he was making a company that was the largest music company in the world, at a time when the international scene was growing and the American record wasn’t. It was like, “It would take us 30 years to go international. Let’s get a company that’s established overseas, and just do that.” It was certainly a justifiable view at the time.

Wired.com: So why do people seem to hate this guy so much? I expected a negative reaction when we wrote about how he verbally reprimanded his own kids for file sharing, while other people’s kids were hiring lawyers, due to RIAA lawsuits, but it never ceases to amaze me how much vitriol there is out there for Bronfman and other major-label executives. Is it directed at him or label people in general?

Goodman: I think it’s over the issue of the record companies and file sharing. In the book, I track some of the history of the RIAA suits against file downloaders. The original suits were brought against four students who had set up trading sites.

They were essentially being sued to shut down trading sites, two of which were being run on computers run by universities. The labels were saying, “Don’t constitute a business to trade our copyright.” That’s a case that could have engendered some sympathy, because everybody wants to protect their business.

But when you turn around and start suing customers, it becomes difficult, and I don’t think it’s a justifiable or smart move. History has shown it to be a debacle, and it’s been a disaster for the record companies. Whatever legal rights they have, they have certainly lost the public relations war.

It was a bad idea, and Bronfman was a supporter of this all the way through to when he bought Warner [in 2004, after creating an entertainment division at Vivendi, including Universal Music Group], he continued to support this. I point this out, and I don’t agree with him.

He looked silly when somebody said, “What about your kids,” and because he’s an honorably guy, he goes, “Yeah, my kids download,” instead of just pretending he didn’t know what the question was about.

But I think the reaction you’re talking about is something else. I’m really stunned by the reaction, especially online.

You cannot mention Lars Ulrich to this day on a music blog without 65 people immediately going, “Oh that goddamn tool.” It’s ridiculous.

People should look in their record collections and make an honest assessment of how many of the records they love were produced by the record companies that they now say are evil.

Wired.com: Well, your previous book [The Mansion on the Hill: Dylan, Young, Geffen, Springsteen and the Head-On Collision of Rock and Commerce] is very specifically about the relationship of art versus commerce, and even during the ’60s, when much of the industry was forming, already it seemed like there were some issues around that. Do you get the sense that it’s the art-versus-commerce thing that’s dooming it all? It seems like so much of this is about business and the law, and it’s not even really about music anymore.

The End of Recordings as Salable Art?
Goodman: I don’t think it’s specific to music, but that it’s music makes it more incendiary. After I finished the book, I happened to be reading To the Finland Station, which is Edmund Wilson’s history of left-wing political writing from the French to the Russian revolution. After the French Revolution, tension rises between the bourgeoisie — this emerging merchant class — and the masses.

Why do they hate the masses? They complain that the masses don’t want to buy anything. They want everything for free.

It suddenly struck me, “This is nothing new. Of course people want things for free.” What they really have to ask is what is the consequence of not paying for it.

Wired.com: Well, the consequence used to be you wouldn’t get the music.

Goodman: That’s right, and the consequence is still that eventually you won’t get it.

Wired.com: In the sense that nobody will be making music?

Goodman: This whole system of “give me your music for free, and I’ll buy a T-shirt, and maybe I’ll buy a ticket” — that kind of thing, you are begging recordings to go away. All you’re saying to the artist is, “See if you can find a way to sell me a ticket and a T-shirt without losing a ton of money on a recording you won’t make a dime on.”

Frankly, I think recordings are valuable. And since they’re valuable, we should find a way to value them. Otherwise, we’re going to lose them.

Already, we’re seeing that there’s only a handful of bands left that can afford to make the kinds of records that investigate what you can do in a studio. How many bands are left that can afford to get Rick Rubin and record a record for eight months? I think sophisticated records are in danger of disappearing already, because they’re cost-prohibitive.

Wired.com: These days, I’ve heard labels are looking for bands that have already recorded themselves, and it’s pretty much ready for mastering at that point — almost functioning as a distributor.

Goodman: That’s been going on for a long time, but the fact is, you can’t justify the cost anymore for any band who really wants to look inside its soul and go live with a producer for eight months. U2 can do it, The Red Hot Chili Peppers and maybe five other bands. I mean, who can do this?

Wired.com: Back to the book, I was surprised to read that Bronfman wasn’t worried when Tower Records and other retailers were going out of business. I and a lot of other people were writing about that as, “Here’s sign-on-the-wall number 342 that things are really screwed here.”

Goodman: If the trout are dying, it should tell you something about the water.

Hope Arrives With Cellphone, Departs
Wired.com: But at that point, he’s still optimistic about digital, especially the cellphone. Why does the cellphone seem to be such a more-suitable place to tack on a music bill than an internet connection?

Goodman: My impression was that they said that they’d learned something on the internet and weren’t going to make the same mistakes with the cellphone. I think they thought that they were getting a second bite at the apple: “Hey, we shouldn’t have done this PressPlay thing [an early major label-backed music service]. We didn’t know what to do. We should have licensed people to do things who really understood the business. Let’s license cellphone companies and tech companies to go out and create services that make sense, and if we like them, we’ll sign on, we’ll push them, and that’s how we can affect what goes on in the market, because we can’t create this stuff.”

That was a realistic moment. But what happens, of course, is that the cellphone companies don’t get there. They’re waiting for things like Nokia Comes With Music, and an experience from Verizon or AT&T or whoever the American companies are going to be, and the labels made hundreds of deals all over the world — Korea, China, and everywhere — for anyone who would do something that sounds sensible. And at the end of the day, none of it really emerges as a good experience where you’d want to buy anything.

So the second bite of the apple doesn’t come along. Bronfman thought something was going to happen quicker than it did.

Wired.com: So is it your sense after talking to him all this time that it’s too late, if we’re taking Bronfman as representative of the whole recorded-music industry? Is it just “abandon ship” at this point?

Goodman: No, it’s not. I don’t know if you want to call him a contrarian, but he continues to believe in the enduring value of the work, and of copyright. “I don’t know what the value is going to be, but it’s going to be valuable, let’s hang in there, something will come along because music is just too important to people.”

The part that they’re not supplying, which I take the record companies to task for, is that they have not done enough to develop a good experience. I don’t know about you, but I miss buying something worth owning. I liked buying LPs. I don’t see myself continuing to buy vinyl as a major thing today, but going to a record store and bringing home a record was a much better experience than putting 10,000 files on a gigabyte drive.

Wired.com: The thing that made it different for me was that you had to choose. You would have enough for one CD or tape, sometimes, to buy that week. You really had to do research and immerse yourself and read reviews of the stuff, and now you can just get it right away.

Goodman: Today there’s no reason to immerse yourself in it. It was like, “This is the record I bought, and I’m going to live with it, listen to it, figure out whether I really like it or not.” But also they had artwork and information, all these things.

I really think that and not 360 deals is the business that the record companies should be in: finding out what people want to own that’s worth owning.

People like to throw virtual stones at record company executives — but who are they, and what makes them tick?

In the second half of this discussion about the music industry and one of its key figures, the author of Fortune’s Fool: Edgar Bronfman, Jr., Warner Music, and an Industry in Crisis, Fred Goodman tells us how his research led him to believe that subscribing to artists, rather than to generic music services might offer the best way forward.

Goodman also explores how Apple’s poor penetration on the desktop helped Steve Jobs convince major labels to license their music to iTunes. He asks whether massive bonuses are justified when a company’s stock sinks. And he presents evidence that the major labels might need to abandon adversarial relationships haunting them from the past if they want to solve problems in the future — within the bounds of antitrust law, of course.

Artist Subscription
Wired.com: In the book, you talked about how the Warner-led initiative of bundling the music with interactive elements seems to have been derailed. On paper, that seems like the answer, but Apple’s initiative along those lines isn’t really working. Yet, music-app games like Tap Tap Revenge and Guitar Hero made music interactive, and those succeeded. What went wrong?

Fred Goodman: I don’t know what went wrong, but it’s a product that doesn’t demand that you buy it. You can pick it apart and get the good stuff wherever you want it for free. They have to figure out a way to give something to somebody that’s theirs. It’s probably some kind of artist-subscription model, where what you’re really selling is regular access to materials from an artist, discounts, that sort of thing. Something that makes people say, “I can’t get this somewhere else.” It’s just not there yet. If I knew the answer, I wouldn’t be writing books.

Wired.com: It seems like people might be more likely to subscribe to a band than to something vague like Napster or Rhapsody.

Goodman: Livia Tortella (who does so much of the marketing over at Atlantic Records) says, “Now the deal is not to be in the Atlantic business, it’s to be in the T.I. business, the Kid Rock business. It is to find out what those consumers want.” If you’re in that business, then really develop that act, and find out what those fans want and give them something.

The problem, of course, is that if you’re a record company, you have to have some kind of scalable, repeatable format. We can sit here and talk about the things that Trent Reznor has done, but it’s really difficult for a record company to reinvent the wheel for each new act and come up with something different to sell. You might be able to do that if you had Iggy Pop with a 35-year career, but what do you do with a new act?

Wired.com: But we already have something scalable — an app people pay for or subscribe to, and maybe even see ads. You get everything that somebody records, right after they did it, and you don’t have to bother downloading anything — it just shows up on your phone or your tablet, your TV or stereo. If they coupled that with a corporation including both the artist and business side, the pieces are there. But can the labels tilt at such a radical degree from where they’re going, moving to an artist subscription that’s managed by a label? Warner’s been making moves by rolling out artist websites, but did you get the sense they’re that maneuverable?

Goodman: That’s one thing that impressed me about Warner. In the years Bronfman’s been in the industry, it has shrunk 15 percent, yet Warner’s revenues have held steady. That’s extraordinary — a really well-run company. They happen to be in a terrible market, but they’re doing things to make themselves stronger in a bad marketplace. They’ve been willing to try different things, whether it’s Lala or imeem, which haven’t worked (Warner was an investor in both).

You’ve got to give these guys credit for saying, “That didn’t work, let’s try something else.” I think they look at everything really hard, and that I admire. The question is about this enormous change that you’re talking about, which has taught some executives a lot…. It’s almost like a generation had to die out. It might take different waves of executives to figure this out.

Steve Jobs, pictured here introducing iTunes 9 in late 2009, launched the iTunes music store in April of 2003 in Mac-only form. The labels may not have considered what would happen if he released a PC version, which he did later that year.
Wired.com: Did the labels regret licensing iTunes? Your book says the labels went with iTunes because it was Mac-only (which I have independently confirmed), and hardly anybody had a Mac. [In the fourth quarter of 2003, Apple had about 2 percent of U.S. desktop market share.] When the Windows version came out, it gave Apple a lead that it still maintains seven years later. I think that detail has been lost in a lot of people’s histories of that decisive moment.

Goodman: Yeah, there were certain limits on the deal that would let them see how it worked, and it was incredible that this was the one time that Steve Jobs throws out his own playbook. Usually, he liked everything to be Apple-centric. He turns around and brings along the iTunes music store for Windows, and these guys are like, “Ugh.” I think everyone was surprised when he did it for Windows.

Bonuses and the Bottom Line
Wired.com: Did you talk with Bronfman at all about the insider-trading allegations? [French prosecutors asked that he be acquitted in late June of insider-trading charges related to the plummeting value of Vivendi stock.]

Goodman: I did not cover the insider-trading allegations, just because it was just happening when I was done with the book. But there was talk about how he was paying himself. [Bronfman received a $3 million bonus in 2008 when Warner Music Group had a net loss of $56 million and its stock dropped 25 percent].

It’s a very funny thing with the bonuses. Lyor Cohen [Warner Music Group head of recorded music for the Americas] got a $5 million bonus the first year he was there. People said [sarcastically], “Oh — you’re cutting back?”

It’s true, but he’s getting $5 million at the same time Doug Morris [CEO of Universal Music Group] was getting $16 million. Where are you going to get someone to run this company for $400,000?

Wired.com: Well, lots of people in the Obama administration make barely six figures. Maybe it’s because people have such a low opinion of music executives, they have to get extra.

Goodman: It’s a lot of money to most people, which it is. That’s also part of the reason people are fascinated by Edgar Bronfman. When I first met him, he said, “Why would anyone be interested in a book about me?” And I said, “For starters, I think 97 percent of the world wouldn’t work if they didn’t have to. They don’t understand the fact that you don’t have to — and you do work.” And he works hard. You’re talking about a guy who could have played tennis his whole life.

Wired.com: Sure. Usually, the thing with people who have billions of dollars is, you figure they spent so much time earning that money that now they can’t stop. He really had the option of not starting at all.

Goodman: Exactly right. But to some extent, he’s the guy who is supposed to continue the family. He’s got this position as the heir to the throne, and I think he really wanted to measure himself against the legacy of his grandfather [Samuel Bronfman of liquor-distribution fame].

Distribution Goes Digital
Wired.com: The major labels bought their distributors in the ’80s, and owned trucks. As much as Bronfman talked about how digital is going to make up for physical, and talks about the cellphone potential, did you get the sense that the labels’ expansion into manufacturing and distribution was part of the problem?

Goodman: By the time Bronfman gets in there at Warner Music Group [2004], it’s not really an issue, because they’ve already done things like sell the pressing plant to Cinram [in 2003] and they’re out of the manufacturing business. It was this integrated business once upon a time, where you made money every step of the way. But that’s not the model anymore. They’re trying to replace it with various other income streams of the artist.

Wired.com: By trying to get into the other artist-income streams, the labels seem to be giving up on the right to the recording, to an extent. This interactive, bundling idea [iTunes LP, CMX] doesn’t seem to be taking off, but did you get a sense of what’s next for Bronfman, in terms of not only going after other rights, but how to exploit the sound recording right the way labels always have?

Goodman: They are still hopeful, I think. People around the business are excited this month to see what Google’s going to do with their Droid application. It may be another false alarm, but hope springs eternal. Those people, they believe people want that music.

Wired.com: True. And if DRM was the problem with subscriptions, that kind of goes away with cellphones, because they’re connected. So maybe the cellphone is still the answer for Bronfman and the others.

Goodman: I just don’t know, but it’s always so frustrating. I saw them trying to do a lot of things and running up against a lot of problems, both in terms of the outside companies that they wanted to deal with but couldn’t quite get there, imeem being a good example, or trying to get together with other companies.

Warner Music Group representatives showed this and other slides to universities as they attempted to get them to sign on to Choruss (link below). It didn’t work.
Egos Battle as Budgets Shrink
Goodman: To me, it’s still kind of astounding: The record industry is in such dire straits, and these guys still can’t get together to do things in an agreed sort of way. I’m not talking about violating antitrust laws. They are bracketed by that on one side, but there are ways in which, as far as I can tell, within legal guidelines, you can have certain discussions.

But these guys are competitors, and they distrust each other. If somebody likes something, the other guy doesn’t.

Warner was trying to champion this thing Choruss for a while [view the presentation], where they were going to get universities to basically pay them a licensing fee, which is a pretty brilliant strategy. Anyone who has kids going to college knows, when that bill comes, there’s like $800-worth of add-ons for things like copying fees, athletic fees, using the student union — and there could easily have been $25 for downloading recordings online.

It would have been a painless way, in probably a sympathetic environment from the universities, to get someone to set a precedent that “this should be paid for.” But there’s really no consensus from the industry, because “Hey, that’s their program.”

Wired.com: Some people have a problem with a general “music tax,” but within a private network like a university, which is kind of different from an average ISP, perhaps that could make sense.

Goodman: They just didn’t get enough support within the industry to make it a united thing where they could say, “This is for all record companies.” Why would somebody just sign a deal with Warner?

Wired.com: It sounds like the old executive ego game could be at play.

Goodman: It’s the same thing that happened when Thomas Middelhoff [former Bertelsmann CEO] first talked about getting Napster for the record companies, and the whole thing was, “Hey, we’ll co-own Napster!” And everybody goes, “Gee, great.”

Then Universal comes back and says “Well, we’re the biggest record company, so we get the biggest piece,” and everyone else goes “Just forget it.”

This has happened time after time after time. They just can’t stay in a room and realize that the boat’s sinking and they need to do something together. You mentioned the ISP thing. I’m one of those people who thinks that there should be some sort of payment through ISPs as a content fee.

Wired.com: But then you’ll get people asking, “Well, what about newspapers? What about people who say they don’t listen to music, or they’re deaf?”

Goodman: We’re just not used to having it. It exists in other places. In the U.K. they pay a BBC tax. Whether you listen to BBC or not, everybody gets a benefit from it.

Wired.com: That’s just never been a way this country tends to do things.

Goodman: It’s not a way that we have been doing it, but I’m very concerned that if there is no money in creating things, people will create something else.

Wired.com: I like the quote in the beginning of your book from Ice Cube. He says there won’t be any music left worth downloading at a certain point, because creative people will do other things:

I don’t know if music got a future. We have all these electronic ways to download and steal music and get music, but there’s no money in making music. That money’s starting to dry up. So what’s going to happen in 20 years, 25 years, when the new artists of the day are all, “There ain’t no money in music, so I’ma go use my creative talents to do something else”? World never hears of great talent, because it’s all dried up. Now what are you gonna put on your iPod? Now what are you gonna download, when there’s nobody making music?

But there already are lots of things people download other than music: apps, videogames — the idea of the “indie rock star app developer.”

Goodman: If you value recorded music enough to want it to continue to exist, you’ve got to figure out how to value it. I’m not talking about enough money that the record companies would get a free skate and not be forced to create new technology. We shouldn’t protect people from technology — if we did, there’d be a stable still in this town. But the fact of the matter is that there is value in content. People own it, they’re entitled for something for it, and if you don’t pay for it, they just won’t make it.

Wired.com: It looks like that might already be starting to happen, in terms of the number of bands getting signed.

Goodman: Like Ted Leo. It’s a tough economic equation. If you love these young bands, then help them.

Wired.com: So if the market incents live music shows and synch rights to movies, television, ads, etc., we’ll get musicians who are specialized in those things instead of recording?

Goodman: Plus, if they all specialize in [live music and synch rights], the prices will go down in those areas. People are paying less and less for TV rights, because the companies looking for it can find a band online willing to do it for less. “Hey, here’s this great band I found on Facebook.” That’s who bands are competing against.

The prices go down, but there’s not more opportunity. There might be more ways to be noticed, but not more ways to monetize.

Tags: Edgar Bronfman, WMG