How music got free

CHAPTER 6

Doug Morris got a new job almost immediately. In July 1995, less than a month after his firing at Time Warner, he was hired by Edgar Miles Bronfman, Jr., the CEO of the Seagram liquor company. Junior was the third-generation scion of the influential Bronfman family of Montreal, the so-called “Rothschilds of the New World.” Since taking over the family business in 1994, Bronfman had pushed for reorganization, courageously attempting to transform Seagram from a boring (if highly profitable) beverage distributor into an exciting (but highly risky) global entertainment powerhouse.

As a business strategy it was demented. The Bronfmans had made forays into the entertainment business before, with little good to show for it. Junior’s father, Edgar Senior, had once made a play for MGM Pictures, before being outmaneuvered by Kirk Kerkorian. Junior’s uncle Charles had for many years owned the Montreal Expos, itself an experiment in slapstick. The elder Bronfman brothers had exited these ventures ignominiously, learning difficult lessons along the way about the volatile and unpredictable nature of show business. But they had failed to pass this wisdom on to Junior, who still wanted to be a player.

He had, like Morris, tried to make it as a songwriter. He had skipped college and gone straight into the music business, working pseudonymously for several years as “Junior Miles,” attempting to succeed without trading on the family name. Later, with his father’s backing, he had ventured into Hollywood, producing The Border, a 1982 Jack Nicholson flop. This unimpressive track record behind him, he had returned to the fold as a Seagram executive, where, at the age of 39, he was handed control of the empire.

Seagram’s most profitable asset by far was a stake in the chemical company DuPont. Junior dumped this to raise money to purchase controlling stakes in Universal Pictures and MCA Music Entertainment Group. The two companies were struggling: Universal was mired in the production of Waterworld, one of the most expensive and terrible movies in history, and MCA’s catalog was so old it was known as the “Music Cemetery of America.”

Junior wanted Morris to run a division of the latter, betting he could raise the dead. It was an offer Morris approached with some reluctance. He didn’t know Junior very well, and was aware that the industry had hung a target on this rich kid’s back. MCA was a last-place money-suck with 7 percent market share that was also sometimes called “the sixth of the Big Five.” Morris had several other offers on the table, as well as some ideas of his own. Nor was he hurting for money. Two days after his firing, he had sued Time Warner, trying to pull the rip cord on a golden parachute deal worth fifty million bucks. (Time Warner had countersued, accusing Morris of selling prerelease promotional CDs.)

But after a few meetings with Junior, he came around. With a lifetime of difficult contract negotiations behind him, Morris was a skilled dealmaker. Junior was not. Morris finagled points on profits, stock options at Seagram, and another golden parachute to complement the first. The initial credit line Junior offered for investing in artists was only $100 million, much less than what had been available at Warner, but Morris could see that, sitting on a limitless tap of booze money, there was a lot more where that came from. Best of all, Seagram was domiciled in Canada, where the lyrics of popular rap songs were not a pressing political issue.

Although Jimmy Iovine and Doug Morris were temporarily estranged as colleagues, they remained best friends and hoped to reunite. The betrayal of Fuchs had stung them both, and Iovine had raised such a stink after Morris’ sacking that he was no longer permitted in the Time Warner building. Under normal circumstances, he too would have been fired, but Iovine didn’t actually work for Warner directly—he was an equity partner in a joint venture, and the only way to get rid of him was to sell him back his shares. This was an expensive proposition, as Interscope had diversified beyond rap, signing No Doubt, Nine Inch Nails, and Marilyn Manson.

Together, the two came up with a plan. Iovine, the agitator, would make himself unbearable to Fuchs, and push extreme albums like Dogg Food and Antichrist Superstar that made the provocations of The Chronic seem boring by comparison. Morris, the charmer, would work on Bronfman, climbing his way up the corporate ladder and loosening up the purse strings of the Seagram board. Once both sides of the plan were accomplished, the two would reunite north of the border, outside the reach of grandstanding American presidential candidates.

They executed perfectly. In August 1995, Fuchs announced that Time Warner was parting ways with Interscope. The deal was an early warning sign of the growing dysfunction inside Warner. Whatever the cultural pressures, whatever the personality clashes, the move was indefensible for shareholders: what kind of idiot music label dropped Dr. Dre, Tupac Shakur, Snoop Dogg, Trent Reznor, and Gwen Stefani, all at the same time?

In November of that same year Bronfman promoted Morris to run all of MCA, dramatically increasing the amount of money he was authorized to spend. In February 1996, less than a year after their surprise separation, Doug presented his friend Jimmy with a $200 million check, signed by Edgar Miles Bronfman, Jr., representing a permanent commitment to Interscope Records, backed by the full faith and credit of a continent of drunks.

Only one major release fell through the cracks: Tupac’s All Eyez on Me, released during the brief period in early 1996 when Interscope did not have a corporate partner. With its hit single “California Love,” the double album was Tupac’s masterpiece, and eventually became one of the bestselling rap albums in history. But at the time of its release Shakur—gun enthusiast, actor, thug, lightning rod, and convicted sex offender—was too hot to touch. Shut out of Time Warner and still waiting for the Seagram deal to be inked, Iovine instead distributed the album in a one-off deal with Dutch-owned Philips, meaning the compact discs for All Eyez on Me were pressed at the PolyGram plant in Kings Mountain, North Carolina.

Once back in the fold, Tupac began working on a follow-up. Inspired by his readings of The Prince (and, perhaps, by watching Iovine and Morris work), he rebranded himself as Makaveli, the power-crazed mastermind of rap. The Don Killuminati: The 7 Day Theory was recorded in a span of a few days in August, and slated for release for the holiday season that year. On September 7, Tupac traveled with Suge and the rest of his entourage to Las Vegas to attend a Mike Tyson comeback fight. After Tyson scored a first-round knockout, Tupac started throwing punches of his own, provoking a brawl by attacking one of Suge’s longtime rivals in the lobby of the MGM Grand. After the scene cleared, Tupac left in a caravan with his entourage, riding shotgun in Suge’s SUV. At 11:15 p.m., the two pulled up to a traffic light on the Vegas strip, and a four-door white Cadillac pulled alongside. Gunshots rang out from the adjacent car, and Tupac was hit four times, once in the chest. Suge, driving, was grazed in the head by shrapnel. The two were rushed to a nearby hospital, and Tupac was placed into a coma. Six days later he was pronounced dead.

In the wake of Tupac’s murder, Death Row disintegrated. Suge Knight returned to prison, having violated the conditions of his probation by engaging in the MGM brawl. Dr. Dre had already abandoned the label after feuding with Shakur earlier in the year. Snoop and the other members of the Dogg Pound soon defected as well. Iovine scrambled to keep them all, but managed to retain only Dre, by investing in his new label, Aftermath.

Tupac’s death was a pointless tragedy, to be sure, but it was also an excellent career move. Sales of his back catalog spiked, and when The 7 Day Theory debuted in November it immediately claimed the number one spot. Pac would go on to release six more posthumous albums, selling far more in death for Interscope than he had in life. While at the time commentators wondered if Tupac’s death might signal the end of the gangsta rap genre, Morris and Iovine had access to insider sales projections, and they could see that the fun was just beginning.

In an attempt, perhaps, to exorcise the ghosts, Morris changed the name of MCA to Universal Music Group. On the strength of Tupac’s back-catalog sales, the rebranded UMG crawled its way out of the cellar in 1996, coming in fifth in Morris’ first full year of management. The next two years at Universal were even better. No Doubt’s girl power anthems were the soundtrack for a generation of impressionable ’90s kids; Marilyn Manson was the messiah of the mallgoth; and, while historians of music might never forgive Interscope for signing Limp Bizkit, they would at least note that the band ended up selling forty million records—more than Hootie, even.

In the late 1990s, on the strength of the CD boom, the recording industry enjoyed the most profitable years in its history. The economy was overflowing, aggregate demand was strong, and Americans were spending more money on recorded music than ever before. Profit margins were expanding as well, as efficiency gains in compact disc manufacturing brought the per-unit cost of goods below a dollar—a savings that was not passed on to the consumer, who was charged $16.98 retail. Consolidation in the radio industry also helped, creating a homogenous nationwide listening environment that could propel an album to platinum status almost instantly on the basis of a single hit. Controlling the airwaves was critical—if Limp Bizkit could go forty times platinum, then literally anyone could.

Meanwhile, the controversy over Interscope began to die down. Gangsta rap was here to stay, probably for decades, and anyhow Bill Bennett had his hands full with something called the Project for the New American Century. Having exhausted himself in his crusade to protect America’s children from hearing the N-word, Bennett would henceforth devote his energy into cheerleading for an unprovoked invasion of a sovereign foreign state. Premised on absurd lies, that invasion would later leave a hundred thousand corpses and a failed, Hobbesian state in its brutal and unnecessary wake. Rap music was safe; the Moral Conscience of a Generation had moved on.

Morris began to look for new talent. As much as he loved Iovine, he couldn’t rely on him entirely. He had to develop Universal Music’s presence outside of the Interscope imprint as well. To that end, he dispatched his A&R men across the country in search of new and unsigned acts. Following his own experience, he instructed his scouts to research local markets carefully and to stay on the lookout for regionally trending hits. Something interesting soon came back up the pipe: a New Orleans rap conglomerate by the name of Cash Money Records. An independent label, Cash Money had signed dozens of local rappers who, in certain record stores in the South, were managing to outsell even Universal’s best-established acts. Sensing opportunity beyond the parishes of Louisiana, Cash Money was now shopping for a pressing deal with a major. As a demonstration of its marketability, the label was distributing an advance pressing of a song called “Back That Azz Up” by an obscure rapper named Juvenile.

When Morris listened to a song for the first time, he entered a trancelike state of total concentration. He stopped talking and his face grew stern. His eyes closed halfway and he looked blankly into the middle distance. The old songwriter in him awakened, and his body began to move in time with the rhythm. He tapped his feet; he shook his arms; he bobbed his head in a circle. He continued this way, in tight-lipped silence, until the song was over, then rendered his verdict.

By his own admission, Morris had difficulty identifying which rap songs were going to be popular. He was more of a rock guy, and he relied on label heads to tell him which rappers were most likely to succeed. But “Back That Azz Up” was different. From the first time he heard it, Morris was certain it would be a massive hit. Years later, he would still quote the song’s distinctive hook from memory—“You’s a fine motherfucker, won’t you back that ass up”—then throw back his head and guffaw with delight.

Cash Money Records was owned by two brothers, Bryan and Ronald Williams, better known as Birdman and Slim. Veterans of the blighted Third Ward of New Orleans, the two had followed Suge Knight’s career closely in the press and wanted something similar for themselves. In early 1998 they flew to New York and met Morris in Universal’s offices to hammer out a deal. It wasn’t easy. Birdman and Slim weren’t just selling Juvenile, but an entire roster of rappers: Big Tymers, Hot Boys, Mannie Fresh, B.G., Young Turk, and a fifteen-year-old tagalong named Lil Wayne. In return they were demanding an 80/20 revenue split and full control of their own masters. But the biggest barrier to striking a bargain proved to be the brothers’ thick New Orleans accents—most of the time Morris could barely understand what the two were saying. Still, he closed the deal, and Birdman and Slim walked out of Universal’s offices holding a three-million-dollar check.

It was the kind of signing that set Morris apart. There weren’t too many label executives interested in spending that kind of money for a minority stake in a roster of untested, sometimes unintelligible rappers who had until recently recorded their albums in Mannie Fresh’s kitchen. But years of scouting the order-taker had taught Morris there was actually no such thing as a regional hit. There was only a global hit, waiting to be marketed. He put the considerable weight of Universal’s promotional team behind the label, and within a few months “Back That Azz Up” was playing in Ibiza.

The rebranded Universal Music Group was a success. Seagram, though, was floundering. Beverage sales were flat and the movie studio was a dud factory. First there had been Waterworld. Then had come Meet Joe Black. Then there was Dante’s Peak, Mercury Rising, and Blues Brothers 2000, followed by McHale’s Navy, Flipper, and That Old Feeling. Since Bronfman had taken over, each year at Universal Studios had been worse than the last. The worst was 1998, one of the losingest years for a major Hollywood studio in living memory.

Proximity to celebrity could cloud one’s judgment—it was more fun to sell music than industrial lubricants, regardless of the outcome for shareholders. Reporters had never been kind to Junior in the first place, but with the failure of the movie studio they smelled blood. He became a whipping boy for Wall Street and a piñata for the press. His period as CEO had coincided with some of the best equity market returns in American history, but Seagram’s stock had flatlined, even as the stake he had sold in DuPont doubled in value.

Universal Music Group was the bright spot in a dismal landscape, as even Bronfman’s fiercest critics had to concede. Junior wanted to leverage its strengths, so in May 1998 he announced a new transaction. Seagram would sell its Tropicana division to Pepsi, to fund the purchase of PolyGram Records from Philips. The orange juice business was everything Junior hated: boring, stable, and highly profitable. The music business was everything he loved: exciting, glamorous, and brimming with unforeseeable risks. After the deal’s completion, the majority of Seagram’s revenues would come from entertainment and Morris would once again be one of the most powerful music executives in the world.

Seagram’s stock sunk on the announcement of the transaction. PolyGram was not the recording label of the future. Its bestselling act in 1997 had been the boy band Hanson, led by their hit single “MMMBop.” Mostly, PolyGram’s roster represented the commercially successful recording artists of yesteryear: Elton John, Bryan Adams, Bon Jovi, Boyz II Men. But its position in foreign markets was strong, and that, along with the distribution rights to the back catalog, made it expensive.

The price tag was ten billion dollars, and executives at Seagram worked out the prospectus for the deal. This was a legally required public document that presented shareholders with the economic rationale for the transaction. The prospectus made aggressive estimates for future growth, targets that would have to be hit for the price tag to make sense. As tended to happen in corporate America, the executives had looked at the last three years of revenues, then extrapolated from those a trend line that extended off to infinity.

As required by law, the prospectus also contained an exhaustive examination of the potential risks. Chief among these was piracy, which had plagued the recording industry since its inception. (In fact, piracy had plagued the creative industries since the invention of movable type, and in the context of copyright infringement, the term “pirate” was more than 300 years old.) Piracy was something every recording executive took seriously, and already, as a result of the physical bootlegging of compact discs, PolyGram had been forced to exit certain markets in Asia and Latin America entirely. Bootlegging in those countries was more a product of organized crime syndicates than individual actors, but there was a risk that, with the rise of the home CD burner, the problem could spread to Europe and the United States.

Something like this had happened before, in the early 1980s, with the home audio cassette, after the introduction of the dual-head tape deck. The investment bankers considered this a relevant case study. They had dusted off a 16-year-old analysis of the adverse effects of the home-taping craze, conducted by the economist Alan Greenspan, who was now the chairman of the Federal Reserve. Drafted during a severe sales slump in 1982, Greenspan’s paper had taken an independent look at the industry. His analysis blamed tape bootlegging for declining revenues, then considered various pricing strategies the industry might employ to counteract this trend. But, using advanced econometric techniques, he found that neither raising nor lowering album prices was likely to work. Instead, Greenspan figured, the only way to reverse the sales slump was through an aggressive campaign of law enforcement against the bootleggers. In other words, the success of capitalism required vigorous intervention from the state. (Greenspan himself would not fully understand the importance of this insight for some years to come.)

Doug Morris thought throwing the bootleggers in jail was an outstanding idea. He had, however, learned an entirely different lesson from the tape-trading era. You didn’t solve the problem of piracy by calling the cops. You solved it by putting out Thriller. In Morris’ view, it was Michael Jackson’s 1982 blockbuster that had really rescued the slumping industry—what had been missing wasn’t law enforcement but simply hits. The music industry had been out of touch with the needs of its fans, but Thriller reversed this, spurring a pop music renaissance. Morris had not been involved in its production, but, like all music executives, he held Thriller in a special place of acclaim. The album was the signature achievement of corporate cultural production, an immortal work of art that remained the bestselling album in history.

So when Morris read the deal prospectus and its warnings of a coming wave of CD bootlegging, he was not especially worried. It was something to watch out for, certainly, but unlikely to materially affect his bottom line. Morris believed consumers would continue to buy legitimate discs, just as long as he kept cranking out hits. Plus, post-merger, the company’s margins on those discs would be better than ever. PolyGram owned several large-scale CD manufacturing plants throughout America, including the big one, the Kings Mountain plant where All Eyez on Me had been pressed. Once Universal folded these plants into its own manufacturing and distribution network, overhead costs were projected to fall by nearly $300 million a year. (As ever, there were no plans to pass these savings along to the consumer.)

The deal prospectus listed other risks as well. There was the risk that consumers’ tastes would change—the risk that, in some apocalyptic scenario, people would stop buying so many Hanson albums. There was the risk that Universal would be outbid for artists—the risk that they wouldn’t sign Cash Money next time, or that Bon Jovi would defect to Sony. There was the risk of economic recession—a risk that the industry had historically weathered well, but one over which it had no control. And, more dangerous still, there was “key man” risk—the risk that Doug Morris might suffer a stroke or be hit by a falling piece of space debris.

But the biggest risk wasn’t mentioned at all. When the deal prospectus was made available to the public in November 1998, the buzz surrounding the Internet had become impossible to ignore. But somehow the executives of Seagram did not think the technology was worth analyzing at all. The prospectus for the PolyGram purchase did not mention the Internet, nor the nascent consumer broadband market. It did not mention the personal computer, nor recent advances in audio compression technology. It did not mention the possibility of streaming services, nor the potential for widespread file-sharing. And it did not mention the mp3.