The Perfect Storm

1

In the United States only, which is about one-third of the world’s entertainment product market, record companies lose almost $3 billion per year from illegal downloads. The film industry loses almost $6 billion every year, which is twice as bad for investors and production companies (Figure 1.1).

The sale of recordings is only a small part of the music industry; however, when we are talking billions, it still means real money (see Figure 1.2). The music industry has lost almost two-thirds of its markets to illegal downloads. Once again, the investors who put millions into the marketing and the recordings have lost the incentive to invest in prerecorded music. Now, the industry has forced the labels to refocus on branding and touring to recover their investments.

I Disagree

The music industry has hit the skids, but by changing its business model, it is starting to make money again. Because people still want to listen to great music, the industry will find a way to profit from its investments as long as laws can be enforced. However, it won’t be easy! Selling albums at retail outlets is largely a thing of the past; digital downloads of albums or singles on Internet provider sites, such as iTunes or Amazon.com, reign now, but who can say what the next way we will consume and enjoy music will be. What might strike you as the uncertainty facing us in the entertainment industry is a very natural process of change that in the end will be creative, innovative, and profitable. Or at least, I hope it will be and you should, too!

As you read this book, you’ll start to understand the process of creative destruction and the rebirth of the new music industry and you’ll be able to see how these changes are also trends in the entire entertainment industry. We have to hope the U.S. Congress and others who control and regulate the entertainment industry will continue to re-evaluate the balance between free markets, the innovations technology brings to the creation and delivery of entertainment products, and the need to protect and insure the honest financial rewards creative individuals so richly deserve. Things are changing at all levels of the industry, from the types of recording artists labels sign to the production methods used to create entertainment products and the distribution of movies. The old industry isn’t dead; it’s just morphing into an opportunity to build the new industry based on the best of the past and the opportunities we’ll discover in the future. However, there are some serious lessons about the uses of new technologies, software, entrepreneurship, ethics, creativity, and laws that we may need to understand if the new industry—whatever that will be—is to survive.

301 Special Report: The Office of the President of the United States

This chapter started with four versions of where the entertainment industry appears to be in the 21st century: illegal Internet downloads; significant lost revenue for traditional entertainment industry products and their creators; almost predictable drops in record sales as personal devices replace radios and record players in homes; and an awareness among artists that there has to be change in order for the entertainment industry to survive. Think about the implications of all these things coming together at one time in one industry. Are Witt, who seems at least to be an honest crook, and people like him, who have downloaded entertainment products without paying for them because they were “free,” acting like thieves, pirates, or Robin Hood, stealing from the rich to support their passion to be entertained? Do you think they even consider the impact of their actions on the artists whose works they are so eager to have? And even if they do, who cares about the long-term impact of what they have taken? Did anybody really get hurt when Witt downloaded music in his home to listen to for his own enjoyment? And, if we were to ask him or anyone who has done the same thing, we might hear a response along the lines of “Well, it’s out there, isn’t it, and no one says I can’t.” Right! Why should anyone care if we shoot a video, mix in a major hit, and upload it to YouTube.com or any of the other thousands of worldwide sites? Besides, it was just for us anyway and we didn’t sell the video with the original recording, so we didn’t make any money.

If I had a buck for every time I’ve heard those types of statements, I’d own a sailboat in the Caribbean and could probably buy an island next to billionaire Sir Richard Branson. The fact is that when Witt illegally downloaded a song, the songwriter, music publisher, label, and recording artist each lost a few pennies. So you do the math—when a million or so people illegally download that same recording the creative careers of the individuals who wrote and sang the tracks and the company who invested its money into it are destroyed. Sadly, this is a world problem that must be addressed, with a growing significance to the extent that the president of the United States commissioned a specific report on the consequences of patent and trademark infringement as well as copyright infringement just to try to understand it better. The Special Report From the Office of the President of the United States (2015) states,

Let’s translate what the report says into the economic impact on jobs, profits, and lost taxes (Figure 1.3).

The Insider’s Perspective

Honestly, many industry insiders are frustrated by the public’s lack of understanding about how the entertainment and music industry works. Such is a gap I am hoping to fill with this book. In these pages, I am inviting you to think deeply and critically about the current and future states of the entertainment and music industry. I’m assuming you are reading this book because you, as I did, want to be part of the dynamic world of creating and valuing entertainment products that, put simply, make our lives a whole lot better. There are not many things we can say with certainty, but one thing is for sure—we love our movies, books, TV shows, and, above all, our music. So, one of the biggest challenges facing the entertainment and music industry today is how to keep making money, how to keep the business alive, in the face of the popularity of streaming, and other new forms of entertainment delivery. The culture of the entertainment industry is changing, and you need to know the processes, laws, and practices that have shaped it, where things stand now, and then use what you have learned to make the industries what you want them to be! Fasten your seatbelts and let’s get moving. But first, here’s a little about me.

I’ve spent most of my adult life meeting personalities and industry insiders, working as a bad producer and a pass-ible audio engineer. I’ve gotten to know people all across the entertainment industry; some are friends and others are my colleagues and may one day become yours. All of us are especially interested in understanding and sustaining the entertainment industry. I’m always the student and the artists and entertainment leaders are always the professors. I’ve never asked for an autograph or picture. I’m simply not interested in the glitz and glamor. I’m a voting member of the Grammy Awards, and I have found most of the people in this industry to be bright, talented, often humble, passionate people. Sure, there are a few jerks, but they are usually not among superstars or top executives. In addition, most artists are also business people. Some great, some naïve, and some awful until they learn from the school of hard knocks that they better get it together if they want to get paid anything for their art. Because consumers can opt to “own” a CD or a DVD through downloading, artists have to think about how they can prevent or at least affect any amateur’s (called wannabes in the industry) use of digital entertainment products that the artists have worked hard to create. Wannabes make it tougher for new and established artists to maintain economic success because the amateur’s product, usually made with the same or similar recording tools, is rarely at the same level of quality as the professionals’ works. Wannabes upload what they have created on the same platforms the professionals use, but they give it away to get noticed, creating a larger swamp of thick oak moss that makes it harder to find the quality products. The consumer may or may not have the experience or the interest to distinguish between the work of a professional and that of a wannabe, because the consumer wants the pleasure, the experience, of the creative work.

“Taking Care of Business”

As part of my professional training and experience in the music industry, I developed a psychographic research method that allowed me to provide image-consulting research for MCA and Word Records’ recording artists. My interest is in understanding not what people buy or are attracted to as consumers but why they buy it or are drawn to it, by analyzing where people live, how much education they have, and how what other kinds of things they buy might influence why they buy a music or entertainment product. For instance, a person who buys tickets to an NFL season might also own a Volvo, or a Prius, or a Harley motorcycle. What do these things have in common? Such are the variables that make psychographic research challenging, as there are many things shaping why someone would buy something that do and don’t compare with their other buying habits. In other words, you don’t have to own cats or like the opera to admire the work of British composer Sir Andrew Lloyd Webber. However, at some level the common consumer preferences come together and we discover that the guy who rode the Harley to the football game likes a certain type of beer and the rugged, outdoor, rebellious-attitude lifestyle “hero” or “villain” found in the images of heavy metal rock (when young and older 55+, as an example), and country music acts with a rebellious image when they are middle-aged. And there you have it, the connection between teenage males (heavy metal fans) to middle-aged male fans who relate to country music. We can also find out where they live by using computer-marketing software, down to their zip plus 4. There are lots of other methods and more detailed forms of market and lifestyle research available, but consumer research has value to businesses only when consumers buy or legally use entertainment products through subscription providers. It’s useless information if people are just going to rip it off the Internet for free.

I am one of those people God missed when He was handing out the talent to sing or be a musician, but it does not mean I lost interest in the entertainment industry. In fact, my passion has been to try to figure out how entertainment products communicate with consumers and how the industry monetizes them (assesses their commercial value). I’ve lived my life with one foot in the industry and one in academia, working with a few other talented faculty to help many talented young people become world-famous acts and industry insiders in publishing, songwriting, film, and production, and successful business executives. I’ve been very blessed. However, here I am toward the late stages of my career realizing that many people think the entertainment industry is suffering and the music industry is dead. I disagree. But how did this misperception of an early “death” happen?

The Process of Change

Researchers discover natural phenomena and inventors develop devices we use based on their “discoveries.” Energetic entrepreneurs and businessmen and women invest in the new “discoveries and devices” to create entertainment products, and the corresponding movie stars, recording artists, poets, authors, and gamers realize some sort of profit. Researchers often want to answer a problem bugging them; inventors often want to develop new devices that may help improve the quality of life on the planet; and investors usually want to use the devices to create an industry for profit. Business is business. Discover a combination of natural or synthetic elements that cure an illness and the world will throw money at you. Think about what Steve Jobs did at Apple. He created devices consumers want, generating billions in profits. Where would we be without our iPod, iPad, iPhone, and personal computer? We need to remember that Edison invented the phonograph in 1870, though I would bet some of you have never used, or maybe never even seen, a record player except in an antique shop or in a picture. And, hey, there is nothing wrong with that! The fact that things are changing does not mean anything is “dying” and innovation is to blame. In fact, we thrive on and promote innovations in transportation modes, waste management collection methods, housing, education, and almost everything else in our lives. So, what is there to worry about if the entertainment industry also undergoes a transformation? Let’s take a look at the size of the entertainment industry as projected by growth in revenues by 2019.

Projected Entertainment Industry Growth

In Figure 1.4 and Table 1.1, we see the projected sales revenues across the businesses that encompass the entertainment industries. You will want to pay particular attention to how these industries are grouped as this is how data is collected for analysis within public and private sector sources.

The Reality of Innovation

Many events have occurred in human history that have provided a stimulant for changing the ways we perceive reality. As an example, blaming the millennial generation for the music and entertainment industry’s decline is about as crazy as blaming Columbus and his crew of crooks, robbers, cutthroats, and heroes for proving the world is physically round. By that way of thinking it was his fault that everyone had to change the ways they “survive” and “make sense” of this “brave” new world. One day we build our life around “what we are sure we know” (called a frame of reference) and the next day we wake up and the world is a round ball, not flat and limited. That’s the way life is—progressive and constantly moving forward through a window of time. Every time there’s a technological improvement in devices, we’ll usually buy the new device. When there are new acts, movies, or computer games to get excited about, we want them also. But how in the world did acquiring music free ever happen? And what will that mean to the future of the music industry and to entertainment as a whole?

Table 1.1 Current and Projected Incomes from the Major Entertainment Segments.

Entertainment and Media Markets	Recent Gross Income (in $ billions)	2019 Projected Revenues (in $ billions)
U.S. Film Industry (major and independent studio distribution)	31	48.4
Film Production	93	N/A
Postproduction	19.5	N/A
Global Music Industry (including all recorded music and live touring)	26	29
Video Games (traditional, social, and video game advertising)	71	93.18
Book Publishing	120.13	128.34
Business-to-Business	193.9	234.4

The Digital “Round” World

Change is a bitch! But it is here and we’ve got to embrace it. It doesn’t really matter if we lived at the time of Columbus or right now because change caused by events is a constant. It often alters our lives in ways we never imagined. Then, just when you get comfortable and think you know it all, the next thing you know, you get bit by something that flips your world again. Powerful thing, this process of evolution! There’s one additional element of change that’s really cool. When change happens, especially in industry, there’s also an opportunity to profit. The invention of the car provided a need for oil, gas, rubber, and so forth. Changes in how, where, and when we work, at least in the United States, provide entertainment companies an opportunity to provide products to fill up leisure hours with fun things to hear, see, and do.

The Reason for the Perfect Storm

In the music and entertainment industry, this time it wasn’t Columbus’s crew or anyone even like them who caused things to change. Instead, it was a perfect storm of brilliant researchers, technicians, naïve, sticky-fingered factory workers, executives, creative businessmen and women who unknowingly developed the digital devices that led to events that once again rocked our perceptions. Entertainment, especially music, is important to most of us. So what’s the big deal when we can acquire what we want free and online? It’s the same music, video, movie, and it’s free. We save time looking for it, and don’t have to buy it on a piece of plastic, or even buy a bunch of other devices that allow us to enjoy it. What’s wrong with that?

The phrase a “perfect storm” was popularized in the late 1990s by the book and movie of the same name. A perfect storm is a rare event, originally a natural phenomenon, now used to describe a paradigm shift caused by a convergence of multiple ideas or situations. The term is frequently related to anything political, social, or business-oriented, and the results of it are considered more often as negative, rather than positive. What got the perfect storm into widespread use as a business and cultural term was the book by Sebastian Junger, The Perfect Storm: A True Story of Men Against the Sea. Christopher Lehmann-Haupt (1997) provides a wonderful summary of this true story in his New York Times book review detailing how three storms merged off Nova Scotia. The rare natural event caused an 80-mile-per-hour storm and 100-foot waves, destroying the fishing boat Andrea Gail with the loss of all the crew.⁴ No survivors! The reach of this perfect storm—that is, a rare event and outcome stemming from unusual circumstances—has been felt within and beyond just the entertainment and music industry in ways that I will show you as you read on in this book. Right now, I need you to stick with me to see how one innovation created a domino effect of changes across a wide spectrum of likely and unlikely places. You don’t have to agree with how I describe it, and heck, maybe it is best you don’t, but bear with me and see if, after you think about, it starts to make sense.

The Digital Storm

The industry’s perfect storm—that is, what caused the destruction of the recorded music market—is beyond weird. Our early “perfect storm” people simply were trying to legally create products that would solve a digital storage problem and then sell and license the technology for a profit. The problem was simple: the solution was a mathematical nightmare. Digital technology disrupted the soaring profits of the music and entertainment industry when analog recordings and broadcasting were converted to a digital platform. It involves a cast of brilliant geeks (a term used positively in the industry) in audio engineering and digital technology, consumers, and employees. They, without knowing each other, lifted non-released CDs and DVDs and developed ways to use the Internet, personal computers, and devices that allow people to experience entertainment instantly and free. They created the perfect storm that spawned the creative destruction of the current industry’s business model.

The Construction of Digital Signals

A digital signal is simply a row of numbers (called a binary code) of 0’s and 1’s or a magnetic pulse or no pulse that is converted by the computer chip into 0’s and 1’s, which is then converted into a “sound.” The computer chip is actually creating the sound from the binary code that represents the original sound. If it’s music that is encoded and converted into 0’s and 1’s, then it’s the same music (sound) as what you’d hear live. It’s being captured in a binary code, and then the computer uses the code to regenerate the music. We hear vibrations per second; thus 30–60 cycles per second or vibrations per second are “heard” by us as a bass sound. Twenty thousand per second is a very high-pitched sound that as we get older we usually can’t hear. Dogs are able to hear much higher frequencies than humans. And the French fry cooker at most fast food restaurants is around 20,000 cycles, just enough to sound irritating.

Digital Devices

The key to the advent of small devices, and their popularity among consumers, is literally size, cost, and the quality of digital entertainment programs created from the digital signals’ binary codes. That’s a great advance in technology that now allows users to acquire any entertainment product they want, at any time, and in any place they happen to hear about it or see it. The benefits of such availability are enormous; but, there are potential problems associated with copyright violation, such that the traditional media and entertainment industry providers-movie studios, labels, and others- are experiencing varying forms of creative destruction. That is OK as long as the industry and the lawmakers figure ways to make sure the talents who create the products and the businesses who finance and market the entertainment products receive their fair share of the profits. That is where we are headed, just as the English Parliament did with the Statue of Anne with the copyright violation caused by the printing press. Managing changes and getting the most out of innovations just takes time!

The Decline of Record Sales

The “warn” sounds in analog and vinyl recordings are several different types of distortion, some of which are caused by the problem of trying to record on recording tape. Digital signals are also less expensive to use for telephone, television broadcast, and Internet transmissions. A few years ago, we had to use a converter box on old TV sets or throw them away because all TV broadcasts were converted to digital. Why? It saved bandwidth, had better quality, and was far less expensive to use. However, when the technology was converted into MP3 and then used by naive computer software geeks to upload entertainment products, the results were detestable to the music industry and crippling to the film, software, and computer game business. It cost the industry dearly, as CNN Money correspondent David Goldman reported. He notes U.S. sales of recorded music dropped from $14.6 billion to $6.3 billion in ten years.⁵

But back in the early 1990s, none of this stuff existed. Somebody had to invent a way to compress the digital signal to make it easy to make copies, broadcast, or transmit. At that point in time it couldn’t be done, as the digital signal was just too much data. I was in Germany in the mid-1990s and visited a couple of studios where the big discussion was between the digital formats of MP2 and MP3. MP2 was the standard, but almost everyone thought (who had heard it) that MP3 was better. Both systems used compression to convert a single short recording into enough space to record it. But it was still too large to use. The trick was to eliminate some of the frequencies or sounds, which our ears could not hear anyway, into digital data to save space. Little did I know that at the time of my visit a graduate student named Karlheinz Brandenburg and his team of nerds were developing an MP3 software that would compress digital signals enough to quickly store digital copies of movies and recordings and even transmit them over the Internet.⁶ They had no idea that would happen; they were just trying to solve a technologic audio problem. If they could solve the problem, they’d start an entrepreneurial company and license the process for a profit to the makers of devices, who would sell it to consumers. The consumers would then purchase the recordings they wanted and download them. Whoever thought the technology would be adapted for massive theft of property, the destruction of many careers, and the decline of an important segment of the entertainment industry?

The Storm Warning

I have written several books on the entertainment industry, and one of the ways I find information is to read the annual corporate reports. Polygram was at one time one of the big entertainment “majors,” along with five others, who together controlled 80%–90% of the world’s entertainment market. It changes each year but usually remains about an 85% average share of the market, with the remaining 15% coordinated by independents. I remember seeing one of the early reports in the 1990s that blew my mind and sent chills down my spine. Polygram had formed a “blue ribbon” panel of experts to best determine how to market digital entertainment products over the Internet for profit. Their conclusion was to sell the company, which they did as fast as possible, to Edgar Bronfman of the Seagram Liquor company in Canada. Why did they recommend selling the most profitable entertainment company at that time? Because they knew what was coming. Sadly, the software, computer gaming, and film businesses were about to have the same problems.

Seeders and Leechers

Somebody had to upload the new and in many cases prereleased CDs before hundreds of millions of people could steal billions of dollars’ worth of entertainment products. The “seeders” and “leechers” are names for the persons doing the nasty deeds. A seeder is the person who illegally uploads a hard disk drive with the film, recording, or whatever. The leechers are people who use BitTorrent software to download a file from other computers using the same software. One provides the product; the other finds a way to distribute it. Sometimes, the leechers like to say the computer itself is the seeder, as if it were the computer doing the dirty deed all by itself. A tongue-in-cheek excuse for a crime when a crook gets caught is “the devil made me do it,” which means they didn’t know what they were doing. Right! Leechers use BitTorrent and other similar software because they are faster in grabbing parts of the data from any of the computers connected to the leechers’ network. The more seeders in a system, the faster the download as more sources are available for the rip. Having BitTorrent is legal, but using it on illegal downloads isn’t. When we write a song or a label creates a recording of that song, the owners of the song and recording have six property rights (discussed later).

BitTorrent

Steven Witt’s book How Music Got Free describes how two North Carolina employees of a CD pressing plant stole unreleased CDs and used the MP3 technology to compress the music files. They then used BitTorrent to distribute those recordings to chat rooms used by thousands,⁷ which in turn spread the unreleased recordings across the planet. How in the world was this happening? Nobody knew what was going on, but label executives started to get seriously concerned when the uploaded stolen albums started to outpace the sales figures on some of their newly released albums. Witt’s account is an excellent read about all the crazy things that happened to facilitate the decline of the recorded music market, including the development of the technology, events, lack of aggressive legal action, and the naïve people who contributed to the “storms” that zapped much of the recorded sales market. At first, label executives turned a blind eye to the problem, hoping it would just go away. However, as new software was developed, it soon became clear that the front door of the candy store was left open and anybody who wanted to help themselves could and did. Screw ethics, the industry, the creative artists, and executives who had spent years developing their craft and knowledge, building the business that most of us use daily.

The Napster Storm

Shawn Fanning was a student at Northeastern University in Boston, John Fanning, his uncle, was an entrepreneur, investing in online software, and Sean Parker was a friend he’d met on a website message board.⁸ Fanning was part of a computer security message service, using the handle w00w00. He asked the group for help, calling his new idea Music Net, which would allow music users to swap music files.⁹ With the development of the software, venture capitalist Eileen Richardson was provided a copy to try. Her review for Fortune magazine’s website states (2013),

The Perfect Storm’s Destruction

The launch of Napster started the creative destruction process of the industry as 60 million users quickly learned to acquire millions of copyrighted recordings worth billions of dollars, resulting in a huge financial loss to both creative activity and to copyrights associated with the entertainment industry.¹¹ But Napster had a plan to market to the major labels its 60 million users. There was only one problem; they could not explain how anyone would make any money. Remember, the entertainment and music business is based on making profits, not giving away products in which the executives have invested millions to make available to the public. And look at how the labels perceived Fanning and Parker. They wanted to partner their company with the companies whose market they were destroying. Insane!

The Storm Chasers

The labels decided to use their professional organizations, the Recording Association of America (RIAA) in the United States and the International Federation of Phonographic Industry (IFPI), to fight Napster and all the other sites legally. Hillary Rosen, representing the RIAA, called Napster to explain the labels’ position. According to Eileen Richardson at Napster,

Recording Industry Association of America (RIAA)

The RIAA represented the major record labels and filed lawsuits against Napster. Let the games begin! Napster lost case after case and quickly tried to change into a subscription business model. It tried to partner with the major labels and, at one point, offered the five major labels $1 billion to close the deal. At the time, the retail market for recordings was still worth about $35 billion a year, so their offer wasn’t economically feasible compared to what they would lose.¹³ Why accept $1 billion and lose most of your $35 billion market? Really insane! Napster burned a lot of bridges with the industry. After a brief merger with BMG (Bertelsmann Music Group), it was gone and so was BMG, as the parent company sold it to Sony.

Unfortunately, the hundreds of millions of people ripping off tracks forgot about the laws and ethics and clearly screwed the creative and business people who had invested their life’s work and money into writing great songs, producing soul-wrenching masters, and of course, working hard marketing, promoting, and selling products. Several industry executives have commented to me, “I just do not understand how people who want a career in this industry could also destroy it.” But did they destroy it? Or has it changed in a way that few are prepared to embrace?

Creative Destruction

Creative destruction is a business term that describes the process of innovation tied to creativity and business. Joseph Schumpeter first used the term in his book Capitalism, Socialism, and Democracy (1942), in which he described the process of “an industrial mutation that incessantly revolutionizes the economic structure from within incessantly destroys the old one, incessantly (creating) a new one.”¹⁴ In other words, change in society, business, and politics is usually caused by a discovery, invention, or theory. New products replace old ones, which provides consumers a way to improve or, at least, to seem to improve their quality of life. In politics, the process may lead to social or economic changes that, at times, may lead to tightened civil controls, economic downturns, job losses, destruction, and even war. Often the traditional establishment quickly adapts the new process or devices to solidify its political and economic control of the markets. The music and entertainment industry missed its chance. But it wasn’t its fault entirely. The lawsuits against the pirates, thieves, and downloaders and the additional meetings the industry arranged with top congressmen and women and the U.S. Department of Justice have not taken the perfect storm off its path. A funny thing happened on the way to free; consumers found an alternative way to get free what once cost them money or time (watching advertisements) on the Internet. It’s changed everything, including profits and losses, ethics, the market, consumer behavior, and the business structure of media and entertainment.

The creative destruction of the entertainment industry is not Napster’s fault. It was just the bearer of the bad news. The industry’s gray-haired suits, creative insiders, and aging superstars feared this was coming and they never wanted to hear it, much less do something to prevent it. Clearly, something was going on and it was probably as earth-shattering as Columbus’s trip, moveable print, capitalism, Marxism, the invention of the telephone, medicines, film, radio, TV, space travel, and maybe even gunpowder. Bang! It just causes a different type of explosion. Just as the telegraph replaced the Pony Express, the telephone wiped out the telegraph, the automobile zapped the horse and buggy, and the refrigerator melted the icebox industry, now it was iTunes, Amazon, and other digital providers that were wiping out retail stores and album sales. Digital downloads would sell lots of singles, but fewer albums. One comment often heard in the industry is how Steve Jobs “saved half of the industry” by destroying the other half. Fans didn’t buy as many albums because now they could get the single they really wanted without having to purchase the entire album. Instead of the labels making a few dollars per album sold, they starting making just a few pennies on each digital single sold.

The Thrill of the Game

But the real problem was far worse, as over the next ten years additional illegal sites using BitTorrent and Cyber Locker generated over 50 million hits a month, many using the sites almost daily to kick the numbers over a billion. Pirate Bay, Kickass, and others facilitated massive theft of copyright entertainment products every day. Some of the sites added a social media side, allowing consumers to psychologically build a sense of community and false identity, and just as international spies and double agents pry information out of friends and associates, they were stealing something of value also. The thrill of the game was “don’t get caught.” Some of the users saw it as a conflict of good versus evil, with them being the “good guys,” ripping off the labels and rich, arrogant acts that in their mind were “the bad guys.” Silly as hell of course, but entertaining and it didn’t cost a dime. Meanwhile, the labels were starting to realize that it is damn hard to compete with free! Especially when consumers are now acquiring the products they spent millions creating. What a bummer!

Devastation

When the storm hits, there’s no choice but to ride it out, but in the aftermath, what options do you have to respond? After a storm passes, there are varying degrees of devastation, which typically offer us two choices: to rebuild exactly what we lost, or to start over with something new or different that might better meet our current needs. When the digital supplier and Napster storms converged on the entertainment industry, it formed one of the most perfect storms and opportunities for creative destruction that any industry has ever faced. The traditional music and entertainment business is complex and the industry survivors have to pick up the pieces. Working in the business, I’ve seen the painful expressions on the faces of many industry executives, creative writers, producers, managers, professional musicians, and famous acts caused by the decline in product sales. There is a deep sense of loss not only to an industry they love but also to their financial existence.

Creating an entertainment product is not a one-person operation. Usually it takes money and many creative and business experts working together to create a song, recording, film, marketing plan, and so forth that may become a money-making machine with legs. It’s risky, damn hard work, and the process is really a “perfect storm” of creativity and business, resulting sometimes in a hit and profits for everyone. But as good as industry professionals are in the music business, they’d make reasonable profits only on about 20%–40% of the acts signed. This means the majority of products fail. What we so easily call the entertainment industry is formed from a collection of artists, entrepreneurs, billion-dollar entertainment organizations, film production, record labels, the mass and social media (radio, television, print), cell phone networks, Internet portals, servers, technicians, producers, and others. It’s an informal community of creative employees, lawyers, venture capitalists, and experts who create and market the entertainment products consumers purchase and listen to on the radio, Internet, and Spotify, and through films and other visual products, such as computer games.

Consequences of the Perfect Storm

Every product is usually the result of a combination of hard-working creative artists toiling away supported by businesses willing to spend millions on the chance to create some magic. In the old days, which seem like yesterday, if consumers wanted a new or older monster hit, as they discovered their need to hear it, they would buy a copy. Part of the royalties would be paid to the label to recoup its investments and part to the creators of the song to pay for the use of their copyrighted “property.” However, the perfect storm nailed almost everyone in the business.

Success, if you want to call it that, is a mixture of oil and water that makes something out of nothing, with the results touching the hearts and souls of society. “It’s not easy” is an understatement if you are an artist or know anyone who is. So, the pain felt by industry insiders is a rocket ride of gut feelings, financial risk, business sense, creativity, victory, and often failure. But the results of the perfect storm that hit them cost them almost everything they valued.

A perfect storm in business is a once-in-a-lifetime event, if it happens at all. But just as the print industry has reinvented itself, the entertainment and music industry is doing the same thing with streaming music and movies (e.g., Netflix and Spotify). It is still important and necessary to sell CDs and DVDs to consumers and digital downloads through pay services. But the profits just became a lot smaller part of the generated revenue since the perfect storm, and the industry can’t survive on that alone. As more consumers switch to streaming the local radio and TV stations, the supporting networks of ABC, CBS, NBC, and Fox will continue to experience decreases in viewership in spite of the increase in the population. As technology continues to improve we may be able to completely cut the cable TV providers off since they are trending a little more like the Titanic, as consumers move toward viewing programing and listening to music on their computers connected to large-screen TVs.

Transitions of Revenue

Artists are usually angry about the way contracts are written once they discover that in the traditional recoupment system, they could have a gold record and not make a dime. The industry usually ended up on the profit side of that financial balance sheet. It takes money to make money in this game. Record labels invest about a $1 million or more in building a newly signed artist, who never has to pay it back (as we will see in Chapter 7). The industry recoups its “investments” out of the artist royalties from recording sales. Once the label’s investment is paid off, the artists’ share of the royalties generated would actually go to the artists. If (and this is the cool thing) the label never recouped all of its investment out of the artist royalties, the artists would still owe zero. The labels just made a bad investment and used the losses as a tax write-off. Of course, the perfect storm of technology and consumer defiance of the copyright laws has made it almost impossible for the industry to break even or profit on unit sales. (There will be more on this in Chapter 8—stay tuned.)

Equity Loss

Now, all that stuff is out there, available free on the Internet. It’s almost as if 1 billion people in the world stole a few bucks out of five banks. There used to be five major labels; now the three that remain are struggling to build a new business model. So many people stealing a few bucks would empty the vaults of our mythical banks, driving them all out of business. Well, the vaults of the entertainment companies have also been emptied, as the inventory of classic film and music companies (most of the great copyrights in films, computer games, and recorded music) has been “lifted” and is available free online. That means if the labels and entertainment companies want to stay in business, they need to create new products. This means they have to be prepared to invest an average of $1 million into newly signed recording artists, and $10–$40 million into each new movie and TV series. And they know that new illegal consumer acquisitions will continue unless Congress and others feel some heat. See how difficult the business has become! Illegal downloads limit the potential size of the consumer base and market, financially crippling returns on the industriy’s millions of dollars in investments, and they still have to balance their profit and loss statements. Try staying in the recorded music business when about 30 billion songs have been illegally downloaded and 95% of downloads weren’t purchased. Time to embrace consumer innovation and the slide from sales to digital streaming.

Associated Negative Media Trends

The mudslide from the perfect storm is also starting to flow downhill toward the TV show providers, cable, and satellite networks, such as Comcast, Time Warner Cable, and Charter Communications. According to the Leichtman Research Group (2015), the largest pay-TV providers lost half a million subscribers in a three-month period (Q2–2015), which is a 400% increase in the loss of subscribers over the prior year. Ouch! The top cable networks lost 260,855 subscribers, satellite lost 214,000, and the Telcos such as AT&T and Verizon had less than half of a 1% increase.¹⁵ Viewership is also down -36% to -14% for most of the TV programs on networks, such as Disney, the USA Network, A&E, TNT, and Nick at Nite.¹⁶ It appears that 360,000 households switched or increased their broadband service after dropping the cable or satellite TV, sometimes with the same company.¹⁷ Economics, timing, and convenience issues seem to be influencing many viewers switching to digital video-on-demand and Internet sources, as captured by Netflix, Amazon’s Prime, and others, whose programming is available on large wall-mounted home computer display screens. Why pay all that money for cable TV and never watch most of the channels being offered when we can now find almost anything we want to watch on our computers? Instead of paying for two services, now only one is required. When revenue is decreased, it costs the industries that produce entertainment a range of related, direct, and indirect profits and creative people can lose their jobs or find they need to retrain to stay in an industry they love. Sadly, so many people have already illegally downloaded the best recordings and movies ever created, which is forcing the networks to improve existing or create new programming to draw in or try to retain viewers already satisfied with their stolen classics.

The Double Shuffle

A typical coin has two sides. That is so simple! The issues facing the entertainment industry have many sides. Politicians often move at the speed of molasses in winter, which means even now, about 25 years after this mess started, Congress and legislative entities around the world have failed to stop the illegal downloading. That really sucks for the creative folks and businesses that have lost billions of dollars to this storm. However, there is another side to the story and that one describes the results of the creative destruction process that most of us have experienced. When that process starts to happen money follows. The difference in quality between a manufactured CD and a downloaded one is impossible to hear. The revenue generated by the store purchase is about 100% greater than a pirated one, so the money stays in the pants of the thief and never reaches the industry. That’s life and Congress may pass plenty of laws to stop it, but the horse is already out of the barn. So much has been downloaded that most people already have what the labels (and in some cases film production companies) created to sell. Why buy something you’ve already got? How does this crazy violation of laws happen in a western culture?

Capitalism

Over the years, attitudes about property rights have dramatically shifted toward a more socialistic or communistic theory. Capitalism is based in citizens’ and companies’ (assuming legal purchase) ownership of their own property. Here’s an example: let’s say you are William Colgate living in 1806 and you have developed toothpaste, candles, starch, and soap.¹⁸ Consumers want the products, yet they cost money to make, market, and sell. We know his business model worked since we have many of his products for sale in pharmacies and grocery stores around the world. Currently, the company is still considered a huge success, with sales of $18 billion worldwide.¹⁹

We aren’t selling toothpaste. And yet, songwriters and music publishers sell songs; labels sell recordings and the corresponding merchandise and tickets. Film production companies sell movies or the access to them. So, there must be a natural system of opportunity for creative product producers to generate the hope of profit and economic security for financial investors and others. In capitalistic countries, there is a natural balance between demand and supply. Private or public companies take the risks to develop products to fit consumer demand, and the price is usually based on whatever the consumer is willing to pay. However, nothing is really free. It stands to reason the companies developing and selling the products take the financial risk of failure or success. It’s not a perfect system to say the least; yet, the products provided are usually of a much higher quality than products available under other political systems.

Communism/Socialism

Property rights are the opposite in communistic and some socialistic countries. In most cases, they follow some degree of Marxism, which sounds reasonable, yet just does not seem to work. All work is often assigned and workers are paid about the same salary by the government. Everyone is considered an equal part of the team of society. There are no property rights, as the government owns everything. Both systems claim that the “government” is a representation of the people, and yet under the dogma of the communist system, there is usually only one leader to vote for and you will do what you are told to do.

I visited the former Soviet Union several years ago, and in a meeting with a high government official we talked for a few minutes about music, entertainment, and property ownership, or copyrighted materials. He sincerely glanced over at me and the others I was with and said, “I just do not understand why music is not allowed to be used (heard) by everyone. It’s such a wonderful thing—it should be free to everyone who wants to listen to it.”²⁰ His kindness and sincerity caught me by surprise as I realized he just didn’t get it! Why would anyone work so hard to create a product that improves the quality of life in a society if there’s no personal reward for all the hard work and time spent creating it? Now, you understand why there are few to zero rich film, music, or rock stars in communist societies. There is no cultural sense of the way supply and demand drive the markets in consumer goods, products, and services. There’s no profit in it and there may even be political blowback, so why even try? I’ve talked to several people who grew up and lived under a strict communist society and even under the socialistic political systems of Western Europe. Most of those countries are in financial trouble, just as we experience in capitalistic societies, yet many young people are hopeless when it comes to finding a job and career. We have entertainment products to enjoy during the difficult times in our lives, and now because many in Eastern Europe and Asia have lifted much of it, they may also enjoy it free, contributing to the perfect storm.

The Difference of Freedom

Think for a moment about something with which you might be more familiar: baseball players defecting from Cuba, or Russian gymnasts seeking asylum when the Olympic games were held in Western Europe. There are many stories of people who have left oppressive regimes to find the freedom to create and use their own voices and to personally profit from their hard work. Here is one you might not know—at least, I did not and I think it is very interesting. I found an article on the Autonomous Nonprofit Organization website (2010) that tells the story of the now largely forgotten composer Dimitri Tiomkin (1894–1979), who was born in Russia and immigrated to Europe after the Russian Revolution, which placed all citizens under communism. In the United States, he sold his jazz compositions to industry leaders and met major Hollywood film producers and directors, such as Frank Capra and Alfred Hitchcock. His success as a film composer won him several Oscars for songs he wrote for more than 100 film scores, including “Do Not Forsake Me, Oh My Darlin’ ” for the movie High Noon, and others for Shadow of Doubt, Strangers on a Train, I Confess, Dial M for Murder, Red River, Rio Bravo, The Alamo, and even Mr. Smith Goes to Washington.²¹ Under capitalism, Tiomkin had a very successful artistic career and enjoyed all the freedoms associated with the capitalist free market economy. It’s doubtful he could have enjoyed a similar record of success under communism. It is worth pausing to think about the great movie songs we might never have heard, as he likely would not have had the opportunity to write them under that system.

The ways of thinking and control issues are very different in non-free societies. In Moscow, at the time of our visit, citizens were not allowed to cross a street directly on foot. Instead, they were required to use the tunnels under the roads located at the end of each street. Late one night, the group I was with walked back to our hotel and had to get to the other side of the street, so we followed the rules and went down into the tunnel to get to the other side. We heard some fantastic classical music being played in the tunnel, echoing off the bright tile walls. We stopped and listened a few minutes, realizing how heartbreaking it must be for some of the best musicians in the world to have to perform in a damp tunnel for tips to survive.

Popular Culture

Popular culture is often born out of the innovative creative artists who see and perceive what we all can see, but they see it differently. That’s often the first step in becoming an artist. Then the struggling artists may possess the passion and inner drive to explore what is unique about their visual and emotional perceptions and develop those into entertainment products that reflect their vision. Truly gifted artists normally have an amazing talent combined with the ability to express their creativity in a tangible form of artistic expression, such as a painting, song, script, movie, computer game, fashion design, or jewelry. Think of some of our history’s great creative artists and read about their lives. As an example, take a quick look at Paris in the 1920s and then consider the accomplishments of innovators such as Claude Monet, F. Scott Fitzgerald, Josephine Baker, Ernest Hemingway, Juan Belmonte, Gertrude Stein, Pablo Picasso, Djuna Barnes, Salvador Dali, Man Ray, Luis Bunuel, T. S. Eliot, Henri Matisse, Leo Stein, Henri de Toulouse-Lautrec, Paul Gauguin, Edgar Degas, and “Coco” Chanel. Race, gender, nationalities, sexual preference, and politics mattered to them as together they struggled with creativity, innovation, art, and culture. They all changed the world with their artistic “works,” most of which consumers today find priceless. Many lived depressed lives, most were broke financially, some emotionally, and yet from their “works” consumers often find joy and beauty. In our modern world of “free” they may never have even tried to create what they did, and look at what humanity would have lost.

Shift in Consumer Behavior

So, if we start applying the “take whatever we want” mentality to entertainment and music products, where does that leave us morally and commercially? The illegal providers of the entertainment products didn’t see themselves as bad guys or people designing systems meant to harm, cheat, or steal from others on such a large scale. Rather, perhaps, they saw themselves as building a virtual community of fellow pleasure seekers. In effect, they were the grandest of the cybercriminals who never grew up, who enjoyed never having to accept or face the results of their naive behavior.

I am not political, yet there are a couple of concepts about the types of political situations we live under that need to be mentioned. Not making any judgments but having traveled throughout the world, I believe the quality of one’s life is usually happier and much better in a capitalistic society. I rarely hear anyone talking about the perfect storm’s effects on an artist’s notion of creativity as tied to different forms of government. However, this perfect storm has shown that many have forgotten the value of the entertainment products they have acquired freely, as most never consider that great art, medicine, and most of what we have in the West are not found in other types of societies. That is simply because there is no motivation or profit to do the work, take the risk, and spend years developing artistic talents in many societies. Remember that it takes a team of people, creative and business, working together to provide the high level of artistic products and live shows we have. Take the profit margin away and we end up with the quality of life in 1950s Cuba, but still we live in a modern society in the 21st century.

Copyrights (©)

Copyrights provided by the laws of the United States (Title 17 U.S. Code) and similar laws in other free countries provide protection—that is, ownership of their creative properties—to the authors of original works of authorship, including literary, dramatic, musical, artistic, and other intellectual works.²² Copyrights encourage artistic and creative people often using their own inventions and discoveries to create, among other things, songs, musical recordings, paintings, movies, stage plays, books, photographs, choreographic works, computer-enhanced artwork, and films. I go into more depth on copyright laws in Chapter 3, but for now, let’s use this nutshell summary to keep the conversation going.

The perfect storm in the entertainment industry was clearly caused by many things, but this crazy change in attitude toward “free access” to others’ property is a serious ethical and social problem that I believe will lead to a positive and fundamental change in how we acquire entertainment products. It will work only if, and when, the copyright owners who created the songs, recordings, films, books, computer games, and other products are paid fairly for their endeavors. You will have the opportunity to learn more about these exclusive rights in Chapter 3, and how they are in jeopardy today because of innovation and the widening use of technology in the entertainment and music industry.

What We Really Own

Are you starting to understand why there are very few, if any, entertainment superstars in countries without property rights? There’s no money in it except maybe in tips and for musicians playing classical, public domain pieces, usually concerts approved by their governments. Even in our democracy, acts, songwriters, copyright owners, labels, and others are stuck with declining royalties in recorded music sale and movies, due not to our laws but to the advancement of technology and consumer behavior of acquiring products for free. How weird is that! Consider this: with many consumers downloading entertainment products without paying for them, what has happened to the legal protection artists should expect? Is copyright infringement merely a thing of the past? As recently as 2012, according to the Copyright Office Circular 1 (2012), the U.S. government reinforced, on paper at least, that “It is illegal for anyone to violate any of the rights provided by the copyright law to the owner of copyright.”²³ Buying a CD or DVD does not give us any property ownership right of the entertainment products other than the plastic disc we bought that is full of “pits.” Those holes or “pits” reflect back to a sensor in the device either the presence of a hole (computer analysis as the number one) or no reflection, which the computer analyzes as a zero. The string of ones and zeros becomes the binary code the computer chip in our device reproduces into the music or movie we want to see. We own the shining disc or digital download signal on a hard disk drive, but not the rights to the entertainment products that are digitally being reproduced.

Creator’s Ownership Rights

Let’s get creative and write a great song—at least we think it’s great—about our boy- or girlfriend. She’s so darn cute that let’s also take a picture and video with our cell phone and then download them onto our computer. Let’s really get crazy and record some tracks on our computer, using GarageBand or Pro Tools. Sounds good, looks even better. Man, I got talent and I can’t wait (nor can you) to let her hear it. She’ll be so impressed! But wait a minute. Who owns the song, picture, video, and music tracks we just created?

An idea for the song, video, or picture is not protected, but if it’s written down, sung into an iPhone, recorded, or whatever, then it’s yours, as long as it meets the legal definition of copyrightable material. In other words, songwriters who come up with an idea and turn it into a physical tangible form of expression (e.g., a song or video) stored as a binary magnetic recording now have a form of legal property and they own it because they created it. Further, it’s original and has been placed it into a physical form. Cool, very cool. In this case, what they’ve created is now a legal piece of property that we own, similar to the ownership of our house, land, car, computer, first-born kid, blah, blah. Therefore, remember that an idea isn’t good enough; you’ve got to write it down, record it, and get it into a physical form before it legally becomes property and yours. According to Chapter 300 of the Compendium of the U.S. Copyright Office Practices (2014),

The Useless Fine

If we create something we own, what property “rights” do we have? Unless we reside under a different form of government (a dictator, king, or communist or some socialist governments), we gain six powerful (at least, on paper) rights. Nobody is allowed to make copies, distribute, perform, create derivatives, digitally transmit, or publicly display what we’ve created without our permission! Do I need to say it again, place it into a larger font, scream, or pull more of my hair out? Wow! And the duration of time we own it is usually 70 years past the copyright holder’s death, although it varies according to the type of distribution and country we reside in. In addition, if we illegally download just one recording, we’ve, in most cases, violated two copyrights, those of the songwriter and music publisher who own the song and that of the record company who owns the recording of the song. It’s a federal offense in the United States that carries the maximum criminal penalty of as much as a $250,000 fine, plus five years in jail, per offense. Ouch! We could also get hit with civil penalties, which can total a minimum of $750, plus legal and court costs. But I’m not done yet. In some cases, the music publisher can also be penalized with a maximum fine of $150,000 in statutory damages if the publisher distributed the song, though we downloaded it illegally. You do the math. How much money do you owe and how many years should you serve if you were caught for all the recordings you’ve downloaded? Clearly, the fact that you have the software to download others’ entertainment products does not make it right or legal. All the fines for all of the products illegally ripped off alone would probably be close to $1 trillion. But the industry knows that the vast majority of those who violated copyrights could never afford the fines or time in jail. So you got away with it! And if you are Steven Witt, you even wrote a book about it, for guess what? Profit!

Table 1.2 The Creative Circle. The Creative Circle represents the beginning of the magic of entertainment in the form of a three-minute story, such as those contained in a poem, song, fiction or nonfiction book manuscript, script of an original book, or even a concept turned into a computer software game. The authors who create these original works are the owners of the books, scripts, and songs they created. They are provided with property rights, defined as a copyright, granted by the United States and other free-world nations’ governments and laws that respect copyrights. Entertainment-based companies, such as book publishers, record labels, and movie production houses, must pay for the rights to turn the authors’ scripts, books, songs, and so forth into entertainment products consumers can buy, use, and enjoy.

Author/Copyright Owner	Agent	Acquiring the Rights/Deal	Royalties or Payments	Collection of Royalties or Payments
Songwriter(s) (often sell copyright in exchange for a percentage of generated royalties)	Music publisher (usually acquire copyright and all six exclusive rights); usually acquires a deal by pitch or referral of material	Single-song contract	Royalties based on a percentage of generated royalties determined in the deal	1 Mechanical: Royalties from license for recording and sales and digital downloads
				2 Blanket licenses: Public Performance Royalties from public performances
				3 Sync license: From songs placed into movies, TV shows, and visual presentations
				4 Other sources
Scriptwriter (retain copyright)	Literary agent and some talent agents (get a percentage of sales or paid a one-time fee)	Agency/union representation, such as the WGA or talent agent working independently (which you should be careful about)	Paid a percentage based on length and type of presentation, number of times viewed, or one-time fee	Payment is usually based on option price (give a producer the right to make a movie and the script is taken off the market) for 10% of the full price of the copyright of the script. If the producer exercises the option, the writer receives the other 90% plus additional fees for rewrites. Consider becoming a member of the WGA.
Authors (retain copyright)	Literary agents (get a percentage of sales or paid a one-time fee), connect by providing a query letter and proposal	Agency/representation contract	Paid a percentage or one-time fee	Authors are usually paid a royalty based on each unit sold. However, be careful in the language of the contracts to make sure you will retain or be paid for e-books and associated rights, such as foreign, film, audiobook, and serials.
Computer game designer (often sell copyright in exchange for a percentage of generated royalties)	Direct to company or company agent representation	Agency/representation contract	Royalties based on a percentage of generated royalties determined in the deal	There are several types of “deals” available, such as collaboration agreements, licensing, development, and even employment contracts. Payments, lump sum or royalties, plus ownership depending on the type of deal and who owns the original copyright.

Talent

Creativity is usually understood as the “talent” the artist presents in the products—that is, recordings, concerts, songs, videos, games, and movies. The amount of “talent” housed in an act, or presented in a recording, game, movie, and video, is determined by the business side of the industry as a profit or loss on its profit and loss (P&L) statements. Thus, talent in our industry has different meanings to various entities. The creative contributors (songwriters, musicians, engineers, producers, scriptwriters, and video and movie producers) analyze the quality of the “artistic value” of a final product, while the business side views financial returns or losses on its investments. Talent means creating entertainment products and showing the creative side of the industry and profits and losses to the business side. Having “talent” means you may be a great scriptwriter, songwriter, producer, act, or musician, and at the same time, it also means having the personality, knowledge, and ability to market, distribute, and sell creative products to the business side.

Valuing Entertainment

Think of the songs, films, media, and so forth that got us through falling in and out of love, divorce, wars, personal and national illnesses, and other events affecting our daily moods and life. What’s being created, marketed, and sold are packages of the best and worst of humanity, and most everything in between usually being purchased, downloaded, listened to, or stolen is a song, book recording, or video game, or presented on stage or even a street corner. The “punch line,” if you will, of a creative work varies by the type of media it is. In a film, it may be connections between the consumer and the creator around emotions such as courage, humor, or the intellectual pleasure of experiencing a good storyline. In a computer game, play, or book, it may be the unraveling of a suspenseful narrative. The potentially profitable packet can come in multiple forms (recordings, films, digital transmissions) that consumers may use to better connect to something they are feeling emotionally. In the film industry, it’s the movie tied to the persona of the actors and storyline being sold to consumer emotions. It’s the same thing for theater, books, computers, games, sports, politics, and any other form of entertainment. It’s mental escapism, an imagination, hoot, and fantasy. And it’s also one heck of a great business if you know what you are doing and have the talent to actually write, create, produce, market, and sell it to consumers who perceive the products as an innate value. It’s often considered a very risky business, tougher than a slot machine in Las Vegas.

The entertainment industry is a unique combination of various forms of entertainment products that according to government sources and the accounting and research firm PricewaterhouseCoopers grosses about $546 billion in the United States and close to $1.8 trillion globally. I dig the M in million, love the B in billions, and get a little thunderstruck with the T in trillion. It’s a business that grosses more revenue than some countries. The industry operates on the success of connecting their products to human emotions. We’re not selling hot dogs or cars. We’re selling the gas for the car, the mustard on the hot dogs. We’re selling entertainment products consumers use to feel something about themselves—hopefully love, happiness, or joy. But it costs money, time, and really talented people to do it right. Consumer preferences are also a constantly moving target, changing, maturing, or seeing our individual worlds of mental reality.

Entertaining the Future

Great things are happening to change the filmed and recorded elements of the industry from a “purchase” model to an access/streaming model. Don’t be surprised if it changes again in the future to something totally different, such as direct feed from the production companies or labels to the consumers. Don’t be surprised if some type of phase-cancelling irritant tone is activated if you try to make a copy or upload your products to the Internet. That would take out all the middlemen and reduce the cost of distribution and maybe even the retail price. It takes guts, brilliance, and innovation to embrace new technology and create a new business model out of zip. We are in the middle of the shift from one model to the next one. Live theater, performances, festivals, and other entertainment forms have also enhanced their purchase models by expanding value-added opportunities. It’s hard to sell CDs at live concerts anymore or even buy DVDs at a retail store, but people still desire to be entertained. That’s not going away, but it’s time to make sure the people (probably you in the future) who create it and businesses that invest in it profit from their hard work. My guess is that this new attitude of “if I can get it free online, it’s okay” will not change quickly, so the industry will simply have to develop better access methods, such as streaming with access codes or, God forbid, government licenses and taxes.

The House Judiciary Committee

All of us are at fault for non-enforcement of the laws designed to protect artists and their works if we have ripped off the people who worked their butts off, investing time and money in creating, marketing, and selling the stuff we enjoy. It’s not as if we could have anticipated this would happen, but now that we know, we have both an opportunity and obligation to do something about stopping the bleeding of profits from the artists and from the entertainment industry—that is, if you agree with me that is a problem in need of a solution. According to an interview by Sam York with Jacques Attali and printed as an article in the BBC News (2015),

In his interview, Attali makes another prediction that might interest us (2015):

Here we are in 2016 and the piracy figures continue to grow and increase. As an example, according to Music Business Worldwide (2016) there were 576 sites (many in third-world countries, I assume) that were “wholly dedicated to music piracy or contain[ed] significant music content.”²⁷ They had more than 2 billion hits on the sites last year, which is 28%–30% of the 7 billion people in the world.²⁸ Congress has not been as vigilant as the entertainment industry has needed for the past 20 years and more, seeming to fail in proactively addressing the changes the new technology has brought to copyright laws, property transfers, and safe harbor restrictions. As a result, in some cases, absence of leadership at the national level has encouraged illegal transfers of property without payments with safe harbor restrictions that allow Google and YouTube to be seen as in compliance with existing laws. However, there may be a change in the density of the smog. In the fall of 2015, House Judiciary Committee Chairman Bob Goodlatte and Ranking Member John Conyers announced the next step in the House Judiciary Committee’s ongoing review of U.S. copyright law. According to Chairman Goodlatte (2015),

And Ranking Member Conyers added (2015),

Sad, and the money is gone, people and property owners have not been paid, but there is a light at the end of this depressing tunnel. It’s taken 40 years to understand Attali’s predictions about the destruction of personal property wealth. Use of the Internet, in particular, combined with naïve consumer behaviors has allowed people to stack their hard disk drive full of the world’s best entertainment products for free. However, our elected representatives have a full plate of political issues to deal with so copyright violations may not be very high on their list. It’s got to be a thankless job and the responsibilities are certainly over the top, so I’m glad it’s them and not me. But, eventually, it has to be you, as you will need to step up and provide our leaders with your views on such matters as fair use, copyright ownership, and digital as well as intellectual property rights, and you will want to do this when it is your creative product, process, invention, or innovative practice at stake.

In the long run, innovation and creativity will win, as people, you and I have to hope, will still need entertainment products to set their alarms to, answer the cell phone, celebrate their essence, cry when life hurts, and dance to the beat for joy. Let’s all take a deep breath! After all, this is a business often defined as show business, priceless to the people who create it, work in the industry, and most of the consumers who enjoy it. As the famous song by Irving Berlin reminds us, there’s no business like show business.³¹

Read On!

Learning how the industry works and about all of the corresponding business, legal, and creative opportunities (careers) will leapfrog you ahead of the millions of others who want to start an industry-related entrepreneurial venture, become a writer, musician, film guy, and so forth, or find a job and build a career in this business. There is much you need to know, and even as it goes through the creative destruction process of the natural business cycle caused by technology, innovation, and financial concerns of industry leaders, the industry is growing with new, exciting, better jobs. Opportunities in entrepreneurship are exploding and new concepts for entertainment products and their uses are being developed. Indeed, consumers want more entertainment products, not fewer. Getting consumers to pay for it, in some cases, may be a little tricky. But with your help, the industry will do it.

A Word About How This Book Is Designed

In trying to provide you with the tools you will need to succeed in the entertainment and music business, you will see I have packed a lot into these pages. Remember, it has taken me a lifetime, and my professional careers in the industry and as an educator, to lay all of this before you. Because the book is a handbook, it is meant for you to read now, in whatever context you have found it, and for you to return to as a guide and reference work. The pattern of the book is relatively simple, and I emphasize throughout how an insider sees the entertainment and music business, from the creation of products to legally protecting the product and the artists as their investment to getting the products to the consumers. You will sometimes see figures repeated across the chapters and some common topics introduced and revisited in different parts of the book. I did this intentionally to help you gain the knowledge you need and to understand how the industry is like a 3D puzzle that you can make into different shapes depending on what you want to accomplish with entertainment products. I started in this chapter to give you a big-picture overview of what it means and what it looks like to be involved in the entertainment and music industry today, which is continued into Chapter 2, on what I would say is your goal for being in and making products in this industry—how to find the “wow.” Chapter 3 is focused on copyright law and how it functions in the entertainment and music industries.