Making dollars, making sense

The six massive record distributors that span the globe fought for years against consumers' ability to record crummy-sounding albums on crummy-sounding cassette tapes. Now that kids can quickly make perfect copies of perfect recordings on their computers, the majors are going bat shit.

In the brave new game of digital downloading, two recent skirmishes provided object lessons in just how bizarrely record companies are behaving as they confront the new technology. In both instances, the catalyst is laudable efforts by multi-platinum rock bands to do a little charity work. In the first, Sony Music may have spent fully $1 million just to avoid having to deal with Pearl Jam releasing a single song on an MP3 site. In the second, one of rock's hippest acts finds itself, oddly, in bed with a filthy-rich software company doing its best to provide the labels with a copy-proof download standard. Both stories are tied together with marketing plans and branding schemes, but neither has a happy or tidy ending, suggesting that these battles will continue for the foreseeable future.

The first story began as the first wave of refugees crossed the Kosovo border into Macedonia and Albania last March. The relief organization CARE called 26-year-old Adam Werbach to see if he could put together a project -- maybe a rock concert -- to raise money for the refugees. The organization -- solid, no-nonsense and focused -- also wanted to raise its profile among young people. Werbach, the former head of the Sierra Club whose aggressive recruiting brought the average age of the graying organization down by a decade, was just the ticket. More than that, Werbach is young and handsome, and has cool friends, like the Beastie Boys.

In the end, Werbach directly facilitated only a small portion of money to CARE -- about $50,000. But indirectly the organization went on to raise a lot more money -- $1 million or more -- with help from Pearl Jam, the Beasties and a dozen smaller bands. It all began with Werbach and a brainstorm with partners at his San Francisco production company, Act Now, and a small company called Zeitgeist Artist Management. The group decided to assemble a benefit record instead of a concert. But they had an even better idea: They would release the record online for digital download via MP3 files. The brilliance of the idea was that the record could in effect be released as soon as the group collected the songs, without waiting for (or paying) manufactures or distributors. As buyers downloaded individual songs or the full record, the proceeds would go immediately to CARE.

CARE loved the idea. "We were thinking about delivering a project online," says LMichael Green, CARE director of marketing. "We really wanted to embrace the Web and online technology."

Werbach and Zeitgeist's Jordan Kurland figured they could land a couple of good-sized bands and several smaller groups through their own connections in the music industry. "The idea was to go for bands that were so big that they could say, 'Fuck off,' to the label," says Kurland. "Or go to bands that had just been dropped [from majors] -- like Luna and Cracker."

The MP3 digital download Web site Emusic -- which was called GoodNoise until last week -- agreed to sponsor the record. Emusic, like other MP3 sites on the Web, is a "content aggregator" and is constantly looking to acquire new music it can sell online. Like most Internet sites -- and certainly the majority of the sites attempting to sell music online -- Emusic is in the business of drawing traffic now and cashing in later. Although the company licenses dozens of smaller record labels and features hundreds of bands, it has yet to land a huge, high-profile act. Even a few bands with recognizable names would help promote the site.

From this point on, not one source was willing to go on the record about the particulars of the deal. However, several sources familiar with the project independently confirmed each other's stories. (Pearl Jam's manager, Kelly Curtis, did not return several phone calls for this story.) If Werbach and Kurland could deliver three or four good-sized bands, Emusic promised to donate $100,000 in advance to CARE, plus all proceeds earned from selling downloads.

In the process of rounding up bands, Werbach's team contacted Pearl Jam, which had a benefit single called "Last Kiss" in the works for CD release. Pearl Jam apparently liked the idea and agreed to consider it over the weekend. Werbach and Kurland went back to Emusic with the news and asked for more money. Emusic knew that a name like Pearl Jam would guarantee a successful project, and by extension draw larger crowds and more media attention to the Web site. The company upped its initial offer to $250,000, plus all sales receipts.

After examining a pile of information about CARE and Emusic over the weekend, Pearl Jam told Act Now and Zeitgeist that the band members were ready to commit. They still planned on releasing the single on CD (which they did, Tuesday), but they said that Emusic could sell it online and have it available before the street date. Pearl Jam just had to check with its record label to make sure that the record label didn't have a problem with the project, specifically the MP3 issue. The group records for Epic, part of the Sony conglomerate. Even though all of the world's six major labels have agreed to not use any MP3 technology until it includes some sort of copyright protection, Pearl Jam had Sony in a bit of a tight spot. What was the label going to do -- tell the band it couldn't donate a quarter million to refugees?

As it turned out, Sony actually was going to tell Pearl Jam that it couldn't help raise $250,000. But the record label had a hook.

Suddenly there was a Kosovar benefit CD being put together by Epic, with Sony guaranteeing CARE, OXFAM and Doctors Without Borders a cool $1 million. Executive Vice President David Massey says he couldn't put an exact date on the origins of the project, but his "three or four weeks ago" means that the project was started at same time that Pearl Jam had brought up the subject with the label. Pearl Jam went back to Act Now and Zeigeist and gave them the good news and the bad news. There was a new $1 million commitment from the label. But the band's song would not be available on the MP3 site.

Unfortunately, this was a "but" that evaporated a deal worth $250,000 to CARE. With the $1 million donation, however, Sony had managed an effective end-run past the Pearl Jam download plan.

Sony gives a good impression of not having known what was going on. Epic's Massey, for his part, says he didn't know specifically about the Emusic deal. "I remember that they were thinking about different opportunities out there," he says blandly.

Normally, when record companies produce benefit albums, all profits are parceled out on the back end -- meaning the label produces the album, distributes it, collects the receipts, figures out how much money the project cleared and then steers the profits to the right place. In the case of the Epic benefit album -- dubbed "No Boundaries" -- Sony is donating the $1 million up front. Even Massey admits that is "very unusual."

Furthermore, Pearl Jam's "Last Kiss" is the lynchpin of the record, he acknowledges, even if he didn't see it that way in the beginning. The cover song was sent out to fan-club members and found by a few radio programmers, who spun the track. Now the song is getting serious radio play and will no doubt draw more attention to the record than any of the other live cuts or remixes by Alanis Morissette or Korn. "[For Pearl Jam] I think that the single and album will be the most effective way of raising the most money, which is what this is all about," Massey says.

CARE, of course, is thrilled regardless. Act Now, Zeitgeist and Emusic are collectively putting out a more low-key benefit record, mostly populated by medium- to low-profile indie bands like Superchunk, Guided By Voices and Creeper Lagoon. Emusic is donating $50,000 to CARE. Werbach and Kurland are still excited with their smaller project and didn't want to say anything about getting snubbed by Sony. "We're happy that real dollars are actually getting to the front lines," says a diplomatic Werbach.

It's hard to say what really happened inside Sony, but it looks a lot like the label put down $1 million to keep Pearl Jam from releasing an MP3 track. Massey insists that's not the case -- the $1 million was to show everyone how serious the label was about getting funding to the organizations immediately. Still, if that's the case, why didn't the label allow Emusic to release the song a few weeks early and let them donate the $250,000?

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On the flip side of the Pearl Jam-Sony deal, the Beastie Boys were able to clean up for Kosovar refugees by donating three tracks for digital download. But even this magnanimous act, which could raise up to $2 million for four different aid organizations, looks a bit funny. Actually, it's not so funny -- it just looks like marketing masquerading as altruism. But don't blame the Beastie Boys: They're the ones who've figured out how to turn three songs into two mil, and how to get a major label, Capitol, to allow a multi-platinum artist to experiment with digital media.

The songs, formatted with the just-released Windows Media 4.0, are part of a charity effort that will benefit four different organizations working with Kosovo refugees. Even though downloads are free, the backers of Launch, the site where the songs are available, will donate $1 for each to CARE and MADRE for the first million downloads. Microsoft will match donations to UNICEF and Doctors Without Borders.

The Beasties deal is a minor coup along a trail of recent victories for Microsoft, which debuted Windows Media 4.0 last month and is barreling along to catch up with the dominant MP3 and Real Audio formats. Although some major artists, like Tom Petty and David Bowie, have released MP3 files, most of the record labels, like Sony above, are terrified of the software because it doesn't prevent copying. Even Capitol politely asked the Beastie Boys to remove from their Web site live songs recorded on their last tour and posted as MP3s. "There was a casual discussion and we asked them to take the files down while we were sorting out the issues of downloadable technology," says Capitol Executive Vice President Liz Heller.

Still, MP3 is hugely popular, even though hardly any major acts have released label-sanctioned songs. The goal then, for several companies all working on creating the standard for digital downloads, is to convince MP3 users to switch over to their players. Most of the devices offer the same near-CD quality of music, but Microsoft's new player adds a feature that the record companies love: It prevents copying. (Sony gave the Microsoft technology its endorsement last month when it announced a series of summer promotional singles on Windows Media 4.0.) Now, part of Microsoft's job is to make listeners start using its player instead of the Real Audio player or the MP3 player that's already sitting on their desktop. Launch, which wants to act as a gateway to help consumers find new music, is likewise trying to drive music consumers to its site. Apparently both of them felt that spending $2 million on three Beastie Boys tracks was a great way to start.

Of course, no one -- including the Beasties, who turned down an interview request -- really wants to talk about why the band is implicitly supporting a digital format that panders to the record industry. Launch certainly isn't complaining. CEO Dave Goldberg sees the songs as a way to spread the word about Kosovo, Windows Media 4.0 and Launch.

"We think it's a very reasonable marketing expense," he says. "We probably would have paid this much for those songs, but [the benefit] is even better."

Goldberg is talking about branding Launch, of course, and branding is what it's all about on the Internet. "The branding of the player is what's happening now because the rhetoric is still technical," says Mark Hardie, a senior analyst at Forrester Research in Cambridge, Mass. "When technology emerges and you're trying to push consumers to change their behavior you shout and scream about the techno features and you try to convince the consumers that it's better than what they've been doing. But in the long run, music is about the music experience -- it's not about the technical experience."

Meanwhile, the music experience predictably has little to do with the decisions that the majors are making. They're still looking for a system that will be compliant with their own Secure Digital Music Initiative (SDMI), which will establish copy-protected guidelines for digital media -- and guarantee that the majors will keep getting paid as music providers. Right now, Windows Media 4.0 looks like it will be compliant with SDMI. Oddly enough, it took Kosovar refugees and a $2 million carrot for Capitol records to even toy with digital downloads. "It helped make the decision feel right," says Capitol's Heller. "There a lot of SDMI issues circulating and we're all trying to figure out what we will do. But in this case, why would we not?"