Music Biz Laments "Worst Year Ever"

As the industry contracted, market share declined or remained steady for three of the four major record companies. The exception was Universal Music Group, which sold thirty-two percent of all music and six of the year's top ten albums. Warner, which became the first publicly traded record label in 2005, managed to hold steady, thanks to Green Day and the Asylum subsidiary, which scored hits with Houston rappers Paul Wall and Mike Jones. EMI dropped just 0.4 percent, with strong releases from Coldplay and Gorillaz. "It's not a growth market," says Arista exec Tom Corson. "This is a mature market that's being attacked on all sides."

Of all the labels, Sony BMG -- which merged in 2004 -- had the toughest year: The company's market share shrunk three percent, it paid $10 million to settle a payola investigation (Warner eventually settled for $5 million) and had to recall 4.7 million CDs that included invasive copy-protection software. "How does a record label self-destruct?" says Darryl Pitt, manager of the Bad Plus, whose CD was recalled. "This is a pretty good way."

The labels continued to battle piracy, filing hundreds of lawsuits against peer-to-peer downloaders. But in the month of November, for instance, twenty-one percent more users traded music online than in the same period the year before.

The Indie Scene

As the majors stumbled, independent labels gained market share, accounting for eighteen percent of CD sales in '05. Indie labels proved especially adept at Internet marketing via outlets like MySpace; the emo label Victory Records sold 558,000 copies of Hawthorne Heights' album The Silence in Black and White without radio play. And several hip indie acts -- the Arcade Fire, Interpol and Bright Eyes -- sold more than 250,000 copies each. The indie model of earning profits on a broad range of small-scale releases, rather than focusing on blockbusters, may offer a new direction for the majors. "The major labels want to say the glass is half full," says Gwen Stefani's manager Jim Guerinot. "I think everybody's getting the message: You better get a fucking smaller glass. The music business is a different game."