After taking heroic amounts of drink and drugs, Guns N’ Roses bass player Duff McKagan got himself all clean n’ serene back in the 1990s. A 12- stepping member of a rock band can be a dangerous thing: most of them bore you to tears with their implanted psychobabble; the others seem to take up golf. The truly wretched publish “poetry”.
McKagan took a different tack. After figuring out that he had made millions but had drunk or snorted a substantial amount of it away, he attempted what many before had failed to do: get to grips with the finances of one of the biggest- grossing rock groups of all time. He opened files, emptied drawers, pored through ledgers and found Guns N’ Roses’ finances to be one big incomprehensible mess.
Duff took himself off to business college, where he discovered he had an aptitude for finance and economics. He is now one of the most widely quoted media sources on the economics of music and rock bands, as well as the new financial columnist with Playboy magazine (www.playboycom).
Some may be put off by Duff’s “hey dude” writing style. But now that he’s got his memory back, he demonstrates skill at analysing the rise and continuing fall of the music industry.
And he’s indiscreet. In a recent column McKagen revealed the exact moment when the music industry made its biggest ever mistake – and made it all over again just a few years later.
McKagan was one of the few to realise what CDs would do to the music industry. When they were introduced in the late 1980s and everyone rushed to replace their vinyl and cassette albums, unbelievable amounts of money flooded into the labels. This precipitated the spend-spend- spend ethic of the 1990s.
McKagan realised that once music was digitised, it could be divorced from the physical product, what we now call the MP3 file. When Napster began hosting music for free in 1999, millions flocked to the service. Fans bought computers just so they could download libraries of otherwise expensively priced music.
“Napster was making truckloads of dough off banner ads back then,” writes Duff. “It seemed the site was the most looked-at space on the Web and therefore a hot property. Car companies, cola bottlers, movie companies, and many others were paying top-dollar to get access to those Napster-glued eyeballs back then.
“Napster put a deal on the table (in 1999) that was never really publicized. Napster offered to share this ad revenue with the major labels so that artists would get paid for the downloading of songs that Napster made available for free. It now seems like the perfect business model. But the majors balked and a huge opportunity was missed.”
There’s a lot of money to be made from illegal downloading. McKagan says a similar deal was offered by the pirate music source Kazaa four years ago when it offered to share ad revenues with the labels. One of the majors was about to sign on but was “persuaded” not to by the other big three.
On Napster's groundbreaking offer, McKagan wryly notes the music industry has never had a real problem doing deals with not fully legally entities (see Frederic Dannen's astonishing book, Hitmen).
Ten years on and the labels have finally decided that the Napster approach was essentially correct. Deals cut with Spotify mean that the music on the site (www.spotify. com) is free, but the labels get paid from the ad revenue. The original Napster deal was, in a sense, the first “freemium” business model.
Except that 10 years on it’s too late. Jobs have been lost, careers ruined and the most important record-buying demographic (18-25 year olds) forever alienated from an industry that doesn’t know its arse from its elbow and thinks that waving arrest warrants at teenagers will stop the daily tsunami of filesharing.
