So Morris—and, by extension, the rest of the industry—came up with a plan for the mp3. They were going to sue it out of existence. This was a two-pronged strategy. The first salvo was RIAA vs. Diamond Multimedia Systems. Using their trade organization as a front, the major labels sued the device makers themselves. The lawsuit sought to obtain an injunction prohibiting the sale of Diamond’s Rio portable digital audio device, and any others like it, suffocating the nascent mp3 player market in the cradle. The second lawsuit, A&M Records vs. Napster, was filed by 18 record companies, including Universal. The suit alleged that Napster was legally responsible for the copyright infringement occurring over its peer-to-peer network, and that the company was liable for damages.
The two lawsuits wound through various civil courts and various stages of appeal. Napster peaked at sixty million users, while Diamond’s Rio player was plagued by various design flaws and sold poorly. The lawsuits had a chilling effect on industry R&D. As long as it might be found liable for the copyright infringement of its users, no legitimate software company was going to market a peer-to-peer file-sharing app, and, facing the possibility of a court-ordered injunction removing it from the shelves, no legitimate device maker was going to invest in designing a player for mp3s.
The most striking thing about this localized investment drought was that it occurred amidst the general dot-com deluge. The world had gone screwy, and the normal laws of capital allocation no longer applied. In January 2000, Morris’ old bosses at Time Warner announced a startling transaction: they would be selling their company—their whole company—to America Online, the company whose business model was to drown the earth in unsolicited junk mail CDs. In exchange for $164 billion of hyperinflated AOL stock, Time Warner would sell it all—the magazines, the cable stations, the music labels, all of it—to an upstart Internet service provider trading at 200 times earnings that even an unsophisticated technology observer like Morris could see was a total house of cards.
It was the stupidest transaction in the history of organized capitalism. But for Bronfman it was a model deal, one to be imitated. Having spent the last six years buying, he now felt that the time had come to sell. In June 2000, he announced the dissolution of the Seagram group, marking the end of the Bronfman family’s eighty-year liquor empire. The remaining booze and beverage assets would end up being split among Diageo and Coca-Cola. Universal would be sold to Vivendi, the French media conglomerate.
Vivendi and Seagram were practically doppelgangers. The company was run by a flamboyant megalomaniac named Jean-Marie Messier, who, like Bronfman, had been seduced by the allure of celebrity, and had transformed a boring French water utility into a technology and entertainment conglomerate. These like-minded business geniuses were theoretically to share joint responsibility for overseeing the Universal entertainment assets. In practice, though, Junior was made “Executive Vice Chairman,” a position about as important as it sounded.
Morris, by contrast, was a franchise player, and retained control. The merger meant a chance to renegotiate the terms of his employment in the middle of the dot-com boom, bargaining against a free-spending Frenchman who made even Bronfman look cheap. The resulting contract—let’s call it The Contract—went into effect in 2001, and for the next decade Morris was the best-paid man in music.
Like Junior before them, the suits at Vivendi did not quite seem to understand what they were purchasing. They had acquired telephone companies, tech investments, and media and publishing properties, funding these purchases by borrowing heavily. As so often with deals of this kind, the investment bankers who sold the bonds assured the public that these investments were sound. But servicing this debt required a reliable stream of incoming cash, and, once the contracts were signed, Vivendi began pushing Morris for estimates of future earnings. These he declined to provide. He explained to his new bosses that his sales were subject to shifting whims of culture that he found impossible to understand and that he was powerless to control. If perhaps he was overconfident in his technology investments, then by contrast a lifetime of scouting the order-taker had taught him that there was no such thing as a sure thing. The idea that some big-shot corporate tastemakers dictated their aesthetics to the masses was absurd, and Morris’ entire career was predicated on the belief that the opposite was true. From the Music Explosion onward, he had always paid close attention to what the people wanted, and he tried his best to give it to them, even when it meant overruling his own critical judgment. Morris was agnostic about his own taste—even his own abilities. How was one 63-year-old white guy in a corporate office in Manhattan going to know what the kids wanted?
He had an excellent track record of breaking new acts, but that had no predictive power. The number of orange juice cartons you sold one year was an excellent guide to the number you were going to sell the next. The number of Limp Bizkit albums was not. Every year, Morris had to reinvent his entire product line from scratch. Mostly, that meant failing. The typical CD had a shorter shelf life than yogurt, and every year Morris ordered millions of them dumped into landfills. Despite forty years in the music business, he still never knew for certain which of his acts would succeed, and the Hollywood dictum that “Nobody knows anything” held equally true for every other type of show business. Every year hundreds of movies played to empty theaters; dozens of TV shows were commissioned and then killed after a few episodes; thousands of freshly printed books were remaindered and pulped. Perhaps the saying even held true for the corporate world at large, and those who embraced this uncomfortable state of Socratic ignorance were those who tended to survive.
To a limited extent, Morris could rely on Universal’s back catalog: the number of Led Zeppelin albums sold each year actually was a pretty good indicator of the number that would be sold in the next. But Universal’s back catalog contributed to only about 30 percent of the company’s overall revenue stream. And, although inevitably some of the disposable pop hits of today would grow in stature to become the timeless classics of yesteryear, determining which songs this would actually happen to was impossible as well.
It was a well-known problem in corporate America—performance targets were too often tied to short-term results. It wasn’t supposed to be this way. In theory, publicly traded stock was an asset with infinite duration, and managers were supposed to invest in projects that built value for shareholders over the very long term. In practice, though, corporate consolidation in the industry meant an increased emphasis on the near-term bottom line. Morris was aware of this problem, and he tried his best to maintain stability on his labels’ rosters and inside the executive suite. He encouraged his label heads to focus on long-term profitability, and he always looked to sign Universal’s most important acts to multi-album deals. But still, he was paid his bonus annually, and much of the value of that bonus came from disposable pop trash. If that meant passing on Radiohead to sign Hanson, so be it. He was incentivized to make hits now.
He did so. Even as digital piracy spread from college dormitories to the public at large, 2000 was still a banner year for the industry. Customers bought more music that year than ever before or since, with the average American spending over $70 a year on CDs alone. Universal led the way, cleaning up with three rap “sequel” albums: Dr. Dre’s Chronic 2001, Eminem’s The Marshall Mathers LP, and Jay-Z’s Vol. 3 . . . Life and Times of S. Carter. “The Next Episode,” “Stan,” and “Big Pimpin’” were among the most pirated files on Napster, but this seemed to translate directly into increased album sales. Some industry observers began to wonder if digital piracy really hurt the music industry. Some even wondered if it was possible that piracy actually helped.