The aftermarket upgrades weren’t cheap, but after ten years of nonstop work Glover was finally driving a head-turner. During the week he was just another hump at the plant, but when he pulled up to the parking lot at Club Baha on a Saturday night everybody got caught looking. There, Glover could play his music over a 5,000-dollar stereo system, future hits that even Baha’s most devoted clubbers hadn’t yet heard. In person, and online even, Glover had always been reserved, quiet, unassuming, perhaps not totally comfortable with words. Now, around town, he let his car do the talking.
CHAPTER 15
By the end of 2004 the future of the recording industry looked dire. Compact disc sales were down yet again. EMI, burdened with debt, was hurtling toward receivership. BMG and Sony were merging, making the Big Five the Big Four. And Time Warner, seeking to “rationalize” its business, had dropped Warner Music Group, the label that Morris had run before the Interscope debacle. It had been taken over by Edgar Bronfman, Jr., the man who broke the Seagram’s empire, the man who used to be Morris’ boss.
Morris was now more powerful than Junior, and his market share at Universal was larger than it ever had been at Warner. Universal was selling one out of three albums in the United States, and one out of four in the world. But it wasn’t enough: even as the music industry’s number one supplier, Universal’s overall top-line revenues had gone down. The compact disc was going obsolete, and the revenue streams that Steve Jobs had promised him from iTunes were failing to materialize. Digital sales of music accounted for 1 percent of Universal’s revenues in 2005.
Morris had been forced to shut down entire divisions of his company. Since 2002 over 2,000 Universal employees had lost their jobs, in three successive waves of mass layoffs. There was a hiring freeze, and artists saw their advances dwindling. Promotional spending was slashed, and music video budgets had been reined in.
But this thrift did not extend to Morris himself. The Contract was still in force, and Vivendi’s corporate filings showed that in 2005, with the music industry in a death spiral, Morris earned more than 14 million euros—the equivalent of nearly 18 million bucks. During the corporate belt-tightening at Vivendi, he alone had remained untouched, and he was now by far the highest-paid person in the entire organization. He pulled in more than six times as much money as any other member of the management suite, including CEO Jean-Bernard Lévy, the man who was notionally his boss. Every day that passed, Doug Morris earned 50,000 dollars—the same amount that an honest packaging line employee earned in a year of work at the plant.
Morris’ income was a matter of public record and attracted criticism. How could a man presiding over the decline of an empire possibly be worth so much money? The answer was that The Contract assessed his performance not against his top-line revenue, but against his overall return on invested capital. It worked like this: At the beginning of each year Morris requested A, a certain amount of budgeted money from the corporate parent. At the end of each year Morris returned B, the amount he’d brought in from promoting his artists. As long as B was greater than A, Morris got paid. But how did you do that when B kept shrinking? Easy. You cut A by an even greater amount.
Morris’ message to Vivendi each year was simple: give me less. It was a difficult thing to say. Many—perhaps most—corporate executives would have stumbled here, and suffered as victims of their own overreach. But Morris was different. Though his public statements were forever optimistic, behind the closed doors of his office Morris was a clear-eyed pragmatist who lived and died by the Billboard charts. The first thing he did when he entered his office each morning was check the retail sales figures. He could see what was happening to the industry better than even its fiercest critics, and as a result he never, ever requested more capital than he could profitably deploy.
But slashing A meant letting people go. Morris did not enjoy doing this. He spoke often, with genuine affection and tenderness, of those who worked around him. Even in dark times he tried to cultivate an upbeat atmosphere in the office. He had a politician’s talent for remembering names, faces, and little details about people that made them feel cherished. And he talked often, unsolicited, of how much he valued loyalty.
“Loyalty” was a word you heard a lot in corporate boardrooms—usually right before somebody got stabbed in the back. But Morris really meant it, as his track record showed. In a volatile business, he had retained the same roster of artists and the same management team for nearly a dozen years. He’d championed executives like Jimmy Iovine and L.A. Reid and Sylvia Rhone for most of their careers. He’d stood up for 2 Live Crew and Tupac Shakur against deafening criticism. Going further back, at Atlantic in the 1980s, he had labored diligently under Ahmet Ertegun for a decade without complaining, even when most men with similar ambition would have sought opportunities elsewhere. And in the early 1960s, as a 23-year-old recruit stationed on an army base in France, he’d met the beautiful mademoiselle who would later become his wife. They’d had two sons together, and were now approaching fifty years of marriage.
But business was business. Although in 2005 compact discs still represented over 98 percent of the market for legal album sales, Morris had no loyalty to the format. In May of that year, Vivendi Universal announced it was spinning off its CD manufacturing and distribution business into a calcified corporate shell called the Entertainment Distribution Company. Included in EDC’s assets were several massive warehouses and two large-scale compact disc manufacturing plants: one in Hanover, Germany, and one in Kings Mountain, North Carolina. Universal would still manufacture all its CDs at the plants, but now this would be an arms-length transaction that allowed them to watch the superannuation of optical media from a comfortable distance.
It was one of the oldest moves in the corporate finance playbook: divest yourself of underperforming assets while holding on to the good stuff. EDC was a classic “stub company,” a dogshit collection of low-growth, capital-intensive factory equipment that was rapidly going obsolete. In other words, EDC was a drag on A that added little to B. Let the investment bankers figure out who wanted it—Universal had gone digital, and the death rattle of the compact disc had grown loud enough for even Doug Morris to hear.
The CD was the past; the iPod was the future. People loved these stupid things. You could hardly go outside without getting run over by some dumb jogger rocking white headphones and a clip-on Shuffle. Apple stores were generating more sales per square foot than any business in the history of retail. The wrapped-up box with a sleek wafer-sized Nano inside was the most popular gift in the history of Christmas. Apple had created the most ubiquitous gadget in the history of stuff.
Since the introduction of the iPod, Apple’s stock price had septupled—the technology also-ran was now bigger than Universal itself. This was supposed to be good for Morris. When Sony had had its Walkman craze, the music industry had sold tens of millions of tapes. And alongside the Discman craze, the music industry had sold tens of millions of CDs. So, doing the math, the success of the mp3 player should have meant tens—no hundreds—of millions in sales of mp3s. In fact, ten million iPods sold in stores should have meant ten billion songs sold through iTunes. But that wasn’t happening. Digital sales were growing, but nowhere near quickly enough to recover the lost profits from the compact disc. And the legal precedent set by RIAA vs. Diamond had established that an iPod wasn’t a recording device like the Walkman or Discman; it was simply a glorified hard drive. As a result, those iPods out there were filled to capacity with pirated material. Morris, who himself signed off on the 99-cent agreement with Jobs two years earlier, now publicly vented against Apple, claiming he’d got the short end of the deal.