In 1979, the record industry faced its first major financial challenge since the Great Depression of the 1930s, with an 11% decline in sales. The causes of this were both external, a general recession that gripped the American economy from late 1979 to late 1982, and internal, a pause in new musical activity after the twin developments of punk and disco had largely run their course. So much money had been invested in the disco craze, including every major artist, even the Rolling Stones and Dolly Parton, recording disco hits, that the sudden drop in interest in disco hit some companies particularly hard. By 1982, Columbia’s faltering profits forced it to lay off three hundred employees and close record factories.
Another internal factor was affecting record company profits during this period: the rise of independent radio promoters. Record companies had traditionally managed their own promotions and relationships with radio stations to get airplay for new records. The infamous “payola” scandal of the 1950s, culminating in Congressional hearings, brought light to this manipulative but otherwise legal practice of essentially bribing radio stations and their disc jockeys with cash, gifts, or decadent entertainments, to favor a company’s new recordings on their playlists. After the scandal, record companies began outsourcing this unsavory but critical aspect of the business to third-party (“independent”) promoters, who translated cash payments from record companies into radio play with little accounting for how that process occurred.
With the enormous rise of productivity and profitability of the 1970s, paying for independent record promotion for so many new artists became a cash drain on record companies. Smaller companies could not afford to compete with the majors in paying for increasingly expensive independent promotion, so they found themselves unable to get their recordings the radio plays needed to climb into the Billboard charts. The power of the independent promoters grew to such an extent that, when sales began declining in 1979, some of the larger record companies, led by Columbia, began boycotting the promoters and moving promotion back in-house. Again, smaller companies were unable to compete due to a lack of staffing and resources to join in the boycott. Ultimately, the boycott failed as independent promoters used their relationships with disc jockeys to freeze out noncompliant record companies from valuable playlists.
Once again, however, a new area of musical creativity was slowly entering America’s consciousness, one that would eventually become the biggest-selling genre in the world: rap and hip-hop. The growth of rap, from an underground scene primarily in the Bronx borough of New York City, to pop singles on the national charts, was a slow process that, as always, involved new independent companies with the entrepreneurial, risk-taking mentality required for such a shift. Two new record companies in New York City took the initial steps, showing the potential for commercial success in a genre that defied nearly all the pop music conventions of the time: First up was Sylvia Robinson’s Sugarhill Records, whose first release, “Rapper’s Delight” in 1979 by the Sugarhill Gang, became the first commercially successful rap recording. Former disco music promoter Tom Silverman then revealed the creative musical potential of the genre with his discovery of pioneering hip-hop producer Afrika Bambaataa (born Robert Keith Wiggins) and release of Bambaataa’s seminal “Zulu Nation” in 1981 and follow-up “Planet Rock” in 1982, both on newly-formed Tommy Boy Records. Bambaataa, who is said to have coined the term “hip hop,” had helped pioneer the use of electronic drum machines, synthesizers, and turntables to create the collage of sounds that came to define the genre.
Meanwhile, another New York independent, Sire Records, was using cash from the sale of a 50% interest in the company to Warner, to leverage its New York punk pedigree to sign a new crop of British new wave and post-punk bands that would emerge as one of the signature sounds of the ‘80s, including Echo and the Bunnymen, the Cure, Simple Minds, English Beat, and Depeche Mode. These and other bands often used synthesizers and drum machines to extend the timbral and rhythmic range of punk into a form of hybrid punk-disco electronic dance music.
But the big stories of the 1980s were two developments that would transform the industry, the CD and MTV. The MTV 24-hour cable music video channel began airing August 1, 1981, and the record industry was forever changed from selling a primarily audio form of entertainment into one in which the visual element became as big of a draw as the music. The idea of combining audio with film to market popular music was not a new idea in and of itself. Since the 1920s, pop artists from Bessie Smith to Benny Goodman, Bing Crosby, Elvis, the Beatles, etc., had used films and television as an important element of marketing their music. However, the MTV format constantly streamed endless music videos into the homes of America’s most affluent teenagers (those whose parents could afford cable television), making video marketing affordable to nearly any band with a record deal. It also increased the ability of artists to highlight sex appeal and visual charisma in a way a static album cover could only begin to touch.
CBS (Columbia’s parent company) released Michael Jackson’s triumphant solo album Off the Wall in 1979, capitalizing on the disco dance music craze by combining it with the former Motown child star of The Jackson 5. To resurrect their flagging profits early in the ‘80s, CBS convinced producer Quincy Jones to work with Michael Jackson to produce a follow up. The result, Thriller (1982), was one of the best-selling albums of all time, earning over $60 million in revenues within one year. Michael Jackson’s long-form Thriller video (14 minutes) helped cement the importance of MTV to selling records, the irony being that MTV refused to add black artists to its playlists until CBS threatened to boycott the station unless it aired the groundbreaking epic. Other music video stars, particularly Madonna and Prince, helped establish the music video as an essential element of music marketing and creative display.
The digital laser disc, known as the Compact Disc (CD), co-developed by Phillips and Sony, became available in 1982. Its advantages were primarily matters of convenience — small size, longer playing time, ability to instantly skip tracks, etc. (The supposed sonic advantages of digital reproduction were also pushed heavily, but first-generation CDs were actually known for their uninspiring brittle and thin sound.) The primary advantage from the record company perspective, however, was the availability of a new format that could be marketed to consumers as a necessary replacement for noisy, fragile, and cumbersome vinyl records. In a time of stagnating sales, record companies were able to convince consumers that they needed to re-purchase CDs of album titles that they had already purchased as vinyl.
The rebound success of the 1980s built on MTV superstars and the CD fueled a new round of consolidation in the industry, as the back catalog masters and publishing rights held by the larger labels became increasingly valuable assets. Global conglomerates with cash to invest saw sudden value in the recording industry. A few of the major deals from the 1980s provide ready evidence of this trend: In 1986, the German multimedia publishing conglomerate Bertelsmann purchased RCA Records from General Electric (which had owned the company since the 1920s) for $300 million. In 1987, Japanese consumer electronics giant Sony purchased the grande dame of American labels, Columbia, for $2 billion. In 1989, the Dutch PolyGram company purchased Island Records for $300 million and A&M Records for $500 million, and British stalwart EMI purchased Virgin Records’ Chrysalis label for $75 million. The consolidation continued into the 1990s, with EMI purchasing the remainder of Virgin Records for $1 billion.
The MTV pop superstars of the 1980s also helped propel the U.S. and British record industries to new levels of global success. The consolidated major record companies now had the capital to establish global distribution networks to fund this expansion. The urban dance style of Madonna, Michael Jackson, Prince, etc., provided the globally accessible and visually alluring soundtrack to nearly world-wide commercial growth. The retail sales side of this expansion was fueled by a corresponding success of global retail music stores such as Virgin Records and Tower Records, whose dominance would not be threatened until even larger retail powers such as Walmart, Target, and Best Buy entered the music retail market in the 1990s.
Because of the supposed advantages of the futuristic new CD format, along with potentially longer running time (60 minutes vs. 40 minutes), CDs could also be priced higher than vinyl albums. Suddenly, the back catalogs of the major record labels had a whole new value as they were reissued as CDs. Another significant advantage was that there was no longer a viable “single” market, so consumers were pushed to purchase entire CDs to hear only one song they had heard on the radio, with a corresponding increase in profitability.
The twin stimuli of CDs and MTV helped resuscitate the record industry by 1983, though it was primarily the major labels who benefitted due to their back catalog CD reissues and the MTV superstars who sold millions of CDs based on expensive and visually exciting music videos. The typical recording musician saw little of that additional revenue.
But like the proverbial “broken record,” the cycle of major-label consolidation followed by the rise of new independents continued into the 1990s as hip hop became a global phenomenon and yet another post-punk style, grunge, emerged with support of a small, independent label. The Seattle-based grunge movement in the early 1990s might well be one of the last gasps of independent rock creativity emerging outside the control of the major labels. The case of grunge is particularly compelling as it arose in a city, Seattle, that was completely outside the orbit of the record industry. The tiny record company, Sub Pop, was the work of one hardworking visionary, Bruce Pavitt. He had begun his journey as a student hosting a show on college radio, which gave him a platform for promoting his love of punk and a fresh hybrid musical style that blended the pounding rhythms and soaring melodies of heavy metal with the angst-ridden lyrics and rough vocal style of punk. The result was grunge, and the bands playing the style happened to all descend on Seattle in the early 1990s: Soundgarden, Pearl Jam, and the band that first earned global success, Nirvana. Bruce Pavitt was in the right place at the right time to promote grunge into a commercial success. His next step was to start a self-published fanzine, Subterranean Pop. This was pre-internet, so the magazine was truly underground, available only in its photocopied, stapled form in small record stores and other obscure locations. Moving to Seattle from Olympia, Washington in 1983, Pavitt opened a small record store, followed by a record label in 1986, shortening the name to Sub Pop. Sub Pop became yet another legendary independent label in 1989 with the release of Nirvana’s critically-acclaimed debut album, Bleach. By the release of their second album, Nevermind, recorded in 1991, Nirvana had left Sub Pop and signed with David Geffen’s new label, DGC Records, and the album quickly reached No. 1 on the Billboard 200 album chart.
The small, underground record stores and independent record labels finding overlooked local talent, demonstrated by Bruce Pavitt and Sub Pop, had become a recurring theme in the industry. This theme was again exemplified by the Rough Trade record store in London, which launched its own small record label in 1976 that became pivotal in introducing underground ska, new wave, and synth pop bands in the late ‘70s and early ‘80s.
In the 1980s, producer Rick Rubin became familiar with New York hip hop through a small record store in New York’s eternally-alternative Greenwich Village neighborhood. For the white Rubin, hip hop functioned in the late 1980s not as an outlet for racial expression, but as an alternative to white rock and pop, much as punk had functioned for disaffected white youth in the 1970s. Rubin had played in a punk band in the early ‘80s, but was ultimately attracted by the transgressive potential of hip hop. He started his own label, Def Jam Records, in 1984, and eventually signed many of the most seminal hip hop artists of the late ‘80s and ‘90s, including Public Enemy, LL Cool J, the Beastie Boys, and Run DMC. From his self-started label, merging the transgressive energy of punk and hip hop, Rubin almost single-handedly provided the platform for hip hop to transition from an underground phenomenon to the best-selling music genre in the world.
London’s Rough Trade Records, Seattle’s Sub Pop Records, and Rick Rubin’s New York-based Def Jam Records all proved the importance of entrepreneurial risk-taking and being close to “the street” in finding the next big thing in popular music. They also perhaps are the last pre-internet examples of that phenomenon. In the internet era, it’s increasingly unclear whether the value of local “street” knowledge of underground musical culture retains its function or even meaning.
The 1990s also saw more signs of consolidation in the industry, primarily the purchase of PolyGram by Canadian liquor empire Seagram in 1995 for over $10 billion. Seagram then purchased a controlling interest in Universal Pictures and their MCA record division, merging these assets with the newly-acquired PolyGram under the Universal label. Universal Records, though now owned by French conglomerate Vivendi, stands today as the largest of the three mega-sized record companies (the two others being Sony and Warner), which together accounted for over 70% of all recorded music sales revenue in 2017.