Madonna Ditches Label, Radiohead Go Renegade: The Year The Music Industry Broke

In the first installment of our three-part series on the future of music, we take a look back at what went wrong and when.

In April, Trent Reznor released Year Zero, a concept album about a future society teetering on the brink of apocalypse. It was supposed to be a grand work of fiction, but it could just as easily have been about the music industry in 2007 — a bleak, burned-out world where the sky fell on a daily basis and the rivers ran red with the blood of record execs. (That the album didn’t sell well only furthers the analogy …)

Make no mistake about it, 2007 was a b-a-a-a-d year for the industry. According to Nielsen SoundScan, album sales were down 15 percent from 2006 (a trend that’s continued for eight straight years now); big-name artists jumped ship in increasingly complicated — and messy — ways; and the powers-that-be seemed to get even more heartless and disconnected, thanks to a series of lawsuits, feuds and terrible decisions.

In fact, you could probably say that 2007 was Year Zero. Things started to change because they couldn’t possibly get any worse.

In the first installment of our three-part series on the future of the music industry that is rolling out this week, here’s a blow-by-blow recap of just how bad the year was …

The Future Of Music

Part 1 :The Year The Music Industry Broke: In 2007, CD sales continued their freefall and superstars began bailing from major labels. And that’s just the beginning …

Part 2 : What Makes A Star These Days? CD sales are just a small part of it. We take a look at other ways artists are getting their names out there and making money …

Part 3 : The Future: What will the music industry be like in a year? Five years? We spoke with experts — they don’t know either but have some fascinating theories …

January 14: The “Dreamgirls” soundtrack tops the Billboard albums chart with sales of just over 60,000 copies. It’s the lowest sales total for a #1 album in SoundScan’s 16-year run, beating the record set the previous week, when the soundtrack landed at #1 with sales of 66,000 copies.

January 30: Sony BMG announces that it has reached a proposed settlement with the Federal Trade Commission that would allow consumers to trade in CDs with the controversial self-installing “rootkit” antipiracy software — which the company had included without consumers’ knowledge — “through June 31,” according to a press release (of course, in keeping with the less-than-forthright spirit of the whole rootkit issue, there are only 30 days in June). The company also agrees to pay up to $150 to repair any damage to computers caused by users trying to remove the digital-rights-management software, which was revealed to cause serious security risks. The settlement also calls for Sony BMG to disclose any limitations on consumers’ use of the music CDs, and prohibits the company from collecting user information for marketing purposes and from installing software without users’ consent. Sony is also required to provide a way for users to easily uninstall the rootkit software.

March 5: In a blow to small Internet radio, the Copyright Royalty Board — made up of three copyright-royalty judges appointed by the librarian of Congress — significantly increases the royalties paid to musicians and record labels for streaming digital songs online, ending a discounted fee for small Internet broadcasters. Under the ruling, the current rate of $0.08 each time a song is played will more than double by 2010. In April, a coalition of webcasters, including National Public Radio, attempts to request a new hearing, but the Royalty Board rejects the appeal, and on July 15, the royalty hike goes into effect. In November, both AOL and Yahoo contemplate shuttering their Web radio services due to the increased royalties.

March 21: Paul McCartney leaves longtime label EMI to sign with Starbucks’ new record label, Hear Music. His album, Memory Almost Full, is released in June through both traditional retailers and more than 6,000 Starbucks locations in the U.S., and sells more than 160,000 copies in its first week. “For me, the great thing is the commitment and the passion and the love of music,” McCartney tells an audience of Starbucks shareholders. “It’s a new world now and people are thinking of new ways to reach the people, and for me that’s always been my aim.”

June 11: In a move that would have seemed unimaginable in the label-driven industry of old, Kelly Clarkson feuds openly with the head of her label — Sony BMG head Clive Davis, for decades one of the most powerful industry executives — and parts ways with her management company, the Firm, amid controversy about her upcoming album My December. Three days later, concert promoter Live Nation announces that Clarkson’s summer tour in support of the album has been canceled due to underwhelming ticket sales. My December hits stores later in the month, and sells more than 290,000 copies in its first week, giving Clarkson the #2 album in the country — behind the “Hannah Montana” soundtrack — but shows little staying power. Clarkson later apologizes for her remarks.

July 10: Canadian indie outfit Stars make their new album, In Our Bedroom After the War, available for download just 10 days after completing it — and some three months before its scheduled release date. The move is done with the blessing of their label, Arts& Crafts, and the album becomes a mainstay on the iTunes Music Store’s most-downloaded list.

July 15: Prince ticks off his U.K. record label and Britain’s Entertainment Retailers Association when he decides to release his new album, Planet Earth, for free with the Sunday edition of the British newspaper The Mail. It’s estimated that 2.27 million people receive the album, which helps boost sales of tickets for his 21-night stand at London’s O2 arena. “It’s direct marketing, and I don’t have to be in the speculation business of the record industry, which is going through a lot of tumultuous times right now,” Prince says.

September 19: Kanye West’s Graduation sells nearly 957,000 copies to claim the top spot on the Billboard albums chart. 50 Cent’s Curtis bows at #2 with sales of more than 691,000. Both are the best first-week numbers of 2007 (besting Linkin Park’s Minutes to Midnight, which scanned 623,000 copies in May), and Graduation notches the biggest first week in nearly two years — beating, interestingly, West’s Late Registration, which sold more than 860,000 copies when it was released in September 2005.

October 1: Radiohead shock fans by announcing on their blog that not only have they completed their much-anticipated new album, In Rainbows, but that “it’s coming out in 10 days,” via download — leading to reams of “this is a taste of the future of albums”-type commentary. The bandmembers, who have been free agents since the release of 2003′s Hail to the Thief, decide to release the album by themselves in two formats: download-only, which allows fans to name their price for the album, and as a deluxe “discbox” version (priced at approximately $80).

October 4: The Recording Industry Association of America wins its first case against file-sharing, when a jury finds 30-year-old Brainerd, Minnesota, resident Jammie Thomas guilty of copyright infringement. In question were 24 music files she allegedly posted on the peer-to-peer site Kazaa. Thomas is ordered to pay $220,000 in fines — or $9,250 per song file. Her lawyers appeal the ruling, on the grounds that it is “unconstitutionally severe,” but in December, the U.S. Department of Justice intervenes, urging the courts not to rule on the constitutionality of the damages, as “Copyrights are of great value, not just to their owners, but to the American public as well.”

October 8: Trent Reznor announces the end of his 13-year relationship with Interscope Records, writing on his site, “As of right now, Nine Inch Nails is a totally free agent, free of any recording contact with any label. … It gives me great pleasure to be able to finally have a direct relationship with the audience as I see fit.” He then goes on to write that there are “exciting times” ahead. And he’s not kidding: Within a week, he promises (threatens?) to scuttle Interscope’s release of a Year Zero remix album by leaking tracks from it to the Internet, then announces that he’s partnering with Saul Williams to release The Inevitable Rise and Liberation of Niggy Tardust! via download, and gets into a public argument with the Universal Music Group over the legality of a proposed fan-only remix site, before deciding to launch the site himself.

October 9: One day before downloads of In Rainbows are scheduled to begin, Radiohead send an e-mail to those who’ve ordered it, stating that the album will be encoded at 160 kilobits per second, a rate far inferior to their other LPs, which are all available for download at 320 kbps (or most MP3s floating around file-sharing sites like OiNK, for that matter). This angers many fans, who feel that the band duped them by not announcing the encoding rate upfront , and the bad feelings are only furthered when Radiohead’s managers give an interview to a British trade mag, in which they suggest the download version of In Rainbows is a promotional tool for the actual CD.

October 10: In Rainbows is made available for download. Over the next two months, much speculation ensues as to just how many people downloaded it and exactly how much they paid to do so: Early reports have more than 1.2 million fans downloading it at an average price of $8, though later findings by comScore, a company that measures consumer activity online, adds that more than 60 percent of downloaders paid nothing for the album. Neither Radiohead nor their publicists discuss the financial aspects of the download experiment, though the band does issue a statement dismissing comScore’s findings as “wholly inaccurate.”

October 16: Madonna finalizes a massive 10-year deal with Live Nation, believed to be worth $120 million. It’s the largest so-called “360 deal” in history, involving not only Madge’s future studio albums but her tours, merchandising, film and TV projects, DVD releases and music-licensing agreements. “For the first time in my career, the way that my music can reach my fans is unlimited,” Madonna says in a statement. “The possibilities are endless. Who knows how my albums will be distributed in the future?” The deal brings to an end the singer’s 25-year relationship with Warner Music Group, which has released all of her albums to date.

October 23: OiNK, “the world’s biggest source for pirated, pre-release albums,” is shut down after a two-year criminal investigation led by Interpol (the international police organization headquartered in Lyon, France … not the band). Officers raid the apartment of OiNK’s creator, a 24-year-old Brit named Alan Ellis, and seize the site’s servers in Amsterdam. Ellis is arrested on suspicion of conspiracy to defraud and copyright infringement, and the e-mail addresses of the site’s more than 180,000 users are made available to police — though it is not known whether they could face criminal prosecution as well. Ellis’ trial is scheduled to begin in February.

November 7: Thanks to a last-minute rule change by the folks at SoundScan, the Eagles’ Wal-Mart-only LP, Long Road Out of Eden, debuts at #1 on the Billboard albums chart with sales of more than 711,000 copies. The total nearly triples that of the country’s #2 album, Britney Spears’ Blackout, and gives the group — which hadn’t released an album of new studio material in 28 years — the second-highest debut of 2007.

November 27: Universal Music Group CEO Doug Morris gives a disastrous interview to Wired magazine, in which he compares the music industry to a character from the comic strip “Lil’ Abner,” calls college students who download music “criminals” and explains the industry’s inability to keep up with the Internet by saying, “There’s no one in the record company that’s a technologist. … It’s like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?”

November 28: Reigning “American Idol” champ Jordin Sparks’ self-titled debut lands at #10 on the Billboard chart with sales of 119,000 copies. It’s the lowest first-week sales total for any “Idol” winner — by more than 180,000 copies.

December 3: Island Def Jam lays off nearly 6 percent of its staff. Rumors of axings at major labels like Sony BMG and the Universal Music Group begin to swirl — and at press time, it looked like they may have begun. The Warner Music Group announces that it has cut bonuses for employees, and Terra Firma, the private equity group that owns EMI (home to Capitol Records), reportedly makes “cutbacks a core part of its strategy.” There are also reports of massive reshuffling at labels like Epic, RCA and Arista.

December 31: In Rainbows is set to be released to retailers in the U.K. through XL Recordings. The U.S. release will come one day later, through TBD Records, an offshoot of the Dave Matthews-founded ATO Records.