Subject: What's Going On (from the horse's mouth)

This is from Tom Silverman, president of Tommy Boy Records, historically one of the most important hip-hop labels. It has been owned by Warners for many years.

" A reporter from Crains wanted to interview me on how digital theft (on line and off) was causing the music industry's woes. She was surprised when I told her that it had almost nothing to do with it.

Tower and Transworld are losing over a hundred million dollars each quarter. And they have increased their margin at the expense of the labels by 300% over the last 6 years. They take a minimum of $1.50 a unit now on most releases. Big hits can
go down to a dollar but the average release is closer to $2.50. Right off the bottom line of the label.
Tower and Virgin charge a dollar above list on most titles. They are selling the "squeal" and have made hundreds of listening positions and end caps in low traffic parts of their stores. They are reaping a harvest of major label marketing dollars and yet they are still losing money.CD units were up 2% this year. The math does not add up.

We all know about spiraling video costs but did you know that since radio was consolidated and corporate pressure has eliminated promo budgets from stations. Indie promoters who have increased their tolls by 500% in the last five years
are now financing these budgets. Again right off the label's bottom line.

A&R write offs have never been higher as big money producers are insurance policies that insure sales and insure that all records sound alike. Managers and Lawyers pushing for up front money have insured that every artist in forever unrecouped. Royalty checks are a thing of the past. We should have an exhibit in the R&R Hall of Fame with cased
royalty checks because today's artist will never see one. If an artist should go multi-platinum on their first album and recoup, fear not - the lawyers will swarm and remedy this deficiency. They will renegotiate before they can receive their
first royalty. So at the end of the day, who cares if video and promo is recoupable in a world where no one is recouped.

Major labels will not and should not be signing anything they believe cannot sell over a million. Their overhead and marketing considerations have shown them that they can't break even at gold any more. Universal loves this conundrum as they are
one of three labels making money and they would like to see all of their competition go belly up. They have a vested interest in increasing the barrier to entry for small labels.

So retail won't take risks, radio won't take risks and major labels won't take risks. In this "dark ages" environment, how can you expect exciting new music? Remember the indie labels are getting hit the hardest because they can afford to pay the toll at retail and they are paying a 22 percent distribution fee before they ever get to retail. They have no offset of vertical integration. They don't own the pressing plants. They don't own the distributor and they have to license to get their music out overseas. How can they compete? How can they stay alive? How can they innovate?

The good news is it can't last for long. The majors have painted themselves in a corner. Firings won't improve their lot. They got what they wished for, now they have to pay the price. Look for the big label crash in 2002 and 2003. Watch for the
best indie label scene ever in 2003 and 2004 as the consumer demand for challenging new music builds and the indies no longer have to compete with majors for artists who sell under 300,000 units.

It's a beautiful cycle isn't it? Now, if I can just hold out until 2003...."