For the past week in rehearsals and parties, the music business has been preparing for its big night.
At the Grammy Awards on Sunday, the industry celebrates its own. But there isn't much to celebrate.
CBS News Correspondent Anthony Mason reports that album sales fell 11 percent this past year. The music industry sold 100 million fewer CDs and cassettes than it did two years ago. By every measure, there's a crisis in the music business.
"I hope it doesn't get worse, but I don't see it getting better," says Diane Warren, songwriter of dozens of hits, including "Unbreak My Heart." "It's scary. Like, how can one make a living selling records? I don't know."
How do you make a living selling records when records aren't selling? The Internet has changed the equation. It's not that people are listening to less music. They're just not paying for it.
"Half my CDs are burned CDs," says Sam Stubbins, a music fan. "The only CDs I buy are by artists that I really, really think are important artists and I think deserve it."
The industry's response was to make the Internet its enemy. It won the battle, closing the infamous Napster, the original free music Web site. But it is losing the war.
"I understand the artist, you know, that kind sucks for the artists, but that's just the reality," says Matt Burke, another music fan. "That's the society we live in. Does anybody want to pay $15 if they don't have to?"
More kids are now getting music from Kazaa. The file-sharing service works by downloading software. Then any user can take music from any other user's file. By some estimates, Kazaa now has 60 million users, 22 million of them in the United States alone.
The result is 822 million files being shared. Almost any song is obtainable for free. The recording industry is trying to kill Kazaa, too. But the genie may already be out of the bottle.
"I mean, how do you arrest these people? How do you shut them down?" asks Warren. "You shut one of these down and a new one comes up the next day."
In the past, the music business has been able to exploit new technology to sell more albums. When tapes replaced records and then CDs replaced tapes, the record companies were able to sell the same product repackaged, as customers had to rebuild their collections. But this time, that isn't working.
"Music is free, and that's a wonderful idea," says Howard Stringer, CEO of Sony Corporation of America. "Until there isn't any."
Stringer has reason to be concerned. Sony's music division lost $130 million in the first 6 months of last year.
"These kids are going to want to make music," says Stringer. "These kids are going to want to make movies. These kids are going to be part of the creative process. It isn't enough to say, 'While I was a student, I stole everything. But now that I'm a grownup, I'd like to go into the industry.' And the answer will be very simple. 'What industry?'"
Is the industry, as Wired magazine suggested, a hydrogen-filled Hindenberg about to burst into flames? In commercials, many well-known artists are appealing to the kids who are stealing their music.
The record companies have been suing Internet sites and trying to sabotage the file services.
"I mean, is that the correct response? I don't think so," says Jann Wenner, the publisher of the rock 'n' roll bible, Rolling Stone magazine. Wenner argues that the industry attacked the Internet when it should have been embracing it.
"It's a competitive response," says Wenner. "But it's more like throwing nails out in front of somebody else's gas station that you think that that gas shouldn't be operated or hasn't paid for the gas or something like that. But still it's throwing nails out in front. It's not offering a better station across the street."
The music business has begun to offer its own alternatives. Pressplay CEO Michael Bebel says for $9.95/month, users can have access to a quarter of a million songs. Pressplay is an Internet site jointly owned by Sony and Vivendi Universal.
"You can purchase songs on demand that you can burn to CD or transfer to a portable device for about a dollar a song," says Bebel.
Bebel wouldn't divulge how many subscribers Pressplay has, but he knows the pressure is on.
"We certainly have a lot of focus and attention from the music industry," says Bebel. "I don't know that they're looking for us to bail them out, but they're certainly looking for us to succeed."
But some artists aren't waiting to see what the industry does. The band Big Head Todd and the Monsters says file swapping hasn't hurt them. It may have even helped. The Colorado band, which survives on ticket and T-shirt sales, had a million-selling album in the early '90s. But Big Head Todd later split with its record company and released the new album "Riviera" on its own label.
Theoretically, they're losing CD sales.
But the band says that they never saw the profit from their sales when they were with a major record label. Now, because they are promoting themselves, they are getting more per-unit earnings.
The band members admit the big record label helped get them national exposure. Now, labels might not give newer bands that chance.
"Because they're losing revenue, there's less money to build a younger band," says Brian of Big Head Todd. "So the label started to tighten up and wanting more commercial hits. And that's where it came to be a pinch a little bit with us. They want the sure thing. They want you to go in with a co-writer and make a song that they know they can put on pop radio and sell, you know, a million records."
Sony's Howard Stringer says he believes his company will lose 600,000 jobs in the record industry worldwide over the next year.
"That's a serious decline in the ability of companies to market and harness and discover young talent," says Stringe. "We've gotta make the case against piracy. Because otherwise the music dies."
Survival will mean change. Lower prices and lower profits for everyone will be called for — even for the gods of glamour, the rock stars themselves.
"You have a lot of millionaires just trying to hang on to their meal ticket," say Brian of Big Head Todd. "The challenge for the artist is going to be how to make a living doing it. I mean, we may have to get day jobs."
On Grammy night, many in the record business will have to face the music.
Copyright 2003 CBS. All rights reserved.