AUDASE

How the compact disc lost its shine

It’s 30 years since Dire Straits’ Brothers in Arms began the CD boom. How did the revolution in music formats come about and what killed it?

Dorian Lynskey London Guardian

Thirty years ago this month, Dire Straits released their fifth album, Brothers in Arms. En route to becoming one of the best-selling albums of all time, it revolutionised the music industry. For the first time, an album sold more on compact disc than on vinyl and passed the 1m mark. Three years after the first silver discs had appeared in record shops, Brothers in Arms was the symbolic milestone that marked the true beginning of the CD era.

"Brothers in Arms was the first flag in the ground that made the industry and the wider public aware of the CD’s potential," says the BPI’s Gennaro Castaldo, who began a long career in retail that year. "It was clear this was a format whose time had come."

As Greg Milner writes in his book Perfecting Sound Forever, the compact disc became "the fastest-growing home entertainment product in history". CD sales overtook vinyl in 1988 and cassettes in 1991. The 12cm optical disc became the biggest money-spinner the music industry had ever seen, or will ever be likely to see. "In the mid-90s, retailers and labels felt indestructible," says Rob Campkin, who worked for HMV between 1988 and 2004. "It felt like this was going to last for ever."

It didn’t, of course. After more than a decade of decline, worldwide CD income was finally surpassed by digital music revenues last year. With hindsight, it’s clear that technological changes had made that inevitable, but almost nobody had foreseen it, because the CD was just too successful. It was so popular and so profitable that the music industry couldn’t imagine life without it. Until it had to.

In 1974, 28-year-old electronic engineer Kees Schouhamer Immink was assigned to the Optics Group of Philips Research in Eindhoven, Holland. His team’s task was to create a 30cm videodisc called Laservision, but that flopped and the focus shifted to designing a smaller audio-only disc. "There were 101 problems to be solved," Immink says. Meanwhile, in Japan, Sony engineers were working on a similar project. In 1979, Sony and Philips made an unpredecented agreement to pool resources. For example, Sony engineers perfected the error correction code, CIRC, while Immink himself developed the channel code, EFM, which struck a workable balance between reliability and playing time. "We never had people from other companies in our experimental premises," Immink says. "It was unheard of. Usually you become foes, but in this case we really became good friends, and we’re still friends after so many years. It was remarkable, actually."

George Martin told us: You can’t smash them, look! And it broke in half

Paul McCartney

In June 1980, after complicated negotiations in Tokyo and Eindhoven, the so-called Red Book set standard specifications for the compact disc digital audio format. The story goes that the size (12cm) and length (74 minutes, 33 seconds) were changed at the 11th hour when Sony’s executive vice president Norio Ohga insisted that the disc should have enough space for the longest recorded performance of Beethoven’s Ninth Symphony, his wife’s favourite piece of music, but Immink suspects that is a myth. There were so many technical and financial considerations that it’s unlikely such a key decision came down to one woman’s love of Beethoven.

The CD was introduced to the British public in a 1981 episode of the BBC’s Tomorrow’s World, in which Kieran Prendeville mauled a test disc of the Bee Gees’ Living Eyes to demonstrate the format’s alleged indestructibility. It caught the public imagination, but Immink found the claim puzzling and embarrassing because it was clearly untrue. "We should not put emphasis on the fact it will last for ever because it will not last for ever," he says. "We should put emphasis on the quality of sound and ease of handling."

(Paul McCartney recently recalled the first time George Martin showed him a CD. "George said, ‘This will change the world.’ He told us it was indestructible, you can’t smash it. Look! And – whack – it broke in half.")

The engineers were evangelical about the CD’s superiority to vinyl and cassette, but the industry and public still needed persuading. "I was not convinced we would be a success at the time because I had seen the failure of the videodisc, which was a nice product, technically speaking," Immink says.

So, in April 1982, representatives of Sony and Philips set off to Billboard’s international music industry conference in Greece with a spring in their step. The record industry was suffering a painful recession ("Is Rock on the Rocks?" asked Newsweek) and this new digital marvel was surely the solution. To the labels, however, it was an invitation to gamble millions of dollars on a potential white elephant: an alien format that was expensive to manufacture and expensive to buy. Jerry Moss, chairman of A&M Records, claimed that the new format would "confuse and confound the customer". It was a rough conference. "There were many black-disc lovers who didn’t want to change and said: ‘We don’t see why we have to go digital,’" Immink says.

At least Sony and Philips had their own record labels – CBS and Polygram, respectively – so they pressed ahead. CBS released the world’s first commercially available CD, a reissue of Billy Joel’s 52nd Street, in Japan in October 1982. Philips missed the production deadline so the international release was put back to March 1983. It’s hardly surprising that only 5.5m CDs and 350,000 players were sold that year when so few titles were available.

Faced with low manufacturing capacity and high costs, labels trod carefully. Jeff Rougvie, who later worked for the pioneering CD-only label Rykodisc, was in retail at the time. He couldn’t even order individual titles from Sony, only a predetermined box of six: "A couple of classical titles, a couple of rock titles and Thriller. And of course you’d sell Thriller and the other five would sit around. Labels thought it was an audiophile-only product that was going to sell primarily to classical music buyers. They did not see it as a mass-market format."

Jon Webster, who worked at Virgin Records between 1981 and 1992, remembers that the label’s first batch of CD releases included Mike Oldfield’s Tubular Bells and Phil Collins’s Face Value: albums likely to appeal to affluent early adopters with the means to buy the discs and the expensive players. The first US CD plant, in Terre Haute, Indiana, debuted in October 1984 with Bruce Springsteen’s blockbuster Born in the USA. Enter Dire Straits.

Aware that most consumers didn’t even know what digital audio was, Sony and Philips had launched a promotional campaign on multiple fronts, including advertisements, public demonstrations, product placement, and special promotions for clubs, bars and radio stations. They also courted studio engineers and artists. While analogue loyalists such as Neil Young and Steve Albini railed against translating music into soulless binary code, some high-profile audiophiles felt that this was how music was meant to be heard. On first hearing a CD, the great Austrian conductor Herbert von Karajan memorably declared: "Everything else is gaslight."

Dire Straits’ Mark Knopfler was an early convert (the second track on Pure, Perfect Sound Forever, the motley 1982 compilation that came free with early CD players, was Dire Straits’ Once Upon a Time in the West). Knopfler insisted on recording Brothers in Arms on state-of-the-art digital equipment, so a promotional partnership was a natural fit. Philips sponsored Dire Straits’ world tour and featured the band in TV commercials with the slogan, attributed to Knopfler: "I want the best. How about you?"

"Brothers in Arms was an iconic release," says Gennaro Castaldo. "The CD came to symbolise the so-called yuppie generation, representing new material success and aspiration. If you owned a CD player it showed you were upwardly mobile. Its significance seemed to go beyond music to a lifestyle statement."

Brothers in Arms coincided perfectly with an economic recovery, more affordable CD players and the music industry’s post-Live Aid uptick. Philips had predicted that annual worldwide sales would surpass 10m that year while Sony anticipated twice that number. In fact, the figure was 61m, rising to 140m in 1986.

Yet the industry was still half-hearted when it came to back catalogue. Rykodisc ("Ryko" is Japanese for "sound from a flash of light") realised there was big money to be made from consumers upgrading their record collections to CD if enough care was devoted to remastering, programming (ie, bonus tracks) and packaging. The newcomer made big back-catalogue deals with Frank Zappa and David Bowie because the majors weren’t interested. EMI, which had first dibs, told Zappa: "No one will ever buy your stuff on CD." "There wasn’t a real good understanding on the majors’ side of what some of this stuff was worth," Rougvie says.

Eventually, even the slowest labels caught on. When Rob Campkin started work at HMV’s flagship Oxford Circus, London, store in summer 1988, the entire CD inventory filled just five five-foot racks. By the following summer, there were almost 40. "In those days, vinyl was very flimsy," he says. "Cassettes were completely disposable. When CD came along and said this will last you a lifetime,customers really did lap it up. It felt new, it felt shiny, it felt exciting."

By the 1990s, the CD reigned supreme. As the economy boomed, annual global sales surpassed 1bn in 1992 and 2bn in 1996, and the profit margins were the stuff of dreams. The CD was cheaper than vinyl to manufacture, transport and rack in stores, while selling for up to twice as much. Even as costs fell, prices rose. "It was simple profiteering," says Stephen Witt, whose new book How Music Got Free chronicles the industry’s vexed relationship with the MP3. "[Labels] would cut backroom deals with retailers not to let the price drop. The average price was $14 and the cost had gotten down almost to a dollar, so the rest was pure profit."

Jon Webster bristles at this claim. "What’s fair? The public says. Supply-and-demand says. There were ignorant campaigns by the likes of the Sun and the Independent on Sunday saying that these things cost a pound to make. Well, that’s like saying a newspaper costs 3p to produce. That doesn’t include the creativity and the marketing and the money it costs to make the actual recordings."

Whether or not the prices were justified, CDs sold in their billions and flooded the industry with cash like never before. This enabled labels to invest more heavily in new talent – Campkin suggests that Britpop might not have happened without the CD windfall – but it also funded misguided A&R frenzies, wasteful marketing and excessive pay packets. "In the 90s we were awash with profitability and became fat, to be honest," says Webster.

Philips and Sony also reaped extraordinary sums from royalties on the discs themselves, including billions of CD-Roms, although none of it reached Immink and his colleagues. Under Japanese law, engineers were entitled to a cut, but their Dutch counterparts had to settle for a salary and a token one-dollar fee for each US patent they filed. "I’m not saying it happened," Immink says drily, "but what could have happened is you work with a Japanese guy from Sony and he can buy a yacht and the Dutch guy has to be happy with one dollar."

As the decade wore on, there were tremors of unease. The industry was running out of albums to reissue, battling over price with supermarkets and big-box retailers, and disturbed by the introduction of CD burners. "Arguably, it’s why they missed the MP3, because they were so concerned about compact-disc burners," says Witt. "If you read corporate literature about forward-facing risks to the business in the late 90s, this is one of the top things they’re talking about, if not the top. And the impact was real. If bootleg discs flood the market they kill sales, no question about it."

Bootleg CDs were a danger the industry could get its head around – you could hold one in your hand. What it couldn’t comprehend was the threat of the MP3: the idea that music could transcend physical formats. "That happened for two reasons," says Witt. "One was they were enjoying unbelievable profits. Two, the studio engineers hated the way the MP3 sounded and refused to engage with it. A lot of artists hated the way it sounded, too." What the audiophiles didn’t realise was that most consumers couldn’t tell the difference. "What was the audio experience before the compact disc?" says Witt. "It was cheap vinyl or an AM transistor radio on the beach, and MP3 sounds better than either of those."

Rougvie suggests a third reason: fierce resistance from retailers who, understandably, considered the MP3 an existential threat. "Distributors and record stores were threatening to return every Ryko title they had, just because we were selling 10 or 12 MP3s every week. If that’s what we were feeling, I can only imagine what kind of pushback EMI or Warners were getting."

Just like their predecessors in Greece in 1982, 90s executives were too busy worrying about the next quarter to consider the next decade. The status quo was perfect, until it wasn’t. "My biggest bugbear about this industry is that they all think short-term," says Webster. "Nobody ever thinks long-term. All these executives were sitting there being paid huge bonuses on increased profits and they didn’t care. I don’t think anyone saw it coming. I remember the production guy at Virgin saying, ‘In a few years, you’re going to be able to carry all the music you want around on something the size of a credit card.’ And we all laughed. Don’t be ridiculous! How can you do that?"

"The MP3 wasn’t just a new format, it was a whole new way of doing things," Castaldo says. "There was also the first dotcom boom and bust, and I remember some people around me saying: ‘I told you it would never take off. That’s not how people want to buy music.’ Obviously a brand-new player like Apple could write the future as it saw it, but the rest of us didn’t have such a blank sheet to start from."

Only a handful of people predicted the CD’s downfall way back in 1982. German computer engineer Dieter Seitzer, the forefather of the MP3, immediately considered the CD "a maximalist repository of irrelevant information, most of which was ignored by the human ear," writes Witt. If music could become digital data, he thought, it wouldn’t be bound by the Red Book. Webster remembers one industry Cassandra, Maurice Oberstein – who ran CBS and then Polygram in the UK – making a similar point. "He was the only one who went: ‘We’re making a huge mistake. We’re putting studio-quality masters into the hands of people.’ And he was absolutely right in that respect. Once you made a CD with ones and zeroes it was only a matter of time before that was converted into something that was easily transferable."

It’s dying. It will go obsolete like the floppy disc did

Stephen Witt

The fall of the CD, like its rise, began slowly. When file-sharing first took off with Napster in 1999 and 2000, CD sales continued to ascend, reaching an all-time peak of 2.455bn in 2000. Tech-savvy, cash-poor teenagers stopped buying them but most consumers didn’t want (or know how) to illegally download digital files on a slow dial-up connection. So the market remained steady, artificially buoyed by aggressive discounting.

It was the 2001 launch of the iPod, an aspirational premium product which made MP3s portable, that turned the tide. "Before that the MP3 was an inferior good," Witt says. "Once you had the iPod, the CD was an inferior good. It could get cracked or lost, whereas MP3 files lasted." Not pure, not perfect, but sound for ever.

The compact disc has proved surprisingly tenacious. It still dominates markets such as Japan, Germany and South Africa; it makes for a better Christmas present than an iTunes voucher; and it has some hardcore enthusiasts. Jeff Rougvie is even planning to set up a boutique CD label to reissue rare and out-of-print albums. "It defies conventional wisdom but so did Ryko at the time. There’s an audience." But, insists Stephen Witt: "It’s dying. It will go obsolete like the floppy disc did. It just always takes a little more time than you’d think."

Rob Campkin recently opened a record shop in Cambridge called Lost in Vinyl. He only stocks a handful of the discs that were once the most lucrative product in the history of music. "Margins are very slim," he says. "I’d have to sell three or four CDs for every one copy on vinyl. It wouldn’t be worth my while."

How Music Got Free by Stephen Witt is published by Bodley Head on 18 June.