e.Digital Corporation (fka EDIG)

[cksla]

Who's Wiring Hollywood? ALBHY GALUTEN
by Matthew Greenwald

"Who's Wiring Hollywood?" interview, March / April 1997 issue of The Network News (Vol. VII, No. 2)

Albhy Galuten has always had a yen for new technology from his beginnings as an Atlantic Records staff producer through his pioneering work developing enhanced CDs at ION to his current position at Universal Music Group (formerly MCA Music Entertainment Group) as VP of Interactive Programming. While at ION he co-developed the first multi-session audio discs, a format that evolved into enhanced CDs. He also facilitated the introduction of enhanced CD technology to Microsoft, Apple and several major record labels.

But there's also the music side: in 1978 Albhy won two Grammies, including Producer of the Year, and has produced 18 No. 1 singles which have generated sales of more than 100 million records. And he's one helluva piano player.

Here Albhy gives us his thoughts on the virtues and shortcomings of new technology.

Q: What is the scope of your job and responsibility at Universal?

A: A lot of what I do is covered by non-disclosure [restrictions], but I'm mostly the blue-sky geek on the lot. That is, I look at technology that will have influence on our business in roughly one to five years. I deal a lot with long-term strategy, so I wouldn't necessarily hire someone to build an enhanced CD (ECD) as much as I would hire a tools vendor to build engines to create an ECD, or have a piece of software written to connect our CDs to our Web site or deal with the digital distribution of audio, strategic alliances, etc.

Q: Your pet project is ECDs. What can consumers expect to get out of this? Have they shown a willingness to purchase such products on a widespread basis?

A: It has nothing to do with willingness to buy. Our model is that regular CDs have enhanced portions. So for instance, if you bought the new Romeo and Juliet soundtrack, you bought an enhanced CD. You didn't buy it because it was an enhanced CD, but because it was an audio CD that has an enhanced portion. My goal is to reach the point where virtually every CD that one buys within a year and a half will provide connectivity and added data. The enhanced portion is not to get people to buy more CDs, it's to increase functionality and provide connectivity to the CDs that people are already buying.

Q: How do you sell, or intend to sell, ECDs? Do you anticipate that retailers will give a specialized item like this shelf space, or do you intend to sell ECDs online or over Universal's Web site or in some other fashion?

A: There are some stores, such as Virgin Megastore, that have endcaps for ECDs, but we're not really active in that area. In my mind the ECD is the next generation of the audio CD. It's not a question of how you sell them if you put your next record out. For instance, if you buy the new Bobgoblin CD, an ECD, it will be in the same section as the audio-only discs. There are a lot of CDs that you may not realize are enhanced.

Q: The Stones' album ("Stripped") was one of the first ECDs to hit the mass market, correct?

A: Yes, but it was in the old ECD format, which was a bit problematic. It wasn't the "Authorized Albhy Format" [*laughing*]. The other labels didn't listen to me a couple of years ago and made some mistakes, but now they've all come around to using the more correct format. The Rolling Stones' title did not play in some car stereos.

Q: How does what you're working on enhance the value of an artist's material, particularly to the consumer?

A: It provides a direct relationship between the artist and the consumer. Very soon you will be able to put a CD in, press a button and find out what happened last night on tour, or find out when they're coming to your town, or when the next CD is coming out.

Q: Have consumers been oversold on the capabilities of new technologies?

A: No, I don't think so.

Q: How do you address the fact that the average consumer still doesn't have a computer system upon which he can enjoy an ECD?

A: I don't have to address that, that's the [consumer's] issue. Computer systems are changing and getting much more powerful very quickly. What I'm trying to do is define standards. Remember, my universe is supposedly aimed at what will be happening three years from now. It's almost impossible to buy a new computer nowadays that isn't powerful enough to play an ECD. The old base of computers that can't play ECDs is disappearing very quickly. People now, for the most part, are buying audio CDs for the audio. So if they're buying an ECD for the same price that they are paying for an audio CD, how can they gripe? It's free, use it or not.

Q: You've been at Universal for about a year and a half -- how does what you've done and what you're doing here set this company above and apart from its competitors?

A: I think that we are the only company looking for standards to set for the industry that will be viable ten years from now. Other companies' technology initiatives are primarily based on marketing. We're looking at what the average consumer can expect when he puts a CD in a computer, because this is what he'll expect when he puts a CD in his TV three years from now. I want to put stuff on a CD that is still relevant in a year. Many of these issues are ones that only we are looking at now, all the issues that pertain to copyright and file formats. We're looking at all the structural issues that underline the business. I spend more time working on strategic alliances with software vendors and tools vendors.

Q: Is this part of your department's five-year strategy?

A: Yeah, which turns out to be a five-year strategic plan for the music industry.

Q: You're still conducting research on ECDs; who funds this? Universal? Or does the record industry have a fund for this sort of thing so that the benefits can be shared by the industry?

A: The truth is that it's not very expensive. For instance, when you look at my Web site (http://www.mca.com/newumg), you'll see that there are specifications for start-up applications. We've gotten some feedback. It's not very expensive, but it takes so long to go through the channels. Engineers used to sit around for months working on specifications. They'd do a draft, send it to someone else, revise it a few times, and then it would go before a commission. That just doesn't work anymore.... sometimes four years go by and nothing gets built! Now that we have the Internet, the turnaround time for specifications is in months, not years. It's market- and industry-driven now, not engineer- or university-driven.

Q: You served as VP of Technology at ION before coming here. What happened to ION? Did the LA office fold?

A: Yeah, they were a tools company. They were spending a lot of money and they grew up, so now they build tools and software. They're still good technologists, but they're not doing titles [anymore].

Q: Didn't they have BMG funding?

A: They did, but that deal ended.

Q: What was the original purpose and what went wrong?

A: Originally they were CD-ROM developers with their own distribution, and they made titles. I think that we all found out -- some of us kind of knew ahead of time -- that making music titles for CD-ROMs just wasn't a profitable business. You basically spend half a million to a million dollars and a year or two to make a title. Well, there's no justification that people will spend the kind of money to warrant that. I think that "eve" (Peter Gabriel's second CD-ROM) is a good title, but they spent two years and one million dollars to make that, and they'll never recoup their money. But what I liked about ION was that they understood the technology and the paradigm, so they were the company I went to when I made the first ECD. When I was there, we evangelized it for the record industry. ION did some great work.

Q: What are your thoughts on digital distribution? What do you think the future holds for traditional retail?

A: I think that we're going to move within the next ten years to about 50% digital distribution. It's hard to say, but it is clear that within five years we will have some sort of credit card-sized device, and will be able to walk up to a terminal, click on our three favorite CDs and put them on there in seconds, pocket them and play them in the car.

Q: What are MCA Records/Universal's direct-to-consumer sales plans based on any new technology available?

A: It's not my domain. I know that all of the labels are dealing with selling direct to the consumer, but everybody walks carefully because of retail. Certainly Dave.com walks so carefully that they don't fulfill any of their orders [*laughs*]. I ordered four enhanced titles 4-5 weeks ago and offered to pay for overnight delivery and they still haven't shown up.

Q: How do you see the record industry expanding into technological realms in the near future?

A: Ubiquitous connectivity and, at some point, some percentage of digital distribution of audio.

Q: Which labels have made the most notable inroads using technology?

A: Obviously, Sony is spending the most money, even if it's Visa's money. Warner Bros. is spending a lot of money for their Road Runner trials. Overall, the record industry is not spending money in this area. AT&T recently announced that over the next fiscal year $9 billion would be spent on infrastructure, basically for the Internet. Microsoft recently announced that they will be spending $1 billion as well over the next three years for original content on the Web. The record industry isn't spending this money.

Q: Does Web presence boost sales substantially?

A: Not really, there's no evidence that the Web influences our bottom line in any way. We're not breaking even yet.

Q: How have the Internet and the WWW changed the record industry, in your view?

A: They provide an outlet for true alternative stuff which doesn't really generate revenue. They also provide a greenhouse for communications infrastructures, micro marketing and direct communication. So there are inklings of what ubiquitous communications infrastructure is all about. Ultimately it will be as significant as the Industrial Revolution, and much more significant than television or radio. The effect on our lives is significant. There's no reason why my server access has to be different at home from here; I should be able to walk up to a computer terminal in a hotel room, swipe my card and go to work on my desk top the same as if I were at home. There is nothing technologically stopping us from doing that, and it will be the norm in three to five years.

Q: Which among your characteristics has best served you in your career?

A: Paradigm shifting, the ability to discard old paradigms. To cut your losses quickly. I remember producing Streisand's "Guilty" record and we started tracking some things and even though we'd paid big bucks for some musicians, I saw the chemistry wasn't right. I had to pay them a bunch of money to leave and hired other musicians. And we ended up with her biggest selling CD ever. I was able to let go of that. I think that's very important, whether you're dealing with music or new technologies.

Q: What do you consider the biggest success of your career?

A: I have to say my wife and children [*laughs*]. If I have to put one thing above all else, it's gotta be that! I mean, how can you sit here and compare basically inventing enhanced CDs with producing "Saturday Night Fever"? Nothing compares with my wife and children!

E N D