Rolling Stone has published the first in a two part series that details the method the recording industry used to kill itself.

In the fall of 2003, the RIAA filed its first copyright-infringement lawsuits against file sharers. They’ve since sued more than 20,000 music fans. The RIAA maintains that the lawsuits are meant to spread the word that unauthorized downloading can have consequences. “It isn’t being done on a punitive basis,” says RIAA CEO Mitch Bainwol. But file-sharing isn’t going away — there was a 4.4 percent increase in the number of peer-to-peer users in 2006, with about a billion tracks downloaded illegally per month, according to research group BigChampagne.

Despite the industry’s woes, people are listening to at least as much music as ever. Consumers have bought more than 100 million iPods since their November 2001 introduction, and the touring business is thriving, earning a record $437 million last year. And according to research organization NPD Group, listenership to recorded music — whether from CDs, downloads, video games, satellite radio, terrestrial radio, online streams or other sources — has increased since 2002. The problem the business faces is how to turn that interest into money. “How is it that the people that make the product of music are going bankrupt, while the use of the product is skyrocketing?” asks the Firm’s Kwatinetz. “The model is wrong.”

Kwatinetz sees other, leaner kinds of companies — from management firms like his own, which now doubles as a record label, to outsiders such as Starbucks — stepping in. Paul McCartney recently abandoned his longtime relationship with EMI Records to sign with Starbucks’ fledgling Hear Music. Video-game giant Electronic Arts also started a label, exploiting the promotional value of its games, and the newly revived CBS Records will sell music featured in CBS TV shows.

Interesting stuff. The article concentrates on the moment the industry first screwed up….by not cutting a deal with Napster. How could they not have known people would just go somewhere else if Napster got shut down? .

“The record companies needed to jump off a cliff, and they couldn’t bring themselves to jump,” says Hilary Rosen, who was then CEO of the Recording Industry Association of America. “A lot of people say, ‘The labels were dinosaurs and idiots, and what was the matter with them?’ But they had retailers telling them, ‘You better not sell anything online cheaper than in a store,’ and they had artists saying, ‘Don’t screw up my Wal-Mart sales.’

The Record Industry’s Decline [Rolling Stone via BoingBoing]

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