CHAPTER FIVE

INDUSTRY CONCENTRATION AND THE END OF CUCA

The late 1960's and early 1970's witnessed the most intense conglomeration of the music industry since the Depression, one which meant the death to the many independent labels. Through changes in distribution methods, corporate takeovers, technological advancements, and the increased costs of production and promotion, major labels enveloped indies throughout the United States. These external pressures, exacerbated by internal factors such as the reliance on a single owner, caused indies like Cuca to cease operation and bow to the hegemonic power of the oligopoly. Cuca itself left the business voluntarily and its timing was fortuitous; the late 1970's saw a crash in the industry, as well as new technological and promotional advances which further compounded the remaining indies' woes. Although independents continue to spring up in the industry and provide fresh music and outlets to unknown musicians, their efforts today are often short-lived and adversely affected by the major-controlled industry structure.

Between 1964 and 1969, music sales soared in the United States. In 1967 the record industry broke the one billion dollar market in sales^[1*] and by 1969 sales reached 1.6 billion dollars, surpassing the gross revenue of all other forms of entertainment.^[2*] However, while sales expanded, it was the majors and the established artists who reaped the profits. The number of new Top 10 artists decreased, the charts dominated by superstars holding contracts with large music companies.^[3*] The top five conglomerates at this time, Polygram, CBS Records (Columbia and Epic), RCA-Victor, Warner Communications (Warner/Reprise, Elektra, and Atlantic), Music Corporation of America (Decca, Kapp, and UNI), and Capitol-EMI, serviced over 50 percent of the market with their manufacturing plants and distribution branches. In 1968 these five firms increased their share to over 55 percent of all music sales. Large independents, like Motown and A&M, controlled a significant amount of the remaining market share.^[4*] This almost equitable market division shifted in favor of the top major firms virtually overnight.

By the early 1970's, the majors' control of the market intensified. From 1970 to 1973, the total number of competing firms dropped by 61 percent, increasing the majors' share of the market by 36 percent.^[5*] In 1973, the conglomerates had an 81 percent share of the market, gleaning the huge profits which rose from a 1972 total of 2 billion^[6*] to 2.4 billion dollars in 1975.^[7*]

Profits and market control skyrocketed during these years because the major firms actively began purchasing their competition or driving companies out of business. Their consolidation efforts were similar to that of the Depression era, with indies falling into majors' grasps. Instead of a widespread economic panic, however, the motivation this time was profit. Industry moves like the increased emphasis on the LP and new studio technology provided the means for majors to take over the indie competition. As was already explained, LP's were more expensive to produce so indies in the 1960's continued to concentrate on the 45 format. However, customers demanded the LP and majors were more able to comply,^[8*] increasing their profits by raising LP prices to an average $7.98 by the early 1970's.^[9*]

With an increasing share of the market and rising profits from LP revenue, majors had the funds available to restructure the distribution side of the industry. In 1969 RCA-Victor became the first firm to re-introduce the merchandising chain, co-owned or franchised music outlets, that had prevailed before the advent of rack jobbers. Over the next several years, the other majors followed suit and by 1972 all of the majors distributed their wares through this system.^[10*] By the late 1970's, six giant multinational record companies (BMG which bought RCA; CBS-Sony; EMI-Capitol; MCA; Polygram; and the WEA group - Warner Brothers, Elektra, Atlantic, and Asylum) controlled nearly all record distribution.^[11*] Indies were forced to look to local independent distributors to stock non-franchised record outlets. However, these outlets were quickly disappearing from the national landscape as large, suburban malls with high rents gained popularity. This form of retail real estate was out of the monetary grasp of most mom-and-pop store owners. Even small distributors who dealt in the specialized, non-mainstream genres of music began to turn to major-owned distributors with worldwide outlets to handle their business. Smaller distributing companies found it more convenient to be paid by one source rather than waiting for hundreds of tiny payments from various store owners.^[12*]

Majors also succeeded in taking over the vast majority of the industry because of rising costs. By 1971 the costs of record production had risen by about 200 percent since the late 1950's. Studio charges rose from 70 to 120 dollars when the cost of recording tape jumped from 50 to 90 dollars per unit.^[13*] Other prices rose as well, including the fabrication of labels, cover art, and metal acetates. It now cost about 4,000 dollars to produce a run of 1,000 records.^[14*] Acquiring the new technology for recording, like multi-track recorders, electronic equalizers, and stereophonic capability, made technological investment out of reach for many independents and for potential new entrants to the industry. Also, by 1970, 74 percent of all singles and 61 percent of popular LP's failed to break even,^[15*] making the previously lucrative prospect of entering the business unlikely for upstart indies. Only diverse corporations could absorb and withstand such odds and it was they who usually produced the profitable albums.

Important to understanding the motives to conglomerate was another technological innovation. The introduction of the cassette and the industry's response to it paralleled the introduction of radio, as did the blame it received when the industry took a downturn in the 1970's, just as the business had during the Depression. German engineers developed the cassette in 1962 and Norelco-Philip's North American Electric Company introduced it to the United States in 1963. It was not until 1970, however, that some of its flaws - namely the hissing sound, erratic speeds, and poor frequency response - were eliminated by the Dolby Noise Reduction System and it became a truly marketable and successful product.^[16*] The public responded enthusiastically to the cassette and as early as 1975 cassette purchases commanded a 29 percent share of all recorded music.^[17*] The music industry, however, viewed cassettes with suspicion; cassettes had the ability to record albums and business executives believed people would stop purchasing records. Also, firms feared piracy, the reproduction and reselling of records or radio broadcasts for profit by unauthorized persons. This fear was legitimate. Industry leaders estimated that piracy accounted for annual losses of 500 million dollars, prompting Congress to pass the Sound Recording Act of 1972 which penalized tape pirates under federal law.^[18*] Despite the legislation, piracy and home taping continued throughout the 1970's and firms blamed the popularity of the cassette, in part, for the industry downturn after the mid-1970's.^[19*] With fear as an impetus, majors recognized the potential threat of the cassette and responded by consolidating their businesses and removing competition in an attempt to offset a future decline in sales. An external economic emergency aided the dominate firms in this endeavor.

The oil crisis of 1973 hurt the industry as a whole, but it put the final nail in the coffin of many indies unable to withstand rising prices and material shortages. The energy crisis had the most severe impact on record manufacturers who did not own their own pressing plants: the independents. The crisis created a shortage of polyvinylchloride from which both records and tapes were produced. Majors immediately canceled custom pressing orders, causing small firms to reduce or cease operations entirely.^[20*] Many that did remain in business, but were unable to secure custom orders, found themselves pressured into making investment arrangements with majors. The large companies invested in the operations of the indies, rather than simply contracting custom orders. With legal and financial ties into the internal workings of the businesses, it was then short jump to take over the indie's assets entirely, making the label a subsidiary of the major.^[21*]

Another group adversely affected by the increased costs were unknown musicians. Most could not afford to pay their own studio time in high price major studios. With the disappearance of independent labels, artists could not demonstrate their talent through a recording. They thus lost the ability to snare a recording deal with a major, who then may be willing to wave the studio fee with the prospect of a hit record. The superstar artists on the major labels also contributed to their fellow unknown musicians woes; by demanding, and receiving, larger royalty agreements - up to 15 percent - they helped raise the cost of studio and record production.^[22*]

The result of the increased costs, the oil crisis, and the new technology was a series of complex corporate mergers and takeovers, a trend which had begun in the late 1950's and intensified and accelerated in the late 1960's and early 1970's. Warner Brothers absorbed Atlantic Records, perhaps one of the largest and most successful independents throughout the 1960's. With the takeover, Warner Brothers received Atlantic's music catalog and distribution deals that the former independent had made with other small firms.^[23*] Polygram acquired Mercury-Phonogram (the indie which EMI had purchased in 1961), Philips, MGM, and United Artists Records (a motion picture company which itself had absorbed independent labels such as Imperial Records during the 1960's^[24*] ) from Transamerica Corporation.^[25*] The German-owned multinational BMG purchased RCA-Victor and its subsidiary labels. The giant Sony corporation merged with CBS, creating a multinational media and electronic equipment conglomerate. It was Warner Brothers and Columbia which led the way in the practice of acquiring the artists' contracts once the majors purchased an indie company.^[26*] In this way, majors diversified their supply of talent and "coopted the music, recording techniques, and even the rebellious stance of independent companies....rebellious music could easily be annexed and exploited for profit. Every type of new music was wrested from the control of the independent companies and integrated into the larger business."^[27*]

The increasing strength of the majors was self-reinforcing. The conglomeration trend of the industry drove many artists to strive toward concentrating their efforts on harnessing recording deals with majors because musicians would then be able to reap the rewards of international promotional and distribution systems. According to Charlie Gillett, the late 1960's saw more and more artists turning their backs on indies, using them as stepping-stones on the road to a major record deal. By the 1970's, this left the number of independent labels at almost zero.^[28*] Without artists recording albums, indies could make no money and therefore could not stay in business.

It was not only the economic and tactical strength of the majors which allowed the takeover of independent record companies on a large-scale basis. Internal factors typical to most indies also contributed to their inherent weaknesses, making them particularly sensitive to takeover pressures and outside forces. The single-owner structure common to independents worked to their disadvantage. Small businesses depended upon the health and motivation of their leadership. If these failed, so too did the companies. For example, Chess Records of Chicago was very successful throughout the 1950's and 1960's, owning its own publishing wing, Arc Music Corporation, as well as radio stations in Chicago and Milwaukee through L&P Broadcasting. However, GRT, a media conglomerate, was able to purchase the label for several million dollars in 1969 after Chess' owner, Leonard Chess, died. GRT absorbed the label and its music catalog, moving the firm to New York City^[29*] before it filed for bankruptcy. Tee Pee Records of Appleton, Wisconsin failed during this time when its owner, Al Posniak, developed a brain tumor and died in 1972.^[30*] Ace Records also succumbed because of its small, single-owner structure, though not as a result of the death or illness of its owner, Johnny Vincent. According to Donald Mabry, the firm's activities were too dependent upon the talent and motivation of Vincent. Unable to afford a sizeable staff to handle various tasks like promotion, label and contract management, talent scouting, and production, Vincent tried to perform all these duties himself. Along with the reliance on the limited regional supply of New Orleans talent and the problems encountered with distribution, this over-extension of duties convinced Vincent to cut his losses and leave the business.^[31*]

It was a complex intertwining of all of these factors which, taken together, explain Jim Kirchstein's decision to first scale back the scope of his record business and then leave the industry completely in 1973. Similar to Ace Records, a combination of external pressures - distribution problems, technology, and the economy - and internal factors - the small budget and staff, the location and limited market access, and the reliance on Kirchstein's own desire and motivation - drove Cuca Records to cease operations. However, as will be shown below, the timing was fortuitous because developments in the late 1970's and 1980's made the industry even more inhospitable for independent record companies.

Cuca's distribution problems played a major role in the downturn of its business in the late 1960's. Losing Midwest Distributors and the 15,000 dollars it owed to Cuca, along with the bankruptcy of GRT, dealt a severe blow to the label. Besides losing revenue, Cuca found one of its primary outlets for its old-time catalog severed. The remaining distribution companies with which Cuca conducted business also did not help the indie's situation. Their 100 percent return policies meant that all unsold records returned to Sauk City. By the late 1960's, Kirchstein found himself with a warehouse stuffed with over one million unsold --- and likely unsaleable--- singles and albums.^[32*] Therefore, Kirchstein had a significant amount of material and funds tied up in excess inventory rather than generating profit for the label.

The introduction and popularity of the cassette was another external industry factor which led Kirchstein to consider leaving the recording business. In fact, Kirchstein stated this was one of his prime motivators. He said, "When the cassette came in in '72 [sic], I was very scared because I thought it would damage the record industry."^[33*] Kirchstein, like other label owners, believed that consumers would no longer purchase records and would instead tape selections from friends or off the radio. Believing the cassette would negate much of his profit, Kirchstein began leaning heavily toward the decision to escape the business.

The oil crisis of 1973 also directly affected Cuca. This final external factor bit into one of the few competitive advantages the independent had, a pressing plant. The government began rationing Kirchstein's supply of nickel, which was necessary for the electroplating stage of the manufacturing process. Also, the petroleum shortage caused the price of plastic, a key ingredient in record fabrication, to skyrocket because much of the product became available only through the black market.^[34*] As the price to press records became more expensive and the uncertainty of supply became more apparent, Kirchstein found his manufacturing business in dire straits and its previous competitive advantages, the reduction of credit and supply problems, removed. However, it was the ownership of his pressing plant rather than the reliance upon majors' which allowed him to forgo falling into their clutches as happened with other indies at this time. Instead, he chose to phase out his business on his own, after examining the problems within the internal workings of Cuca Records.

The type of music which Cuca's catalog represented played a large role in the decision to suspend recording operations. The old-time line, which provided a solid base for the label in both artists and record sales, began to lose favor among a broad audience. In 1969, the category of "all other genres" besides rock, country, easy listening, classical, r&b, and jazz commanded only 12 percent of the entire industry's sales.^[35*] This meant that Kirchstein was competing with other genres and other companies for a tiny share of the national market with his old-time niche. Wisconsin and other Midwest residents, the bulk of Cuca's old-time customers, not only began to lessen their purchases of old-time records but also began turning to other entertainment media, like television. Wisconsin teenagers, once avid consumers of polka music and dances, lost interest in old-time bands, choosing to listen to rock-and-roll instead. Therefore, not only were artists' record sales hurt, but their live performance options also were seriously curtailed in the late 1960's. This, in turn, also reduced sales as musicians could no longer sell their albums from the stage at concerts, nor could they generate interest to buy old-time records from music stores or through mail-order. According to Kirchstein, bands not only stopped recording new albums at this time but also began to break up and cease performing altogether.^[36*]

The downturn in old-time demand also affected performance venues which injured the artists and Cuca's sales further. Ballrooms around the state began to sponsor rock shows and other entertainment, at the expense of the old-time performances. Places like the Eagles Ballroom or Devines in Milwaukee had, during the heyday of polka, hosted old-time bands every Friday and Saturday night as well as Sunday afternoons. Slowly, beginning in the mid-1960's, ballrooms began phasing out Friday performances in favor of rock bands, leaving polka fans to content themselves with Saturday night dances. Then Saturday performances also fell into neglect and by the late-1960's, ballrooms in Wisconsin generally ceased regular old-time performances.^[37*] With no audience, bands were forced to scour for specialty jobs, like weddings and parties, or play small clubs. This reduced not only their profit from performances, but the number of people exposed to and interested in their records. Unable to command sales outlets, few band saw the worth of investing a small amount of money into recording an album at a studio like Cuca.

Developments in Kirchstein's personal life crystallized his decision to leave the recording business after making an attempt to revive the faltering label. In 1969, the dean at the new Baraboo-based University of Wisconsin center, who was a Cuca record customer and knew of the unique studio design and experimentation with sound effects, approached Kirchstein and asked him to help design and build some of the technological requirements for the campus' buildings. Kirchstein agreed, but worked only part-time for the University, hoping to still maintain his record business. To juggle his new time commitments, Kirchstein began cutting back pressing plant output in 1970 and he closed it officially in 1973. He saw the costs of manufacturing materials growing and at the same time realized that his own constant presence and expertise were needed to keep the plant in operation. Due to constant machinery breakdowns and the cold Wisconsin winters which caused frozen pipes, Kirchstein simply could not run the pressing plant while spending 20 hours a week in Baraboo. Lack of available capital and local talent prevented him from hiring another person to run the operations for him.^[38*]

In 1972, the University of Wisconsin offered Kirchstein a full-time position and he accepted. At the same time, Kirchstein made an attempt to both change the scope of the label and sever its reliance upon his production abilities; he was still unwilling to liquidate the business he built. Kirchstein borrowed 50,000 dollars to upgrade his recording equipment. He purchased a new mixing console and a 16-track recorder, which by now was standard throughout the industry, and hired Jerry Block, a student from Madison, to operate the studio. He also reorganized and renamed the label, calling it American Music to give the business a more commercial, less ethnic appeal. Because of both the decline in sales of old-time music and the lack of artists, the renamed label concentrated almost exclusively on "big market" rock-and-roll LP's, as well as custom jobs for area musicians and organizations interested in attaining their own personal recordings.^[39*]

Despite the new focus, success was not forthcoming. The location of the business prevented any truly big rock-and-roll bands from recording in Sauk City. Also, the lack of a stable distributing network and the credit problems that come with the increasing reliance on outside pressing plants made the label unattractive to aspiring musicians. Finally, Kirchstein's own personality and attitudes sealed the label's fate. He said,

Realism started settling in - the multi-track equipment allowed a lot of things, but [I was] now just doing tracking, tracking, tracking. That didn't appeal to me. I like creating. I like to be able to paint a picture in sound as I listen to it. When we were done, we were done with the session. The master prepared. When you start manipulating and piecing together, that became real mechanical to me.^[40*]

Kirchstein's interest in design, electronics, and technology, which had helped spawn the Cuca label over a decade earlier, now made the recording process less challenging, more mundane. With lack of artistic challenge, a new job demanding more of his time, and a failing market for the music he produced, Kirchstein shut down the recording studio in 1973, its tenancy taken over by Midwest Professional Karate Studio and the Shear Expressions beauty salon.^[41*]

The history of Cuca Records provides not only the story of a Wisconsin company and the Midwest artists it recorded, but also a case study of an independent label. Its beginnings with a single-owner at the helm and an early hit record provided both the incentives and indications of the obstacles which lay before it. Cuca faced the dilemmas all independents confronted: technological innovations, competition, distribution, and changing musical tastes. It entered the business just as the major firms began their conglomeration efforts and survived through to the early 1970's because of its recording policies and manufacturing plant. These both enabled Cuca to avoid the credit problems so common to its indie contemporaries. However, a series of external and internal factors combined and by 1973 Jim Kirchstein could no longer carry the burden of running an independent firm out of Sauk City, Wisconsin. The obstacles he faced were simply insurmountable. In the words of Donald Mabry, "Small companies can overcome these obstacles, but few do."^[42*]