INSIDE.com

The Offspring: Enfants Terribles in the Age of Napster
The band's plans to give away its new album online well before the official release have people at Columbia secretly thrilled and publicly peeved. And everyone's wondering whether this radical test case will transform record marketing for good.
by Warren Cohen

Wednesday, September 20 10:59 A.M.

The Offspring's tussle with Columbia Records for control of their online destiny began as soon as the band signed with the label in 1994. Back then, the Offspring had their own Web site and collected e-mail addresses of their fans. Columbia wanted the data, but the band refused. Said a source close to the group: ''It's a complete breach of responsibility because our fans only care about the Offspring, not 50 other Columbia bands. They would resent us for being pitched by bands they didn't care about.'' So the Offspring kept their database, which now contains 180,000 e-mail addresses.

In November 1998, Columbia forbade the group from releasing ''Pretty Fly (For a White Guy)'' as an MP3 single. But fans soon traded the track on pirate MP3 sites. It appeared with such frequency that Rolling Stone magazine labeled the Offspring one of the Web's most downloaded bands. All this activity, incidentally, occurred before Napster founder Shawn Fanning had even written a single line of the program's software code.

So this past March, while in the studio recording their new album, the Offspring were determined not to let label concerns interfere with their digital designs. The band and its manager Jim Guerinot, a former vice president of marketing at A&M Records in the early 1990s, were thinking of novel ways to make the new record stand out during a crowded fall release season. Inspired by the hit game show Who Wants to Be a Millionaire, the band decided to offer a million-dollar prize to one lucky downloader.

And so beginning on Sept. 29, with the aptly titled lead single ''Original Prankster,'' the tracks from the Offspring's forthcoming Conspiracy of One album will begin to appear on the Web for free, more than a month before the Nov. 14 release date. Fans who grab the tracks from the Offspring's Web site or one of a number of participating sites can offer up their e-mail addresses for a chance to win $1 million; by the end of the promotion, the band hopes to have hundreds of thousands of valuable new names and e-mail addresses. Most notably, since the Offspring have decided to pre-release the album tracks in the insecure MP3 format, the songs will be instantly available through Napster, Gnutella, Scour and the like for all the world to download. ''The bulk of people who download our music buy our record,'' says a source close to the band. ''We're getting sick of watching someone else upload our music to the Internet. We want to reach those 25 million users on Napster.''

With one well-placed announcement, the Offspring have roiled the music industry and anointed themselves the grand digital test case. If the band proceeds with the plan without getting sued by Columbia, the industry will have a real-world experiment as to whether online freebies boost or destroy record sales. Both sides of the digital divide will closely monitor the sales tally from the new record's first week. The Offspring's bestselling release, 1994's Smash, sold 400,000 in its debut week; the last Offspring record, 1998's Americana, sold 198,000. (It went on to sell 4.6 million copies domestically.)


AND A RIFT BEGINS
While Columbia would not comment publicly, the situation has caused a rift in an otherwise good relationship. Both the band and the label represent the irreconcilable worldviews that have split the music business into two factions. The Offspring believe that giving away free music will only lead to more album sales. And in order to tempt downloaders to purchase the physical CD, the Offspring will enroll buyers in the band's digital fan club via a special code in the CD. Joining Offspring Nation gives fans unreleased music, preferred seating at concerts and online chats with the band.

But digital-wary labels and retailers are put in an uncomfortable spot. The Offspring's release comes during the age of Napster, which takes even the illusion of control away from content owners and Web site promoters and lets the music run hog-wild across the Net. In fact, the Offspring promotion will begin one week before the recording industry's lawsuit to shutter Napster is heard by a federal appeals court. On behalf of the band, Guerinot has already filed a friend-of-the-court brief in support of Napster, writing that ''Napster is a wonderfully programmed system that the Offspring has successfully used to promote their music and their band.'' But while the Offspring's gambit is a little too late to serve as evidence in Napster's legal fight for survival, their giveaway could inspire other bands to follow suit if Napster survives.

At the same time, however, Columbia and some retailers believe that the Offspring's online freebies will cannibalize record sales, and the companies' own bottom line depends upon the band. For Columbia, the Offspring are an A-list client. Unlike other digitally rebellious alt-rockers like Smashing Pumpkins and Courtney Love, who were at the end of their label deals when they engaged in online high jinks, the Offspring are in the prime of their Columbia contract and have sold more than 26 million records worldwide. The new Offspring CD is Columbia's biggest rock album this holiday season and probably the label's most important release other than Ricky Martin's. But how can the label and retailers promote the album knowing that its success may effectively endorse a new wave of 21st-century guerrilla marketing?

It's possible that Columbia could sue the band to try to stop them. Band sources say that marketing and A&R officials at the label were secretly thrilled about the promotion, but with the record industry in a high-profile lawsuit against Napster, they couldn't support it. A person who was at the negotiations says, ''The label told us it was a holy shit-amazing-genius idea, but there's no way you can do it.'' Columbia released a statement saying, ''While the band has come up with a million-dollar idea for their fans and we're excited about the contest, we have very real concerns when it comes to unsecured downloading of music and piracy on the Internet. We're hopeful that we can arrive at a method that will protect everyone's rights and still maintain the integrity of the band's idea.''


BRILLIANT TACTICS, QUESTIONABLE ENDGAME
But the Offspring have magnified the dilemma facing traditional marketers who want to use online promotional techniques but fear that such a move could also raze the traditional business. Many industry folks declined to comment, admiring the idea but worried about their own relationships with major labels. But most everyone hailed the brilliant tactics, even if they didn't agree with the endgame. ''Guerinot is extremely smart and I agree with a lot of what he's saying,'' says one executive at a major label. ''If music on Napster is being given away, why shouldn't he get something out of it like e-mail addresses? But as a label, our job is to protect the master recording as something that has value. The Offspring have given their fans an amazing shot of adrenaline but I'm not sure what that gets the industry over time.''

The retail community is also split. Dave Alder, general manager and senior vice president for Virgin Megastores Online, complains that ''the Offspring's decision won't encourage retailers to support the band.'' But Checkout.com, for example, will host the free Offspring tracks side by side with the paid CD in exchange for those valuable e-mail addresses. ''The people who get it for free were not going to buy it anyway,'' says Jason Fiber, the vice president of digital strategies for Checkout.com. ''We have to embrace the Internet and add it to our retail efforts.''

Siding with the band are some of the Offspring's promotional partners. The Web sites of radio stations like Philadelphia's Y100 and Atlanta's 99X will carry the promotional tracks. MTV is also aboard -- the songs will be available at MTV.com and the winner of the million dollars will be announced on MTV on Nov. 14. Any sites distributing the Offspring's songs will receive the valuable e-mail data. ''We get to sound cool and connected with a hip band our listeners love and we get e-mails in our database we can hopefully use to our advantage,'' says Jim McGuinn, program director of Y100.

Some managers think that the Offspring can afford to take a chance on losing album sales if it translates to more promotional opportunities. ''Artists are in a different business than manufacturing and distributing records,'' says Allen Kovac, chair of Left Bank Management, which represents such acts as Motley Crue and, more recently, Hole. ''After getting the e-mail information, the band may do better from the standpoint of tickets and T-shirt sales than record sales.'' Kovac said he would endorse a band's decision to follow the Offspring. ''If you can get directly to your audience, you're winning,'' says Kovac. ''And owning e-mail addresses is one of the most valuable things a band could ever do because they would know how to communicate with their audience.''


'AN EXCITING TIME WITH NO RULES'
Other supporters of digital music are not as certain. Mark Kates, president of Grand Royal Records, recently announced that all future releases would be for sale in both digital and physical formats. But he believes that selling music is the underpinning of industry's economic fortune. ''It's an exciting time with no rules anymore but I would not advocate giving an entire album away two months early,'' he says.

Sources in the band's camp hint that if the Offspring are sued by Columbia, they won't deliver the record and will just go on tour instead. Money earned on the road is typically never shared with the label. But the band doesn't want to end relations with Columbia and go it alone. ''The label is still a big help in selling and promoting our records in stores,'' says one source with the band. ''Columbia still has a great incentive to sell and promote our record and make money doing it.''

Columbia is hoping that at the very least the Offspring relents on the downloading format. Sources say that the label could live with free tracks in a format that times out after a certain number of days like Liquid Audio. But the band's source is dead set against another format. ''We don't want to put up something inferior to MP3 when it's the format of choice,'' the person says. ''We want the bulk of listeners, not the few who use Liquid Audio. And if we don't do it, it's going to end up in MP3 anyways.''

As far as the legal implications go, the Offspring may be on slightly shaky ground. Higher-ups at Columbia warned the band that any release of the song over the Net would violate its contract. Record companies typically own the master recordings as well as the decision-making power on how to release the material. But the Offspring refused to budge. Guerinot consulted with the band's attorney, Jill Berliner at the Los Angeles-based firm of King, Purtich, Holmes, Paterno & Berliner, about legal options. (Berliner works at the same firm as Metallica attorney Howard King, which must make for some interesting debates at the in-firm lunches.)

Berliner would not publicly comment, but a source who attended the discussions says that Berliner and the band devised two counter legal arguments. First, the Offspring believe that they could have an antitrust claim against the label if it tries to stop their online distribution. The band argues that since other individuals on the Internet distribute its songs, Columbia would unfairly use its market power to prevent the band from doing the same. Secondly, the band says that Columbia has abandoned its fiduciary responsibilities to protect the band's copyright due to the insecure format of CDs. Says the source for the band: ''Are we violating the copyrights we have granted them? We don't think so. Lots of people feel we're on safe ground here.''

But most copyright lawyers disagree, saying the label's contractual rights to the band's material supersedes any other concerns. ''I'm not sure either one of their arguments is legally correct,'' says David Helfant, head of music law department at Troop, Steuber, Pasich, Reddick & Tobey in Century City, Calif. Helfant believes the only potential claim for the band involves the typical contract provision where a label agrees to make ''reasonable efforts'' to promote the album and reach its sales potential. ''One could argue that not doing an Internet promotion in today's environment is a breach of obligation to market and promote the record,'' he says.

The situation may change before the launch. The Offspring could relent and put the music into a secure format or reduce the number of free tracks, though that seems unlikely. Or Columbia could rush to court and try to legally handcuff its own band, a PR nightmare if there ever was one. Most likely, the promotion will continue, and a band, a label and a jittery music business will look to a million-dollar prize to determine the future of a $15 billion industry.