Michael Guido is a partner with Carroll, Guido & Groffman in New York. His clients include Jay-Z, OutKast, Velvet Revolver and Richie Sambora. The following is an edited version of his interview o

As 2004 came to a close, Billboard sat down with a dozen lawyers to discuss the state of the music industry.

Their work in connection with the industry varies. For example, Attorney General John Ashcroft and Deputy Chief of Staff David Israelite enforce laws against those who steal copyrighted works.

Two federal appellate court judges, Alex Kozinski (Ninth Circuit) and Richard Posner (Seventh Circuit), occasionally review cases involving copyright issues, technology or music.

Other lawyers litigate, advise clients, broker and negotiate deals and watch the trends around the world.

Michael Guido is a partner with Carroll, Guido & Groffman in New York. His clients include Jay-Z, OutKast, Velvet Revolver and Richie Sambora.

The following is an edited version of his interview on Nov. 22, 2004.

How do you feel about the state of the music industry right now?

Music is the most "ownable" art form that you can have. It is one that people seem to be genetically predisposed to need in their lives. People who aren't in the music industry say, "I need my music. I have to have my music with me."

So how could an industry that has this kind of product screw itself up? What happened?

The recorded music industry is on a death march -- it's on a march off the cliff. If it keeps going in that direction, if there's not some fundamental change, it's going off the cliff.

I represent artists and entrepreneurs. What I do every day is try to help them achieve whatever they're trying to achieve. For artists, it's helping them to maximize their careers artistically, financially -- in whatever way and for however long they care to.

When you see people being faced with an industry marching off the cliff, you start to think about why that is happening, what opportunities does that present and what can we learn from it all?

What has been learned?

A lot of us spent a lot of time in the last few years wondering, "How did we get from there to here -- from Woodstock to this?" You don't have to look that far back in this industry to see an entirely different industry.

The conclusion that I came to is that the future of the music industry is the past.

In the past, there was a belief in the power of the art form. All things flowed from that power because it recognized this connection between the music and the listener, and that people would reach in their pocket to pay money to have this music next to them, to have it be a part of their lives.

There is a constant debate: Maybe it's better to let [the major labels] go out of business so that we can restart again, like a Phoenix, and get back to the basics, because somewhere along the line, they forgot the business they were in.

We haven't had a culture in the last 20 years that rewards an album -- it only rewards three minutes.

It's unlike any other business. One million dollars can be spent developing an artist, creating the album, getting ready for the press campaign, and within six weeks, because those first three minutes do not connect at some really restricted radio format, the plug is pulled and that investment is written off.

Are you seeing that happen often?

All the time. This probably happens on 80% of the albums that come out.

What radio promotion people end up doing more than anything is declaring records dead: "That's dead, spins are flat, audience is down, can't get any adds, research is bad -- over."

They have more [albums] coming up from back in the system; they have to turn around and work them. They don't have the capabilities of sticking behind [a record], yet every year there are great examples of the opposite happening, great stories like Norah Jones, John Mayer, "O Brother, Where Art Thou?" They go on to sell millions of copies based purely on word of mouth, which is the best marketing campaign you can ever have.

How do you get word of mouth? If something's great, it gets word of mouth.

What is the state of the music industry in 2004 compared to the prior year?

There is a slight bit of optimism going on because of iTunes. Here's Steve Jobs again, who sees this huge space and figures out a very simple thing: "If I go create a legal store for downloads, I can sell these iPods."

How did Steve Jobs recognize the obvious and the industry didn't recognize it?

If the music industry thinks they're going to save it all by getting a dollar a track -- it's not the solution.

But what's interesting is that the ability to download a single track, ironically in my mind, could bring the album back.

On a fundamental level, the record companies have not rewarded artists, who will react to whatever environment that's created for them -- and they will create to that. If they can't, they get pushed to the side.

For instance, I've worked with Bon Jovi for 20 years. Their first album sold 100,000 copies. Their second album sold 300,000 copies. Their third album sold 15 million copies, and they have now sold 100 million albums.

If they had been signed in the last seven years, they never would have been allowed to make that third album. All those songs that have meant something to people never would have been created.

They were allowed to develop and write their songs, and they were supported through that. That rarely happens anymore.

What about Warner Music Group's new incubator system?

That's an attempt to get back to taking pressure off the artist and put them into a situation where they can grow organically -- not live or die based on a hit single. That makes a lot of sense. But the culture in the companies is still about hits.

Going back to downloads, how will that get back to the culture of albums?

If you say to an artist, Now you've got to make every track count. We're going to put out a track a week for 12 weeks, price it intelligently, but you have to make every song count, so if they don't buy track seven, it's like not having a movement to a Mozart symphony.

They have to buy it; it's part of one body of cohesive work -- the artist's body of work.

What about deal structures? There's word that majors are going to want to share more of the artists' revenue stream.

A lot of artists are not that mad about that. Ultimately the way my clients are going to make money is by having a career.

It all comes down to the economics. For a new band, if a label wants to fund the new band - become a funding partner, including funding touring - and all income goes into a pot, then that artist can have a career. That's not necessarily a bad idea, as long as the numbers are right and they actually do what they say they will do.

Do you anticipate any significant changes in 2005?

All the major labels are talking about moving toward this transparent accounting structure. There are a bunch of these historical anomalies in deals, like free goods, container charges -- basically getting rid of all of them.

If they all go to a straight percentage of wholesale price with no free goods and no container charges, then it tends to be easier to figure out.

Have you ever seen a label pay the full price for money discovered unpaid through an audit?

Never. And I've never seen an audit that didn't show a significant underpayment.

Do you have any thoughts about digital radio?

If you can TiVo digital radio indiscriminately, that's it. You're done. It's easier than downloading. But if you could push a "buy" button for it, it's so much easier than downloading, it could become the premier method of distribution.