Lesson Guide November 2014

The Businessweek Education Program

18

22,000 cubic meters of hazardous liquid

waste dumped each day

75metric tons of solid waste

created daily

Bangladesh’s tanneries are concentrated in Hazaribagh, a densely populated neighborhood on the banks of the Buriganga River. Every day these factories discharge thousands of liters of liquid waste into the river. Workers, who are exposed to toxic chemicals, make less than

$2 a day.

The Buriganga

River

17

Global Economics

a translator for Voice of America in Washington. She recorded the rst episode at the kitchen table of her shared house in Washington’s Capitol Hill neighborhood. In 2012 she moved to New York and kept recording from her Manhattan apartment. VOA has underwritten the show since it began; Beinecke won’t say for how much, but she doesn’t sell advertising or charge for views, and she doesn’t have a day job.

This year, Beinecke decided to �ip her format and make videos geared toward the growing number of young Americans trying to learn Mandarin. Crazy Fresh Chinese went online in January with sponsorship from the 100,000 Strong Foundation, a Department of State initiative started in early 2013 with the goal of encourag-ing Americans to study Mandarin. The foundation awards grants to groups that promote foreign language programs in the U.S. “Here is this cute, peppy, young blond woman who speaks impec-cable Chinese,” says 100,000 Strong’s president, Carola McGi�ert, who calls Beinecke the foundation’s “most impor-tant vehicle for reaching students on the grass-roots level.”

Some of the rst Crazy Fresh Chinese videos have translated “fashionista” (shi shang yu jie, which literally means “fashion imperial big sister”), “twerk” (dian tun wu, “electric butt dance”), and House of Cards (Zhi Pai Wu). The Net�ix-produced drama is wildly popular in China, accessible through video- sharing sites such as Youku, China’s version of YouTube. For the House of Cards episode, Beinecke donned a brown wig to impersonate the show’s gravelly pro-tagonist, Frank Underwood. “It’s very millennial,” says Scott Galer, chairman of the department of foreign languages at Brigham Young University, who’s integrated Crazy Fresh Chinese into his Mandarin classes. He says Beinecke’s biggest hit, at least in his class, is a video explaining how to say “Let’s take a sele” in Mandarin. “She has a knack for knowing what students really want to be able to say.”

A typical video of OMG! Meiyu or Crazy Fresh Chinese starts with Beinecke acting out a situation and explaining how to use slang. She repeats phrases such as “I call shotgun!” with di�erent facial expressions—rolling her eyes, looking astonished, cowering in embarrassment. Occasionally she puts on costumes if she plays two people in a dialogue. The quick videos feel spontaneous, but

Beinecke says she took acting classes to prepare. “I want to teach phrases that students can instantly use, like how to order a soy latte,” she says. “That’s both fun and useful.”

With her platinum curls and pen-chant for bright lipstick, she’s often recognized in New York’s Chinese restaurants by students from main-land China, who tell her they studied English by watching her videos.

A self-proclaimed “one-woman band,” Beinecke uses an iPhone to record takes, then edits everything on Final Cut Pro. “I’ve perfected the sele shoot,” she says. She then uploads her videos on social media and video- sharing sites, where she says they’ve generated more than 1 billion social

media interactions, including clicks, tweets, and Facebook “likes.” Je� Wang, director of Chinese language initiatives at the Asia Society in New York, is a big fan. “We need to get rid of this notion that Mandarin is so hard,” he says. “Jessica makes language engaging—and shows that you can get something out of this process fairly quickly.” —Christina LarsonThe bottom line Jessica Beinecke uses online videos to teach Americans and Chinese each other’s language.

Labor

Bangladesh’s Toxic Tanneries

� The $1 billion leather export industry is hazardous for workers

� “Once you are inside Hazaribagh, you are in a chamber of pollutants”

The Hazaribagh, or “Thousand Gardens,” neighborhood in Bangladesh’s capital city of Dhaka has no trees or �owers. Instead, the industrial area is saturated with toxic chemicals from more than 200 leather tanneries pollut-ing the air, water, and soil. The stench of animal hides, garbage dumps, and furnace smoke is so foul, some locals wear face masks. “It’s a shameful way to live,” says Gul Dulali, 27, a mother of two living in a one-room shack next to a bub-bling gray stream.

Bangladesh’s leather exports are a $1 billion-a-year industry, according to the Bangladesh Export Promotion Bureau. Competitive prices and improved quality have attracted an increasing number of importers from Asia and Europe. Almost all of the coun-try’s leather production, 80 percent, is exported. As with Bangladesh’s noto-rious ready-made garment industry, there’s a huge local cost. According to the government, an estimated 22,000 cubic meters of environmen-tally hazardous liquid waste, including hexavalent chromium, is dumped daily into the Buriganga River, Dhaka’s main waterway. Skin and respiratory ail-ments are common among Hazaribagh’s 160,000-plus residents. A November 2013 report by the New York-based Blacksmith Institute ranked the neigh-borhood among the 10 most polluted

19

Edited by Matthew Philips and Dimitra KessenidesBusinessweek.com/global-economics

Global Economics

places on earth. “Once you are inside Hazaribagh, you are in a chamber of pollutants,” says Philip Gain, direc-tor of the Society for Environment and Human Development (SEHD), a Dhaka-based nonpro t.

The worst conditions are endured by 8,000 to 12,000 tannery workers, who toil 12 to 14 hours a day, seven days a week for less than $2 a day, according to the local Tannery Workers Union. Abdul Kalam Azad, head of the union, says even experienced workers with 10 or more years on the job rarely earn more than $150 a month.

In one factory, which supplies black leather to wholesalers in Hong Kong, Korea, and Italy, hides are churned in giant wooden drums  lled with toxic chemicals such as chromium sulfate and arsenic, which are used to soften them. Many workers handle the barrels without gloves and walk barefoot on �oors covered in acid. “They are working in those conditions with little or no protective equipment and little or no concern for their health care from the tannery owners,” says Richard Pearshouse, who investigated factory conditions in 2012 for Human Rights Watch. Prolonged exposure to these chemicals has been known to cause cancer.

Nur Mohammad, 35, a veteran worker, has severe chemical burns on his hands and feet. “I’m always in pain,” he says. Workers risk being  red if they take time o� to seek medical treatment, he says. “Sure, I would like to  nd a di�erent job, but I have six children to support.” A factory manager, who declined to give his name for fear of retribution, says his tannery provides  rst aid and a medical stipend of as much as $20 a month. He concedes that while allowances are made for longtime employees to take leave, an excess of cheap labor ensures workers can easily be replaced.

Human Rights Watch found no attempt by authorities to crack down on pollution, calling Hazaribagh “an enforcement-free zone” in its 2012 report. The group says that apart from paying the occasional  ne amounting to several hundred dollars, politically connected owners continue to �out the country’s environmental codes without consequence, Pearshouse says. “They almost have no monitoring and inspec-tion of the tanneries, and when they do go into tanneries, they told me that they give advance notice of their visits.”

Mohammad Abu Taher, a factory

owner and chairman of the Bangladesh Finished Leather, Leathergoods, and Footwear Exporters’ Association, says limited space and rapid economic growth are responsible for the con-ditions in Hazaribagh. Owners, he says, have been hampered by a lack of knowledge and lax enforcement, while Western buyers, especially in Europe, have avoided responsibility by order-ing wholesale from middlemen.

One proposed solution has been a government-backed scheme to relocate the tanneries to the suburb of Savar. A group of 150 owners agreed to do so in 2003, but a series of deadlines have been missed over disputes about who should foot the bill. Relocation may only shift the problem out of the city center, Pearshouse says. Conditions will only improve with pressure from foreign governments and interna-tional buyers. Bangladesh’s government has cited threats from the European Union to stop importing leather from the country altogether if progress isn’t made on relocating the tanneries and building an e¡uent treatment plant. But some observers are skeptical there’s any real prospect of such EU action.

Some owners say a move in the near term is likely. The central bank has just announced an incentive package that includes lower-interest loans. “This time next year, tanneries will be running here,” Taher says as he surveys the Savar site. “Hazaribagh will be closed.”

Still, many workers who depend on the tanneries for their livelihoods are anxious. Savar is more than an hour’s drive from Hazaribagh, and there are no plans yet for facilities to trans-fer employees. Owners say workers can commute; labor leaders counter more infrastructure is needed for a fair transition.

For some residents, the talk of an imminent move is just that. “The government and owners have been making and breaking promises for longer than I can remember. And look—we still live in  lth,” says Abdul Majid, 30, a rickshaw puller. “So long as the tanneries are making lots of money here, nothing will change.” —Jason Motlagh and Josh EidelsonThe bottom line Conditions in Bangladesh’s export-driven leather industry are unlikely to improve without pressure from Western buyers.

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Global Economics

a translator for Voice of America in Washington. She recorded the rst episode at the kitchen table of her shared house in Washington’s Capitol Hill neighborhood. In 2012 she moved to New York and kept recording from her Manhattan apartment. VOA has underwritten the show since it began; Beinecke won’t say for how much, but she doesn’t sell advertising or charge for views, and she doesn’t have a day job.

This year, Beinecke decided to �ip her format and make videos geared toward the growing number of young Americans trying to learn Mandarin. Crazy Fresh Chinese went online in January with sponsorship from the 100,000 Strong Foundation, a Department of State initiative started in early 2013 with the goal of encourag-ing Americans to study Mandarin. The foundation awards grants to groups that promote foreign language programs in the U.S. “Here is this cute, peppy, young blond woman who speaks impec-cable Chinese,” says 100,000 Strong’s president, Carola McGi�ert, who calls Beinecke the foundation’s “most impor-tant vehicle for reaching students on the grass-roots level.”

Some of the rst Crazy Fresh Chinese videos have translated “fashionista” (shi shang yu jie, which literally means “fashion imperial big sister”), “twerk” (dian tun wu, “electric butt dance”), and House of Cards (Zhi Pai Wu). The Net�ix-produced drama is wildly popular in China, accessible through video- sharing sites such as Youku, China’s version of YouTube. For the House of Cards episode, Beinecke donned a brown wig to impersonate the show’s gravelly pro-tagonist, Frank Underwood. “It’s very millennial,” says Scott Galer, chairman of the department of foreign languages at Brigham Young University, who’s integrated Crazy Fresh Chinese into his Mandarin classes. He says Beinecke’s biggest hit, at least in his class, is a video explaining how to say “Let’s take a sele” in Mandarin. “She has a knack for knowing what students really want to be able to say.”

A typical video of OMG! Meiyu or Crazy Fresh Chinese starts with Beinecke acting out a situation and explaining how to use slang. She repeats phrases such as “I call shotgun!” with di�erent facial expressions—rolling her eyes, looking astonished, cowering in embarrassment. Occasionally she puts on costumes if she plays two people in a dialogue. The quick videos feel spontaneous, but

Beinecke says she took acting classes to prepare. “I want to teach phrases that students can instantly use, like how to order a soy latte,” she says. “That’s both fun and useful.”

With her platinum curls and pen-chant for bright lipstick, she’s often recognized in New York’s Chinese restaurants by students from main-land China, who tell her they studied English by watching her videos.

A self-proclaimed “one-woman band,” Beinecke uses an iPhone to record takes, then edits everything on Final Cut Pro. “I’ve perfected the sele shoot,” she says. She then uploads her videos on social media and video- sharing sites, where she says they’ve generated more than 1 billion social

media interactions, including clicks, tweets, and Facebook “likes.” Je� Wang, director of Chinese language initiatives at the Asia Society in New York, is a big fan. “We need to get rid of this notion that Mandarin is so hard,” he says. “Jessica makes language engaging—and shows that you can get something out of this process fairly quickly.” —Christina LarsonThe bottom line Jessica Beinecke uses online videos to teach Americans and Chinese each other’s language.

Labor

Bangladesh’s Toxic Tanneries

� The $1 billion leather export industry is hazardous for workers

� “Once you are inside Hazaribagh, you are in a chamber of pollutants”

The Hazaribagh, or “Thousand Gardens,” neighborhood in Bangladesh’s capital city of Dhaka has no trees or �owers. Instead, the industrial area is saturated with toxic chemicals from more than 200 leather tanneries pollut-ing the air, water, and soil. The stench of animal hides, garbage dumps, and furnace smoke is so foul, some locals wear face masks. “It’s a shameful way to live,” says Gul Dulali, 27, a mother of two living in a one-room shack next to a bub-bling gray stream.

Bangladesh’s leather exports are a $1 billion-a-year industry, according to the Bangladesh Export Promotion Bureau. Competitive prices and improved quality have attracted an increasing number of importers from Asia and Europe. Almost all of the coun-try’s leather production, 80 percent, is exported. As with Bangladesh’s noto-rious ready-made garment industry, there’s a huge local cost. According to the government, an estimated 22,000 cubic meters of environmen-tally hazardous liquid waste, including hexavalent chromium, is dumped daily into the Buriganga River, Dhaka’s main waterway. Skin and respiratory ail-ments are common among Hazaribagh’s 160,000-plus residents. A November 2013 report by the New York-based Blacksmith Institute ranked the neigh-borhood among the 10 most polluted

AbstractLeather is a $1 billion industry in Bangladesh, but it has created one of the most polluted paces on earth. In Bangladesh’s leather industry, environmental damage and health consequences are severe, wages are low, and 80 percent of production is exported. In a country where there are few employment alternatives, there is little impetus to improve working conditions and environ-mental performance in this industry.

Leather is an export business for Bangladesh, and this imposes some responsibility on the industry’s foreign customers. Customers in the west may not want to acknowledge the working conditions and environmental damage that they help fund, and some try to avoid culpability by ordering through middlemen. The photos that accompany this article are striking, disturbing, and likely to stimulate discussion about social responsibility issues.

Discussion Questions1. What are the working conditions in Bangladesh’s

leather industry?

2. Who is responsible for the working conditions, environmental performance, and health consequences related to Bangladesh’s leather industry?

3. What could western customers do to improve working conditions and the environment around Bangladesh’s tanneries?

4. What are the ethical issues related to western custom-ers who make wholesale Bangladeshi leather purchases through middlemen?

Quiz QuestionsTrue or false

1. The European Union has threatened to stop importing leather from Bangladesh.

2. Human Rights Watch has observed vigorous efforts by Bangladeshi authorities to crack down on pollution produced by the leather industry in Hazaribagh.

3. Less than 50 percent of Bangladesh’s leather produc-tion is exported.

Short essay

4. What are the local costs associated with Bangladesh’s $1 billion leather industry?

5. Why are many Bangladeshi tannery workers anxious about efforts to relocate tanneries and build effluent treatment facilities?

Answer Key1. True

2. False

3. False.

4. While most of the leather produced in Bangladesh’s tanneries is exported, the environmental and health costs are borne by Bangladeshi workers and residents. The Bangladeshi tanneries pollute the air, water, and soil in surrounding areas. Skin and respira-tory illness are common among the area’s residents. Despite exposure to known carcinogens, tannery workers labor without protective gear. Thus, environ-mental and health costs related to the leather industry remain localized in Bangladesh.

5. Although the tannery workers are exposed to toxic materials and suffer various afflictions, they have limited alternative employment options. And while working conditions at new facilities could be improved, relocating production might be difficult for current employees. Without public transportation, many current employees would be unable to get to work at relocated facilities. Thus, they are anxious about losing their jobs and livelihoods.

BANGLADESH’S TOXIC TANNERIES

Inside, in addition to an actual CD, is a packet of Polaroid pic-tures of Swift in various states of dreamy repose. There’s one of her riding the ferry in New York Harbor, another in which she’s lounging wistfully in bed, and a third of her posing in a purple long-sleeved shirt, a version of which (the shirt, that is) fans can buy on her website for $60. At the bottom of each shot there’s a handwritten line from one of the album’s songs. Borchetta says the Polaroid gimmick, created by Swift’s marketing team, led to a �urry of online love between Swift and her fans. On Oct. 27, the day of the album’s release, Borchetta says Swift called to say she’d been retweeting fans’ pictures of the Polaroids. “She said, ‘Oh, my God! We’re just having so much fun!’ ” Borchetta says.

It’s a Friday afternoon in early November, 11 days after the debut of 1989, which Swift, who came up in Nashville’s country music scene, described in an August Yahoo! Live stream as “her very �rst, documented, o�cial pop album.” In 1989’s �rst week, 1.29 million copies were sold. That was 22 percent of all album sales in the U.S., according to Nielsen SoundScan. It’s the largest sales week for a record since Eminem’s The Eminem Show in 2002, and the biggest release in the past two years by far, topping heavy hitters such as Beyoncé, Coldplay, and Lady Gaga. That week, Swift had �ve songs on the Billboard Hot 100, includ-ing Shake It O�, the album’s �rst single, which was, and still is, sitting comfortably at No. 1. She also had two other albums on the Billboard 200—her 2012 album, Red, at No. 84, and her 2008 release, Fearless, on the chart for its 221st week, at No. 117.

Swift’s success is an anomaly in an ailing industry that’s been in decline since 2000. Last month the Recording Industry Association of America reported that sales of CDs for the �rst half of 2014 were down 19 percent from the year before, to 56 million. In 2002 total album sales in the U.S. hovered at 681 million (down from 2001’s 763 million). The top 10 albums of 2002, after The Eminem Show and the 8 Mile soundtrack, included Nellyville (4.9 million albums sold), Avril Lavigne’s Let Go (4.1 million), and the Dixie Chicks’ Home (3.7 million). Compare that with this year: Before 1989, the year’s biggest album was Coldplay’s Ghost Story, which did a piddling 383,000 copies in its �rst week and has sold a total of 737,000 since its release in May. That’s roughly a third of Swift’s �rst-week

Scott Borchetta, founder of Big Machine Records, Taylor Swift’s Nashville-based label, picks up a deluxe edition of 1989, the singer’s current hit record. He carefully slips the white case o� the special edition CD, which fans can buy exclusively at Target for $13.99.

sales, and 1989 is expected to sell another 400,000 copies in its second week. Swift is so far ahead of the pack that they can’t even see her.

For a while, there was hope that digital downloads would make up for low album sales, but the RIAA reports that sales for this format declined by 14 percent in the �rst six months of 2014. Meanwhile, revenue from streaming services like Spotify rose 28 percent. But artists are often paid a fraction of a penny each time users stream a song. “For a digital download, Taylor Swift will probably take home 50 percent of retail,” says Alice Enders, a London-based music industry analyst. “So that’s 50¢ or 60¢, a lot of money compared to a fraction of a penny,” she says.

For that reason, Borchetta and Swift chose to initially with-hold 1989 from Spotify. They did the same thing with Red in its early weeks. “We’re not against anybody, but we’re not respon-sible for new business models,” Borchetta says. “If they work, fantastic, but it can’t be at the detriment of our own business. That’s what Spotify is.”

Spotify released a statement suggesting that Swift was giving the back of her hand to her followers on the service. “There are over 40 million music fans on Spotify, and Taylor Swift has nearly 2 million active followers who will be disappointed by this decision,” a Spotify spokesman told Mashable on Oct. 29.

Swift and Borchetta then pulled her entire catalog from the service on Nov. 3. Borchetta says it was a short conversation: “I went to her and said, ‘If we’re going to make a statement, let’s be very speci�c and bold. All of your music has value.’ And she agreed.” (Swift declined to comment for this article.)

Her decision prompted a long and impassioned essay by Daniel Ek, Spotify’s chief executive o�cer, who said his service was on track to pay Swift $6 million in 2014 (and has already paid $2 billion in total royalties) and argued that she was encourag-ing music piracy by not sharing her songs via the accessible and popular Spotify. “In the old days, multiple artists sold multiple millions every year. That just doesn’t happen anymore; people’s listening habits have changed—and they’re not going to change back. You can’t look at Spotify in isolation,” wrote Ek.

Borchetta isn’t swayed. He says that if he had his way, he would take another of his big acts, Florida Georgia Line, oª

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“He started as a Valley boy and

now is running all of Nashville”

Spotify, but he can’t because of a deal with Universal Music Group’s Republic Records. “That’s a side conversation we’re having,” says Borchetta. (Spotify pays 70 percent of its revenue to record labels and music publishers, a large part of which goes to three major companies, Sony Music Entertainment, Warner Music Group, and Universal.)

The impact of pulling the catalog isn’t yet clear—though it may have helped move some physical CDs—but other artists and managers are paying close attention. Clarence Spaulding, a prominent Nashville manager, says his client Jason Aldean, one of the biggest-selling country music acts, is one of them. “He is very seriously contemplating the same thing right now,” he says.

All of that is a pretty good week of work for the 52-year-old head of a record company most people haven’t heard of. Borchetta has a ruddy complexion and a mass of black, curly hair that makes him look like the bad guy in an ’80s movie. Swift, who’s over 6 feet tall in heels, towers over him. In pictures of them together, she’s often bending down, a look of mild exertion on her face. Today Borchetta’s clad all in black—he grew up in Los Angeles playing punk rock and likes to wear leather—and is standing at his workstation in his o�ce on Nashville’s Music Row. In the hallway, portraits of Big Machine’s artists, includ-ing Tim McGraw and Reba McEntire, hang from chains. Light �xtures dangle from tire rims and exhaust pipes, in honor of Borchetta’s passion for expensive cars.

The week of 1989’s debut, the Big Machine Label Group had eight songs on Billboard’s Hot Country Songs chart, more than its better-known competitors, including Capitol Nashville and MCA Nashville. Big Machine bills itself as an indie label, but since launching in 2005 it has evolved into a company with 88 employ-ees who work in music publishing, management, and merchan-dising, and occupy four buildings. The business has multiple

record labels. Two of them, Big Machine and Valory Music, are controlled entirely by Borchetta and his partners. (Borchetta owns 60 percent of Big Machine; other reported equity holders include the Swift family and country singer Toby Keith.) Two other labels, Republic Nashville and Dot Records, are joint ven-tures with Republic Records, a division of Universal, the world’s largest record company. In 2012, Borchetta struck a deal to market and distribute the original music from Nashville, ABC’s hit prime-time soap opera. “He started as a Valley boy and now is running all of Nashville,” says Dawn Soler, senior vice presi-dent for music at ABC Television.

Despite their respective success, Borchetta and Swift both describe themselves as outsiders. Swift, who splits her time between homes in New York, Nashville, L.A., and Rhode Island (her estate there has eight �replaces) and has a net worth of $200 million, according to Forbes, still presents herself as a former high school nerd. Much has been made of her aw-shucks persona, including an entire Internet meme dedicated to the singer’s “surprised face,” the shocked look she gets when she wins yet another award. Borchetta, for his part, casts himself as a country music outlaw. He often speaks of getting “respect.”

“There’s a little bit of an underdog complex in Nashville,” Borchetta says. A little later the underdog is driving to lunch in his black Ferrari, bopping along to Pharrell’s Happy. The valet parking attendants at Etch, a restaurant in the city’s gentrify-ing downtown, say, “Welcome, Mr. Borchetta,” as he eases his car into the space in front of the entrance.

Over Turkish fish tacos, Borchetta talks about how he got to Nashville. His father, Mike Borchetta, was a country music record promoter who spent much of his time driving around to radio stations and trying to get them to play albums he carried in the trunk of his car. He moved to Nashville after divorcing Scott’s mother and marrying an aspiring

Borchetta (center) and wife, Sandi (left), in Big Machine’s

Nashville o�ce

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country singer. Scott stayed in Los Angeles with his mother, played bass, and, to hear him tell it, acted out.

In 1981 he visited his dad and his stepmother in Nashville and never left. He played for a while in country bands, and when he wasn’t touring, he worked in the mailroom of his dad’s company, sending out bulk orders of records and making calls to radio stations on behalf of acts like Ronnie Milsap and the Oak Ridge Boys. He was better at peddling music than playing it. In 1991 he got a job in promotions at Universal’s MCA Records label, home of Nashville icons like Vince Gill and McEntire, the singer and future WB sitcom star.

Borchetta worked with McEntire, and the singer intro-duced him to his future wife, Sandi Spika, who styled McEntire’s hair and designed her dresses. Sandi thought Borchetta could use her help, too. “He needed some tweak-ing,” she says. “I helped tighten him up in some classier suits and changed the shoes he was wearing and things like that.” More recently, Sandi Borchetta designed Big Machine’s o�ces.

At MCA, Borchetta was an involved manager, choosing singles and dispensing advice. He could be overbearing, and still can be, according to col-leagues. “There are days when I would like to choke Scott Borchetta,” says Spaulding, the Nashville manager whose clients include Rascal Flatts, now with Big Machine, as well as Aldean. “But it’s hard to be upset with the guy. When Scott truly believes in a record, he’s able to turn the tide at stations that might not have believed in it.”

MCA fired him in 1997, but he soon landed at the Nashville division of DreamWorks Records, where he hawked records by Toby Keith and Randy Travis. It was fun until Universal bought DreamWorks in 2004 and Borchetta found himself working for his old bosses from MCA. So he decided to start his own label. Before he left, he struck up a relationship with Swift, then a teenage singer-songwriter shop-ping songs around town. One night that year, when Swift was performing at Nashville’s Bluebird Cafe, Borchetta made an offer to Swift and her parents. He said he was leaving DreamWorks to start his own label. He didn’t have an o�ce, and he still needed financing. But he promised Swift that as soon as he was set up, she’d have a deal with him. “They all looked at me like I was crazy,” he says. Two weeks later,

Borchetta got a call from Swift. “She goes, ‘Hey, Scott, it’s Taylor. I just want to let you know I’ve made up my mind, and I’m waiting for you.’ ”

In June 2006, Big Machine released Tim McGraw, Swift’s �rst single, a tangy track about a guy with a Chevy truck who shares her love for the country star (“When you think Tim McGraw/ I hope you think my favorite song,” she sang, strumming a £at-top guitar). That summer, 16-year-old Swift sat in Big Machine’s o�ce, stu�ng review copies into envelopes. “With every enve-lope that I would seal I would look at the address and the station on there and think, ‘Please, please just listen to this one time,’ ” Swift told Billboard in 2010. “I would say a little message to each envelope: ‘Please, whoever gets this, please listen to this.’ ” Monte Lipman, CEO of Universal’s Republic label, noticed Swift’s main-stream potential in her next single, Teardrops On My Guitar. “I called Scott up and said, ‘I don’t know if you realize this, but that’s a pop record. I can cross that over,’ ” Lipman remembers. “He said, ‘Bring it.’ ”

In October 2006, Big Machine released Swift’s self-titled debut. It went to No. 5 on the Billboard 200, selling 5.4 million copies in the U.S. This was a good start for a new label. “It meant we were never in debt,” Borchetta says. “We never had a year when we lost money.” The success of Taylor Swift also established Big Machine as a force in Nashville. The following year, Borchetta added a second imprint, Valory (“the name stands for �erce-ness,” he says), and signed another blond singer, Jewel, to her �rst country album. It went to No. 1 on the Billboard Country Charts, although she’s since left the label.

Luckily for Borchetta, he still had Swift. Her next two albums—Fearless (2008) and Speak Now (2010)—sold a total of 12 million copies in the U.S. Swift helped Borchetta lure the actual Tim McGraw to Big Machine in 2012. “When you look at the success that Scott’s had with Taylor, it makes you stand up and pay attention,” McGraw says.

Meanwhile, Swift was working on her fourth album, Red, and moving away from

The last album to sell more copies in one week than 1989 was 2002’s

The Eminem Show

Big Machine sold

1.287 million

copies of Taylor Swift’s 1989 in the week of its

release

“I called Scott up and said, ‘I don’t know if

you realize this, but that’s a pop

record. I can cross that over’ ”

57

$3,086Price of a second-row ticket for the Taylor Swift concert at

the Staples Center on Aug. 25, 2015. It’s the most expensive option currently listed on the resale market

Artists who sold more than 1 million copies in a debut week since 1991*

Artist’N SyncEminemBackstreet BoysBritney SpearsTaylor SwiftTaylor Swift50 CentBackstreet BoysLady GagaUsherGarth BrooksLimp Bizkit

Taylor SwiftNorah JonesLil Wayne

123456789101112

1314 15

AlbumNo Strings AttachedThe Marshall Mathers LPBlack & Blue Oops!...I Did It Again1989RedThe MassacreMillenniumBorn This WayConfessionsDouble LiveChocolate StarfishAnd The Hot Dog Flavored Water Speak NowFeels LIke HomeTha Carter III

Year 200020002000200020142012200519992011200419982000

201020042008

Number of copies2.415m1.7601.5911.3191.2871.2081.1401.1331.1081.0961.0851.054

1.0471.0221.005

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1989 is the album released this year to exceed 1 million in sales

only

her country roots. When some of Taylor’s longtime Nashville producers struggled with her new material, Borchetta says he recommended she bring in Max Martin, a Swedish producer known for crafting career-de�ning hits for Britney Spears (... One More Time), Katy Perry (I Kissed a Girl), and Kelly Clarkson (Since U Been Gone). “After a couple of conversations, she agreed,” Borchetta says. Swift strummed a few cowboy chords on the album, but her songs played more like throbbing top 40 anthems. There was talk at the time that Red might not match the sales of Swift’s previous albums. Instead, it sold 1.2 million copies in its release week in October 2012, making it her biggest opening yet.

The same year, Borchetta signed an agreement to provide the music for Nashville. He also negotiated the �rst deal with Clear Channel Communications, now IHeartRadio, enabling his record company to collect royalties when its artists’ songs play. Traditionally, radio stations pay only music-publishing compa-nies that represent composers. “Scott doesn’t follow the past,” says Bob Pittman, CEO of parent IHeartMedia. “He looks to the future and �nds new ways of doing business.” Pittman declined to say how much money has �owed to Big Machine through this new royalty stream, but Borchetta says the numbers are “mean-ingful. It’s going really well.”

Borchetta also had another country act that crossed over to pop in a big way: Brian Kelley and Tyler Hubbard, two gym-toned Southern guys who make up Florida Georgia Line. Kelley and Hubbard, who sing about imbibing Fireball C i n n a m o n W h i sk y and swig from a bottle onstage, came up with their own methods of engagement. They dragged a gas grill behind their SUV on their early tours and cooked hot dogs and hamburgers for fans. They became poster boys for what music critics refer to as “bro-country.”

Florida Georgia Line’s �rst album, Here’s To The Good Times, went to No. 4 on the Billboard Country Charts in 2012, thanks in large part to a remix of its party anthem, Cruise, which fea-tured rapper Nelly. For some country music purists, it was bad enough what Borchetta had done with Swift. Cruise was too much. “I call Scott Borchetta the antichrist of country music,” says Kyle Coroneos, editor of the Saving Country Music website. Borchetta says he’s simply letting his artists follow their own muses. When Florida Georgia Line

released its second album, Anything Goes, in early October, it debuted at No. 1 on the Billboard Top 200. (“Well played, Satan,” wrote one disgruntled YouTube commenter.)

Fresh from this triumph, Big Machine unveiled 1989 on Oct. 27. And it released that special edition in Target stores and on Target.com, just as it did with Speak Now and Red. According to Nielsen SoundScan, Swift, who has promotional partnerships with Microsoft, Subway, and Diet Coke, sold 647,000 physical copies of the album, and 640,000 digital ones, that �rst week.

A source familiar with Swift’s thinking says it was the singer’s idea to pull her songs from Spotify, not Borchetta’s, and that the Big Machine CEO is exaggerating his involvement because he’s currently looking to sell the company for $200 million. Now would be the time. Swift owes

Big Machine only one more album

under her contract. After that, she could sign with any number of labels, all of which would be overjoyed to

have her.Borchetta says

his company isn’t for sale. “Every time we have a Taylor record, they’re like, ‘Oh, he’s selling the company,’ ” he sco£s. But the next minute, he rethinks his stance. “The business is changing so quickly, and if I see a strategic opportunity that’s going to be better for our artists and executives, it’s going to be a serious conversation,” he says.

Borchetta was smart enough to sign Swift when she was 15, but now, at 24, she doesn’t need him. Big Machine, on the other hand, can’t a£ord to lose her. The company claims to have

sold 40 million of its artists’ albums, and accord-ing to Nielsen SoundScan, Swift’s total sales have reached 24 million. On Nov. 10, Swift appeared on

the cover of the latest issue of Wonderland, a British magazine, looking retro and edgy, with a beachy bob, her normally groomed eye-brows untamed. She spoke about how grown-up she feels and how comfortable she is being single. “I like it,” said Swift. “I’m not willing to give up that independence for anyone.” §

AbstractTaylor Swift’s enormous success is an anomaly. This rise to power has taken place in an industry that has been in decline since 2000. There was once the hope that digital downloads would make up for low album sales, but that has not been the case. Meanwhile, revenue from streaming services like Spotify continues to increase.

Artists are often paid a fraction of a penny each time users stream a song. For that reason, Scott Borchetta, founder of Swift's label, and Swift chose to initially withhold her most recent album (“1989”) from Spotify as they did with the previous album (“Red”) in its early weeks. Spotify released a statement suggesting that Swift was giving the back of her hand to her followers on the service. Swift and Borchetta then pulled her entire catalog from the service on Nov. 3, 2014. This decision prompted a long and impassioned essay by Daniel Ek, Spotify’s chief executive officer, arguing that Swift was encouraging music piracy by not sharing her songs via the accessible and popular Spotify. Borchetta isn’t swayed.

The impact of pulling the catalog isn’t yet clear, but other artists and managers are paying close attention.

Discussion Questions1. Why is the music industry suffering?

2. Describe the conflict with Spotify. What is the issue? Who do you expect will win this battle?

3. How would you describe the process of “rebranding” Taylor Swift from country to pop?

Quiz QuestionsTrue or false

1. Artists are paid more money from streaming music providers than through the sale of CDs.

2. Swift’s "1989" is the only album released in 2014 to exceed one million in sales.

3. The album "1989" is the largest sales week for a record since Eminem’s "The Eminem Show" in 2002, and the biggest release in the past two years by far, topping heavy hitters such as Beyonce, Coldplay, and Lady Gaga.

4. Digital downloads have made up for low album sales.

5. As album sales decline in the first six months of 2014, revenue from streaming services has increased 28 percent.

Multiple choice

6. Taylor Swift has had ________ albums that sold more than one million copies in their debut week since 1991.

a) noneb) onec) twod) threee) four

7. Taylor Swift’s current album, "1989," sold ____________ of all album sales in the U.S. during its debut week.

a) 2 percentb) 12 percentc) 22 percentd) 32 percente) 42 percent

8. Taylor Swift’s label is currently in conflict with ________________.

a) Pandorab) Spotifyc) YouTubed) Grovesharke) Instagram

9. The basis of the conflict with streaming music platforms is _________________ .

a) artistic freedomb) quality of reproductionc) geographic distributiond) music genree) artist compensation

Answer Key1. False2. True3. True4. False5. True6. d7. c8. b9. e

ME? YES, TAYLOR.