Record Label Shake Ups, Sales Make For A Tumultuous Year In The Music Industry
Record Label Shake Ups, Sales Make For A Tumultuous Year In The Music Industry

With the sale of Warner Music Group, the planned sale and breakup of EMI Group and the installation of new management at each of the three surviving majors, 2011 was a year of seismic shifts in the major-label landscape.

The rumbles began immediately. In January, WMG announced it had hired Goldman Sachs to explore the company's strategic alternatives.

In February, Citigroup took a big step toward exiting from its disastrous involvement in EMI when it assumed control of the major from British private-equity firm Terra Firma, paving the way for a sale.

WMG put itself on the block in March; by May it was sold to Access Industries, a conglomerate controlled by WMG director Len Blavatnik. Though Access appeared to have the inside track on acquiring EMI as well-WMG's Edgar Bronfman Jr. had long hoped to combine the two record companies and stayed on as chairman to pursue a purchase-the deal that most observers had been expecting for years never materialized. Instead, the auction of EMI culminated in November with a Sony USA-led consortium agreeing to buy EMI Music Publishing and Universal Music Group signing a definitive agreement to buy EMI's recorded-music operation.

Meanwhile, UMG chairman Doug Morris' move to Sony Music Entertainment as CEO set off a game of executive musical chairs as Sony and Universal began swapping key personnel. Longtime key Morris associates including Antonio "L.A." Reid and Mel Lewinter joined him at Sony, while former Zomba chief Barry Weiss moved to UMG to head up Island Def Jam Music Group and Universal Republic. Other Sony executives, most notably Ivan Gavin and Peter Thea, followed him.

At WMG, Lyor Cohen assumed responsibility for worldwide recorded-music operations, while Blavatnik associate Steve Cooper replaced Bronf­man as CEO.

Just how these shifts will affect each company-and the industry as a whole-remains to be seen. "There has been leadership shuffling at the top, but with regard to how the industry will move forward, nothing has changed," says a former industry executive now working in private equity. "You just have new captains at the wheel of the Titanic," he says. "Doug moves his people over and then Barry moves his people over. What have you accomplished?"

The sale of EMI, which is still subject to regulatory scrutiny, does, however, change the balance of power in the industry.
"For those keeping score by market share, Universal has won in a big way," a senior label executive says. "Sony may have been challenging Universal this year in the U.S., but that's done-case closed."

Likewise, even though Sony USA and the Michael Jackson estate will own only 38% of EMI Music Publishing, their Sony/ATV Music Publishing will act as administrator for the new company and be the dominant force in music publishing.

Though the sale of EMI could lessen competition at the major level by expanding UMG's market share, the fierce professional competition among the top executives-Morris, Cohen and UMG chairman/CEO Lucian Grainge-could light a fire in the industry. Pointing to how executives are being wooed back and forth between Sony and UMG, one senior label executive says, "Now you have two guys who will drive up the price of doing business in order to beat each other."

But one former major-label executive offers a different take: "Competition is good for the industry," he says. "But when it becomes an ego battle, that is not good or productive."

Beyond the big names, lots of jobs have already been lost at the majors this year, and more will be lost in 2012 as EMI is merged into UMG and Sony/ATV takes over management of EMI Music Publishing.

UMG has already said it expects to cut €100 million ($135 million) in overhead, an estimate that sounds low to some observers and could be meant to appease the European and U.S. regulatory agencies. Those agencies are attached to governments looking to preserve jobs in their markets.

"There will be massive job losses" due to the pending EMI acquisitions, says one former industry executive, who estimates EMI's recorded-music overhead at about $450 million.

"If they are only going to cut €100 million, they are still carrying about $300 million of EMI's overhead. Why carry all that overhead when they can drop it to the bottom line?"

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