Sale of Small Labels Shakes Up Record Industry

The vinyl album isn’t the only tradition disappearing from the record business.

If the estimated $500-million sale of Hollywood-based A&M; Records to Dutch-owned PolyGram Records goes through as expected, it will leave only Geffen Records as a major privately owned U. S. record company.

This is a marked change from the early days of rock, when most of the music’s founders--from Elvis Presley and Chuck Berry to Little Richard and the Everly Brothers--were introduced via small, independent labels.

And it’s not just independent labels being bought by majors these days. Majors are also being either gobbled up by or becoming part of larger conglomerates. CBS Records, the nation’s largest record company, was bought last year by Sony, while Warner Bros. Records’ parent company--Warner Communications--is merging with Time Inc.

The question is what effect all this financial wheeling and dealing will have on the shape of the music industry: Will it lead to a conservative stance that rejects creative risk-taking or will it open the door to even more adventurous signings?

Seymour Stein, the head of Warner Bros.’ formerly independent Sire Records and a leader in the industry for two decades, is alarmed.

“You’re not talking about soft drinks and soda wars,” Stein said, speaking from Sire’s London office. “When I started in the business, there were record companies of importance in every major city.

“Small record companies, independents, are the lifeblood of the business,” added Stein, whose label has introduced such varied artists as Madonna, Talking Heads and the Pretenders. “It’s where the new artists and trends tend to come from. . . . I think (the new mergers) are going to stifle creativity. I’m very frightened.”

Michael Green, who as president of the National Academy of Recording Arts and Sciences represents artists and composers, agreed that there are some things to be concerned about. “We’ve looked at both sides,” he said. “The down side is obvious if you’re a writer or creative person at one of these mega-consolidations. You could get lost in the shuffle.”

Most industry insiders, however, say that bigger is turning out to be better.

Executives at several labels all say that being taken into the multinational fold has actually stimulated creativity and concern for music at their companies, with Stein’s own Sire as an example of what’s right with the music industry these days.

“Three years ago, no one thought about distributing independent labels,” said Bob Buziak, who took over as president of RCA Records in late 1986, just as the company was being sold by General Electric to the West German-based Bertelsmann Music Group (BMG). “Now I think it’s going to be the future. The more viewpoints you can have attached to a large business, the more opportunities for success and for creativity you’re going to have.”

In 1988, just six huge corporations were responsible for more than 70% of the 750 million records, tapes and compact discs sold in the United States, generating revenues of about $4 billion: Bertelsmann, Japan-based Sony, Dutch Philips, British Thorn/EMI and two U. S. companies, Warner Communications and MCA. And with the recent acquisition of Island Records, the apparently impending purchase of A&M; by Philips, and other labels (including Virgin) considered ripe for the conglomerate picking, that percentage is bound to grow.

Take a look at this week’s Billboard Top 100 albums: 74 of them are on labels owned and operated by those six conglomerates. And most of the rest are distributed by subsidiaries of those groups.

By contrast, Stein, in an article he wrote first for Billboard and then rewrote for the Rock and Roll Hall of Fame, counted 39 independents and only two major companies that played a significant role in shaping the industry during the crucial post-World War II boom that carried into the ‘60s. Most of those 39, he bemoaned, are now either gone or part of a major label group.

One of those key 39 was Atlantic Records, which in 1966 became a part of Warner 7-Arts, now Warner Communications and soon to be Time Warner, which operates the Warner Elektra Atlantic distribution group. Ahmet Ertegun, who founded Atlantic in 1948 and is still its chairman, doesn’t think there is anything to worry about in the current merger mania.

“Nothing has really changed in the last 10 or 15 years,” he said. “The companies that were sold to the majors were not companies that had a very large share of the market.”

That opinion jibed with the Wall Street perspective provided by Harold Vogel, entertainment industry analyst for Merrill Lynch & Co. in New York: “There aren’t very many implications that are new. The industry has been consolidating for years. You’re just seeing transfers of ownership rights. By adding 1% or 2% of the business to PolyGram by buying A&M;, you’re not changing the business. And all these so-called independents were distributed through the majors anyhow.”

Indeed, Island up to now has been distributed by Atlantic, as is Virgin, while A&M; is distributed by BMG, which owns Arista as well as RCA.

And distribution is the key to all the consolidation. By buying or working with a smaller company, a corporation like BMG or PolyGram (a division of Philips) acquires product to feed its massive distribution network. And by being part of that network, a smaller company gains in visibility, marketing power and ultimately cash flow from which to develop new artists.

Linda Clark has seen both sides of the issue. In the early ‘80s, she worked at L.A.-based independent Slash Records before it had a distribution arrangement with Warner Bros. Today she manages several acts--including Los Lobos, Violent Femmes and Bob Mould--who record for labels that are distributed by major companies.

“At a small label the resources are limited,” she said. “At Slash, sometimes we didn’t know if we could meet the payroll. The bottom line is cash flow for the independent labels, so artists who sell records can get paid for them and the labels can get paid for them. With the majors, at least you know you’re going to collect the money, so from that standpoint it’s better.”

The point, the executives say, is not so much how few companies control the industry but what their management philosophy is. According to RCA president Bob Buziak, the BMG purchase has been liberating, not stifling.

“BMG believes in decentralized business procedures,” he said. “Before, the accountants were like policemen. That changed quickly. The system was changed and I ended up with my own (autonomous) functions, a finance man who’s part of the team rather than a policeman.”

The results, he said, speak for themselves. “For the 15 years prior to the sale . . . RCA was a rest home for failing superstars that had seen better days. Me having the ability to take the roster and cut it down to five artists and start over is the best thing that could happen. Now we’re known for cutting-edge artists like Cowboy Junkies and Love and Rockets.”

Thomas D. Mottola, president of CBS Records, which was sold to Sony in 1988, said that Sony has allowed him the same freedom. “You have pure music executives running CBS Records now and we’re not governed by any corporate philosophy, as we were in the past,” he said.

Sire’s Stein agreed: “Warner Bros. approached me because I think they thought I had a handle on New Wave music, with Talking Heads and Ramones. But I don’t think they came to me for market share.”

And it is expected that when and if the PolyGram purchases of Island and A&M; are finalized, the management of the smaller companies will remain intact.

“I imagine they would not have bought those companies without assuring continuity of management,” said Atlantic’s Ertegun. “A record company’s value is its catalogue, its artist roster and its management. And the third is most important.”

A potential shakeout of creative managers is what Stein fears most. “You’re going to lose people along the way, and some who stay are going to lose interest,” he said.

Recording academy president Michael Green shares that concern. “The way these administrations come and go at record companies, it’s hard to get your finger on the pulse of a long-term strategy. Sometimes to these people long-term can mean the Christmas season.”