MCA Offers $200 Million to Acquire a 50% Stake in Interscope Records

MCA Inc. entered into high-level talks Thursday to purchase a 50% stake in Interscope Records, the controversial Westwood-based label that Time Warner Inc. dumped four months ago following a national controversy over rap music lyrics.

Although no contract has been signed and several elements of the deal are still to be resolved, key sources predicted that an agreement will be consummated before Monday.

Risking a storm of controversy, MCA has offered Interscope about $200 million to purchase a half-stake of the label, with an option to acquire the remainder after five years, sources said.

MCA apparently is willing to risk the criticism because adding Interscope would bolster MCA’s penetration in the all-important rock market, as well as move the firm from the sixth-largest to No. 4 in the domestic music industry. Interscope is widely regarded as the top new firm in the business, consistently breaking new acts in the rock, rap and rhythm and blues genres.

Since its acquisition by Seagram Co. in June, Universal City-based MCA has moved aggressively to capitalize on the chaos at Warner Music Group, courting five ousted Warner executives and now Interscope.

Interscope triggered a political uproar last year after critics accused the Time Warner-affiliated company of profiting from offensive pop albums. Interscope distributes explicit rap and rock music on the cutting-edge Death Row and Nothing/TVT labels, whose rosters include Dr. Dre and Nine Inch Nails.

C. DeLores Tucker, chair of the National Political Congress of Black Women, who launched last year’s anti-rap campaign, said she has already sent letters to Time Warner’s competitors--including MCA--warning them to stay clear of Interscope.

“Whoever picks up Interscope is going to be our next target,” Tucker said Thursday. “As long as Interscope continues to sell porno gangsta rap to our children, we’re going after them.”

Representatives for MCA declined to comment Thursday.

Under the MCA proposal, Interscope would retain complete creative control over the label’s recordings. But sources said that MCA, unlike Time Warner, would not be required to distribute products that it deemed “too controversial.” An oral agreement has been reached that would allow Interscope to distribute potentially offensive material elsewhere, sources said.

Industry analysts doubt that Tucker or other rap critics will have much luck attacking MCA, because, unlike Time Warner, it is owned by Seagram, a Canadian-based liquor company. Some executives question the effectiveness of Tucker’s crusade as streams of potentially offensive rock and rap albums continue to be released on labels owned by Time Warner and other record companies.

Although Interscope has often been painted in the news media as a “gangsta rap” company because of its association with Dr. Dre and Snoop Doggy Dogg, the bulk of its artist roster consists of top-selling rock acts such as Bush, Primus, Deep Blue Something and the Toadies.

Pushing the boundaries of mainstream pop by transforming underground acts into MTV stars, Interscope has sold more than $380 million in albums in the United States in the last three years--cornering more than 2% of the total U.S market.

Founded five years ago by record producer Jimmy Iovine and media entrepreneur Ted Field, Interscope is widely regarded as the most successful new label to arrive on the scene since Geffen Records in the early ‘80s. Geffen, which releases music by such acts as Hole and Guns N’ Roses, is already owned by MCA. With Interscope, MCA would immediately bolster its credibility as a leading force in the crucial rock market.

The Interscope deal marks the first big move by new MCA Music Entertainment Chairman Doug Morris, who flew into town Monday to convince Interscope to join MCA instead of Thorn-EMI and PolyGram, both of which made competing bids.

Some of the key details of the deal were hammered out Thursday by Morris and Seagram Chairman Edgar Bronfman Jr. as they flew back to New York on the corporate jet.

Sources said MCA’s offer includes an option to buy the remaining half of Interscope in 2001. The value of the remaining 50% will be determined by a formula that takes into account the firm’s performance over the next five years; it is likely to exceed $100 million.

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MCA’s New Tune

MCA executives, in a move that would transform the Seagram entertainment conglomerate into a rock powerhouse, said Thursday that they want to buy a 50% interest in controversial Interscope Records. The move is yet another example of an effort by MCA to capitalize on the chaos at Warner Music, which dumped Westwood-based Interscope four months ago after complaints about the explicit lyrics of its rap and rock music. MCA has also courted five ousted Warner executives and hired its former music group executive, Doug Morris.

MCA

Although MCA has the nation’s strongest country music division, it never got a foothold in the crucial rock market, and its once-booming black music division has sagged. By adding Interscope’s roster of alternative groups to those it has at its Geffen Records division, MCA hopes to be an immediate player in rock.

INTERSCOPE

Interscope has become one of the most successful start-up record companies ever. Although its roster is the envy of the record business, it has elicited sharp criticism from some--most notably GOP presidential front-runner Bob Dole (R-Kan.)--who say some of its groups’ lyrics are offensive.

PROJECTED MARKET SHARE

Market share projected for the spring, when Warner stops distributing Interscope Records and if MCA acquires Interscope.

Warner Music (without Interscope): 20%

Sony: 14%

PolyGram: 13%

UNI (MCA) (including Interscope): 12%

BMG: 11%

CEMA: 10%

Other: 20%

Sources: SoundScan, Times reports. Researched by JENNIFER OLDHAM / Los Angeles Times