Bill, the future is arriving FAST ! .... (check the end of the article to factor in the news from TSIG today)
Regards,
Phil
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Friday December 11, 1:12 am Eastern Time
Seagram Acquires Polygram for $10B
By MICHAEL WHITE
AP Business Writer
LOS ANGELES (AP) -- Seagram Co. became the world's largest music company with is acquisition of Polygram (PLG - news) NV, turning its focus to an industry that faces slow growth and rapidly changing technology.
Seagram's Universal Music Group officially absorbed Polygram on Thursday and announced plans for a cost-cutting consolidation that will merge some labels and link others into East Coast and West Coast music groups.
Seagram, seeking to offset losses from its struggling movie business, has said it wants to cut costs by $300 million in the combined music operation. The move is expected to include layoffs for about 3,000 of the new company's 15,500 employees and a smaller roster of artists.
As it stood on Thursday, the roster included a diverse collection of artists ranging from Luciano Pavarotti to rockers U2 and country music's Reba McEntire.
Company officials declined to comment on possible layoffs or which artists might be dropped.
Wall Street was watching to see if Seagram, facing a $65 million loss in its movie division this quarter, can make money in the music business.
''Everyone is going to start looking forward to see how smoothly the integration goes,'' said Linda Bannister, an analyst with Edward Jones. ''This acquisition definitely puts Seagram in the music business with both feet. We'll have to see if they can take it to the next level.''
Under the new structure unveiled by the company, two Universal labels focusing on rock, pop and rhythm and blues -- Island Records and Mercury Records -- will be merged into a single label. Polygram's Verve and Universal's GRP jazz labels also will combine. Both new labels will be based in
New York.
Universal's Nashville labels, MCA and Mercury, will continue to operate independently. An East Coast music group will consist of the Motown and Universal labels while in Los Angeles, the Interscope, Geffen and A&M labels will operate as units in a West Coast group, the company said.
''The integration of these two companies presents a rare opportunity to create an organization that is well positioned for profitable growth,'' Doug Morris, chairman and chief executive of Universal Music Group, said in a statement.
Montreal-based Seagram was a liquor and beverage company until 1995, when chief executive Edgar Bronfman Jr. jumped into the entertainment
business by buying MCA. Renamed Universal Studios, the film unit has had a series of costly box office failures that led to forced resignations by top executives at Seagram's motion picture business.
Two important fall movies, ''Babe: Pig in the City'' and ''Meet Joe Black,'' flopped, leading to the departure last week of Universal Pictures chairman Casey Silver. Universal's chief executive, Frank Biondi Jr., left under pressure in October.
''Primary Colors,'' ''Out of Sight,'' ''Mercury Rising,'' ''Black Dog'' and ''BASEketball'' also were among the company's 1998 duds, leaving Universal in a battle with beleaguered MGM for last place at the box office.
In addition to the weak box office, Seagram is facing declining profits from its liquor business as a result of Asia's financial crisis.
The music business offers opportunity in an industry where failure is less expensive.
''Music, it's really a business where you make smaller bets. You can control the risk better. You control the costs better,'' said Scott David, an analyst with Schroder & Co. ''Marketing costs are less. It's a good cash business.''
Yet the music industry has its own set of problems.
In 1997, the sale of recorded music fell for the second straight year as consumers finished converting old LP collections to CDs. Sales last year
dropped 6.5 percent in unit volume and 2.4 percent in revenue to $12.2 billion, according to the Recording Industry Association of America.
A string of successful releases during the first half of 1998 boosted sales 6.8 percent in unit volume and 11.9 percent in revenue to $5.8 billion compared to the same period in 1997.
Despite the increases, it is unlikely the industry will achieve the dramatic growth rates enjoyed during the 1980s, when the CD revolution spurred the sales of millions of older albums converted to the new format, said David.
The industry also faces the challenge of adapting to Internet technologies that could make the CD and even music stores obsolete. Among the chief concerns is MP3 technology, which allows high quality audio files to be downloaded from the Internet and stored on a computer disk.
Pirated versions of songs from established artists are being downloaded from a number of Internet sites. Equally disturbing for industry executives, some new artists are bypassing record companies by selling their music directly to fans over the Internet, and a few are giving their recordings away via
the new medium just to gain exposure.
One company, Diamond (Nasdaq:DIMD - news) Multimedia Systems Inc., already is marketing a Walkman-like player, the Rio, that can store and play hours worth of music downloaded with MP3.
But Internet-based distribution systems could be a boon, as was the switch to the CD, if the recording industry can find a way to adapt.
''There are new technologies coming down the pipeline. People already are buying music over the Internet. It could change the dynamics of the music industry,'' said Ms. Bannister.
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