Seagram Shakes Up Music Business with Polygram Purchase

Reuters by Sue Zeidler (1998-05-21)

LOS ANGELES (Reuters) – Seagram Co. Ltd. and PolyGram NV hope to make
beautiful music together in a merger creating the world’s biggest record
company, but their union is likely to hit a few discordant notes with artists and
competitors.

“It’s a great move to make yourself the No. 1 music company in the world, but
what’s far more interesting is the story about the losers in this deal,” said
Bruce Haring, the author of “Off the Charts,” a book about the music industry.

Seagram announced a $10.6 billion deal on Thursday to acquire the 75 percent
stake in PolyGram that Philips Electronics NV owned, as well as remaining
shares in PolyGram.

The merger was widely expected and praised by analysts who said Seagram’s
purchase of PolyGram, the world’s biggest record company in terms of
market share, would propel the Canadian entertainment and beverage giant’s
music presence and shave costs by about $300 million.

Seagram’s Universal Music Group, which is home to country and western
artists George Strait and Reba McEntire, employs 3,500 people, while PolyGram,
which releases music by U2 and Elton John, has 12,000 employees worldwide.

Thousands of jobs, as well as high-salaried executives, will presumably go.
Even though the $40 billion global music market already has seen its share of
cutbacks and downsizing since sales started stagnating a few years ago, the
merger of two giants in the concentrated market is unprecedented.

Several industry experts expect it might raise regulators’ eyebrows and bring
protests by rival music giants, like Warner Music and Sony Corp., as it would
leave much of the industry in the hands of five major record companies,
instead of six.

“I don’t see how this deal wouldn’t be looked at by regulators since the
market’s already pretty concentrated,” said one executive at a rival music
giant.

In the 1980s, regulators blocked a merger between PolyGram and Warner
Music, a unit of Time Warner Inc.

Many said artists will also feel the pinch.

“Generally, when record companies combine, they like to rationalize the
artist roster, and that may free up some acts,” said Steve Cesinger,
managing director of Greif and Co.

“When you get down to it, a smaller company pays better attention to the
music,” Haring said. “Bigger is not better when it comes to music. Musicians
and recording acts stand to lose from this.”

One fledgling singer-songwriter said she recently left PolyGram because a
management shakeup had left a regime she felt was less than attentive to new
artists and failed to provide her with the support she needed to get wider
exposure.

Even successful singer-songwriter Sheryl Crow recently noted that a merger
can disrupt crucial relationships.

“The only unfortunate thing that can happen is that you have relationships,
and when a merger happens, sometimes these things shift,” said Crow, who
is one of the most successful artists on PolyGram’s A&M label.

“My overall feeling is that the bigger entities become, the less accountable they
are to the public,” singer-songwriter Loreena McKennitt said in an interview.
“I think the whole industry needs a very serious overhaul,” said McKennitt,
whose albums are released by Warner Music.

“The marketplace is a very sophisticated and complex place now, and in some
respects it does demand the chops of someone with an MBA, but at the
same time, music is too much of a visceral thing to leave to the bean counters,”
she said.

But industry veteran Jim Fifield, who recently resigned as chief executive of
EMI Music Group, told Reuters that scaling back on releases and acts may
be what the industry needs.

“There’ll be some artists who will obviously be dropped, but I don’t know
if it will be bad for the industry,” Fifield said. “I think (the industry) could do
with a lot of fewer releases because all of these releases are not getting enough
marketing and attention,” he said.

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