UMI marriage costs parent company dear

Seagram’s 6.6bn acquisition of PolyGram has put top pop marketer Max Hole into an enviable, though difficult, position.

As the newly appointed senior vice-president for marketing and A&R at Universal Music International (MW February 11), Hole and his new team of marketers will oversee promotion and management for one of the world’s top three music companies. They will have artists such as U2 and Diana Ross on their books, and take responsibility for labels including Motown and Mercury.

But the creation of UMI from the merger of Universal and PolyGram has been a bloody affair. It has led to over 80 redundancies in the UK, and a writ from a senior executive for constructive dismissal. The fall-out has been bloodier still in the US: the new company shed 500 jobs as the operations merged. Three thousand posts are expected to go worldwide by the end of the year, and the workforce will drop from 9,000 to 6,000.

The writ has come from former Universal UK managing director Nick Phillips, now chairman of Warner Music UK, who lost his Universal job in October.

The other redundant staff will not find work as easily as Phillips. As one Sony Music executive says: “People from outside the industry don’t take people who work in it seriously. Finding new talent is the lifeblood of our work, and you don’t need any qualifications for that.”

A spokeswoman for UMI does not rule out the possibility of more redundancies in the UK.

In theory, say observers, the PolyGram/Universal merger is a marriage made in heaven. Universal’s main label in the US is MCA, which is strong in the American market. And PolyGram, with labels like Island, Mercury and Polydor, performs strongly in Europe.

But as Rick Blaskey, managing director of music consultancy The Music and Media Partnership, points out: “This business boils down to personal relationships with individual acts. A lot of people have left the company and it will be down to those who are left to keep these artists.”

All this must be viewed against a backdrop of a global music industry which is going through a turbulent period. The International Federation of the Phonographic Industry says the US market grew in value by 12 per cent in the first six months of last year, but by comparison growth across the whole of Europe rose by one per cent. The Asian market fell in value by 41 per cent.

UMI has been created through the ambition of one man, Seagram chief executive Edgar Bronfman Jr. He is determined to turn his grand-father’s Canadian-based drinks business into an entertainment company fit for the next century. And he has more cost-cutting in mind. At Seagram’s second quarter results, which were released last week, he stated the aim of achieving annual savings of 188m by the end of June 2001.

Worldwide drinks sales are flat, whereas fat profits can be made in film and music. This is why Bronfman bought PolyGram’s film and music interests from Dutch consumer electronics company Philips last December for 6.6bn. Seagram already has a controlling interest in Universal’s film and music business.

Bronfman planned to sell on PolyGram’s successful film division PolyGram Filmed Entertainment (PFE), which has made or distributed commercial and critical successes such as Shakespeare in Love, Four Weddings and a Funeral, Bean, The Usual

Suspects and Trainspotting.

But last week Seagram announced it was unable to find a buyer at the right price and would merge the unit with Universal Studios instead.

Stewart Till, PFE’s international president, said he expected to increase his staff from 500 to 550. However, he may find that his div-ision is plunged headlong into the sort of dramatic rationalisation that the music division now faces.

Seagram reported a second quarter loss of 137m and much of this is put down to the cost of merging PolyGram and Universal, which has so far cost its parent 253m. Seagram’s problem is that the businesses on which it is depending for strong growth are performing either modestly or poorly.

Most observers think that both the film and record divisions are ripe for further rationalisation, and then drinks will be ready to become the mainstay of the group.

With his team of marketers, Hole will promote and manage acts internationally outside the US, where sales are still growing. But he will do this with fewer staff and with a collection of record labels where morale has been damaged as a result of cost-cutting and the ability to find new talent has been diminished.

The impact of rationalisation on UMI will unravel during the course of the coming year as Hole grapples with artist management on dwindling resources.

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