Marching To Morgado's Tune At Warner Music

The atmosphere at Warner Music Group's recent sales conference in Nashville was as rueful as any country-and-western ballad. Three days before the Aug. 18 meeting, Mo Ostin, the legendary chairman of Warner Bros. Records Inc., announced his resignation. Now, Ostin was delivering his farewell speech shortly after the very person who had hastened his departure: Warner Chairman Robert J. Morgado. "It was a very emotional event," recalls Danny Goldberg, president of Atlantic Records. "Everybody was crying."

Morgado says he admires Ostin, who built the Warner Bros. label from scratch into a powerhouse over three decades. But colleagues say relations between the two men were strained--in part because Ostin insisted on reporting to Time Warner Inc.'s late chairman, Steven J. Ross, and his successor, Gerald M. Levin. With Ostin gone, Morgado has consolidated his grip on the world's largest music company. "A lot of people had speculated whether Bob had full control over his label executives," says Michael P. Schulhof, chairman of rival Sony Music Entertainment Inc. "These latest moves clearly demonstrate he's running his own show."

VICTORY. It was quite a struggle. When Ross asked Morgado to oversee Warner's music business in 1985, he faced a clutch of labels that acted more like feuding baronies than a cohesive family. Morgado's nonmusic background--he once served as chief of staff to New York Governor Hugh L. Carey--made him suspect to proud record executives such as Ostin. Over nine years, though, Morgado asserted his authority.

Now, with his house in order, the 50-year-old executive is flexing his muscles as a power broker in the industry. His first target is mtv, the music-video juggernaut whom all six major record companies rely on to promote their artists. Morgado has persuaded five of the six to back an alternative music-video channel to be launched in the U.S. next year. mtv contends that a channel backed by most of the record industry is monopolistic. The claim has found a receptive audience in the U.S. Justice Dept., which recently subpoenaed the five companies involved as part of a preliminary antitrust investigation.

For the low-key Morgado, the government probe is a headache. But he says record companies have little choice but to collaborate in developing new distribution channels for their artists. "Do you know anyone else who would be willing to spend $100 million to start a music channel?" he asks. Unlike Ostin, who carried on a notorious rivalry with Sony's predecessor company, cbs Records, Morgado has an array of joint ventures with Sony.

Critics snipe that Morgado has no feel for music. Indeed, his elegantly appointed office isn't decorated with the gold records that are de rigueur among industry executives. But Morgado has compensated for his lack of musical pedigree by naming Doug Morris president of all Warner's U.S. labels. As chairman of the Atlantic Group, Morris had revitalized the once creaky label with Stone Temple Pilots and a concert album featuring Luciano Pavarotti, Placido Domingo, and Jose Carreras. Indeed, Atlantic has overtaken Warner Bros. Records in U.S. market share (table). Warner Bros. President Lenny Waronker says new releases by Eric Clapton, Neal Young, and Madonna will quickly restore its luster.

Together, Warner's 40 wholly or partly owned labels amount to one powerful machine. John Tinker, an analyst at Furman Selz Inc., figures Warner Music Group will generate $700 million in operating income in 1994, on revenues of $3.6 billion. With popular non-U.S. artists such as Italy's Laura Pausini, fully 55% of Warner's revenues come from overseas. But even in the U.S., Warner owns 21.7% of the business so far this year, according to market researcher SoundScan Inc. Sony Music, its closest rival, has only 15.7%.

With Warner rolling up the profits, Morgado can focus on outside projects, such as the music-video channel. He insists the venture doesn't violate antitrust laws. His record-company partners--Sony, PolyGram, emi Music, and Bertelsmann Music Group--will continue to supply music videos to mtv. But Morgado acknowledges that with a viable competing channel, they might be able to charge mtv for videos it now receives free.

TOO BRASH? Industry executives say the Justice Dept.'s scrutiny has unnerved Morgado's partners, though Schulhof says Sony is still behind the venture. Morgado says he turned away mca Inc., the only big record company not involved in the service, because the list of backers had grown too long, but he may invite it back in later: "This is not about mtv; they're only part of the problem."

With its antitrust implications, some rivals think Morgado's brash challenge will only end up embarrassing him. But after his victory over the unruly fiefdoms of Warner Music Group, this record-industry maestro seems willing to take that risk.

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