Warner's Oldies But Goodies

Can legends Ertegun, Stein, and Holzman find new stars to make Warner Music sing?

When Warner Music Group (WMG ) CEO Edgar M. Bronfman Jr. needed some help running his new company, where did he turn? To a trio of balding and gray-haired music veterans, the youngest of whom was born back when Franklin Delano Roosevelt was still President. Over their careers they have signed some of the most profitable and enduring acts of the last half-century, including Ray Charles, Led Zeppelin, Cream, The Doors, the Rolling Stones, Madonna, the Ramones, and the Talking Heads.

There's the granddaddy of them all, Atlantic Records co-founder Ahmet Ertegun, 82, the son of a Turkish diplomat who fell in love with music through jazz. Jac Holzman, 73, founded Elektra Records and is a self-described techie and studio rat who still exudes laid-back, 1970s California (though the lamb-chop sideburns are history). The third is Sire Records co-founder Seymour Stein, 63, a onetime Billboard magazine researcher and later a fixture at New York punk club CBGB's, who still prides himself on being "in the street." Together their time in the business adds up to more than 160 years.

Still, in an industry obsessed with the tastes and behaviors of gadget-loving 15-year-olds, how much can three guys who came of age listening to scratchy LPs really offer in a post-Napster world? "You can't underestimate the successes those gentlemen have had," says Michael McGuire, a media analyst at Silicon Valley research outfit Gartner Inc. (IT ) "But you have to wonder how applicable that is today, when the big label chiefs aren't driving the industry. Consumers are."

Still, to the extent that the industry's long-term swoon is rooted in a dearth of good music, Bronfman's move to tap the expertise -- and ears -- of Ertegun, Holzman, and Stein makes sense. "The nature of the music business is that anyone over 30 is seen as suspect and a little ancient," says media investor Harold Vogel of Vogel Capital Management. "But these guys have proven they know what sells. New acts are what the business needs now."

Certainly, music companies are in critical condition. Album sales by unit fell by 7.6% in the first half of this year after four gloomy years of similar numbers. (Digital sales were up 195%, but they still account for about 5% of total sales.) Bronfman moved quickly after he and his private-equity partners bought Warner Music from Time Warner (TXW ) Inc. in early 2004 for $2.6 billion. They cut hundreds of millions in annual costs, laid off thousands of workers, and slashed a bloated artist roster by a third. Still, Warner Music's revenues for recorded music this year are projected to be flat, at about $2.8 billion. Publishing will be up slightly, to about $560 million, according to analysts. But Warner stock is off 7% from its offering price of $17, when it went public in May.

This is precisely why, say Bronfman and his top deputy, hip-hop impresario Lyor Cohen, the three legendary hitmakers were called into active duty. "It's important to respect and celebrate a company's culture. Over the last 10 years, that culture dissipated because Time Warner never really found the handle on how to manage this division," Bronfman told BusinessWeek (MHP ) in his first extensive interview since Warner went public. "We will rediscover how incredibly talented these three executives are and how much they still have to offer a young, entrepreneurial management team in which they can see themselves so many years earlier." Adds Cohen: "These guys are treasure, American treasure."

So Cohen and Bronfman have put them to work. Holzman is leading a group to develop a new all-digital, still-unnamed label (no CDs, only music for downloads), to be announced in October. And he helped in the selection of a new CEO, Richard Blackstone, for publishing arm Warner/Chappell Music Inc. Stein, a veteran of artist development who has ferreted out stars from clubs all over the world, is showing new chops, signing as many new acts as any other A&R (artists and repertoire) executive since Bronfman took over. His next project: scouting talent in South Africa and India. And Ertegun? After spending several weeks in the hospital this spring with pneumonia, he's back in the office every day, working on a compilation of Ray Charles's Atlantic recordings and a project with former Led Zeppelin guitarist Jimmy Page. (This one does not involve vocalist Robert Plant.) Says Bronfman of Ertegun, who has known Bronfman's father, Edgar Sr., for years and first met Edgar Jr. when he was a youngster: "Ahmet is the ultimate crap detector."

Of course, not everyone at Warner's Rockefeller Center offices in New York requires an afternoon nap. Warner has its share of younger executives, too. Kevin Liles, the executive vice-president who was recruited from Universal Music Group's Island Def Jam (co-founded by Cohen), is 37. Michael D. Fleisher, the chief financial officer brought in from Gartner, is 40. So is Atlantic Records' co-chair Craig Kallman. Atlantic President Julie Greenwald is 35. Bronfman, 50, tapped Cohen, 45, who was running Island Def Jam, soon after the sale. Today Cohen is charged with keeping a flow of communication between the two distinct camps within the company. "It's bunker-frontline warfare," he says of his younger team, "vs. hilltop strategy for Ahmet, Jac, and Seymour."

These are relatively peaceful times at Warner despite music's woes. Back in the 1990s, under music CEO Robert Morgado, internecine warfare was fierce. Highly respected music man Doug Morris fled to Universal Music Group, recruited by Bronfman, who built that company into the world's largest music outfit. Time Warner CEO Gerald Levin then sold Warner's Interscope Records, now one of the industry's most successful companies, to Universal over a flap about rap lyrics. Then one CEO after another quit or was forced out. Under pressure to pay down debt and fearing the short-term prospects for music, Time Warner boss Richard D. Parsons decided to sell the unit in 2003. Bronfman, looking for a new gig after his ill-fated sale of the family business, Seagram, to Vivendi (V ), teamed up with private money and swooped in to win Warner Music.


That unrelenting tumult kept Holzman away from the company over the past decade or so other than doing a little consulting work for its Rhino Records division. But the prospect of Warner's new beginning as an independent company drew him back. He sent an e-mail of congratulations to Bronfman, whom he had never met. Twenty minutes later, on a Sunday afternoon, Bronfman's return e-mail popped up on Holzman's computer. Bronfman wanted to meet and discuss the possibility of Holzman's return. "Record-making is a chronic obsession," says Holzman. "You don't die from it, but you can die from not doing it. I can't help myself. It's what I do." This from a guy whose Elektra Records label Bronfman quickly shuttered and merged with Atlantic. "It had become something very different than what I created," says Holzman.

Bronfman, who grew up seeking counsel from older relatives in the family business, immediately dispatched Holzman to oversee a crucial new project: an "e" label for all-digital music. The idea is that artists will be signed for, say, a six-month term and produce three tracks to be sold in various downloadable forms. Depending on how well the songs sell, the artist could be signed to do a full-fledged CD.

It's part of an incubator system Cohen has established at Warner. The company is partnering with small record labels, offering small doses marketing support at the start. Cohen wants to give artists a chance to develop more slowly, creating good buzz without splashy radio debuts while keeping Warner's financial exposure to a minimum. If sales begin to percolate, Warner will offer artists the opportunity to "upstream" to one of its bigger labels. Hip hopper Mike Jones, on SwishaHouse Records out of Houston, is the most successful artist so far to emerge from this system. His album Who Is Mike Jones? premiered at No. 3 earlier this year on the Billboard 200 chart. He's now signed to Warner Bros. It's this kind of new, lower-cost approach to artist development, complains Bronfman, that Wall Street doesn't get when it criticizes Warner for cutting A&R budgets too deeply.

Still, traditional A&R -- find a band, sign it to a multi-album deal, and put out CDs -- is the route Stein likes to take. "Right now I am having so much more fun than I have had in the past five years," says Stein, who still travels to the grittiest clubs around the world. He recently signed the band HIM, a Finnish rock group that's big in Europe.

The three men also help keep Warner's Young Turks in line. At a recent A&R meeting, after listening to one executive make an over-the-top cheerleading speech about one of his acts, Ertegun shot back: "How are they live?" The executive, Cohen recalls, turned white as a ghost and sheepishly replied: "I haven't seen them live." Says Ertegun: "I have more experience than anybody around. If I can't really give a good answer, I can give an informed answer."

So it might be that a bunch of guys who long ago became rich and successful by turning people on to new music will get a chance to do it again. Riffing on the 2000 movie Space Cowboys, about geriatric astronauts called back into orbit, Holzman jokes: "We are Edgar's Spaced-Out Cowboys." Now that would be quite a sequel.

By Tom Lowry in New York

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