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The level of competition between the legendary record man and his onetime protégé turned formidable foe should become even fiercer when Morris’ no-poach stipulation is lifted in January.

I.B. BAD ON THE YEAR IN MUSIC

The Artists, Executives and Events That Moved the Needle and Transformed the Industry During the Past 12 Months
WINDS OF CHANGE
This was no ordinary year, as both Warner Music and EMI changed hands, radically transforming the major label landscape, in the biggest seismic shift since MCA bought PolyGram in 1998. These acquisitions ended the decade-long struggle of both EMI and WMG to step up to another level by trying to merge into a formidable competitor to Sony Music and UMG. Consequently, what was the Big Four 12 months ago is now the Big Two, with UMG accounting for roughly 40% of the U.S. market, and even more in other territories.

Assuming it gets regulatory approval for the acquisition of EMI's recorded music assets, Universal will vault well ahead of Sony Music; the two companies are currently neck and neck in overall marketshare on the year. That leaves Warner Music—which desperately needed EMI to be competitive with Universal and Sony—a distant third. A similar seismic shift has shaken the publishing sector with Sony/ATV’s purchase of EMI Music Publishing in partnership with a coalition of investors. All in all, 2011 has been a year of big changes, starting at the very top.
 
ROMULUS & REMUS

The two superpowers of the modern music business are being run by a pair of executives whose careers are inextricably linked, as UMG ruler Lucian Grainge goes head to head with his mentor, Sony Music chieftain Doug Morris. A great many things transpired between Morris’ anointing of Grainge as his successor as Universal chieftain in 2009 and his decision to take the top job at Sony a year later—a move that insiders believed surprised Grainge, who had expected Morris to retire, pitting the two longtime colleagues against each other in a complicated dynamic on both the business and interpersonal levels.

Some say their relationship became contentious when Morris was prevented from leaving Universal for six months after accepting his new job, forcing him to rent an office across the street from 550 Madison, where he grew increasingly annoyed that the company he’d built into an empire would treat him that way.

In his first full year as Universal Chairman/CEO, Grainge has decisively made his mark on the company, moving the company’s headquarters from New York to L.A. while luring Barry Weiss from Sony Music to oversee UMG’s East Coast operation. He’s also put his philosophy into action by significantly beefing up A&R throughout the music group, including putting David Foster in charge of Verve, promoting Evan Lamberg to the top spot at UMPG, bringing in Gee Roberson to give Jimmy Iovine’s Interscope an East Coast presence, and replacing departed IDJ chief L.A. Reid with a squad of A&R executives that now includes department head Karen Kwak, the newly arrived Chris Anokute, Breyon Prescott, Bruno Mars manager Brandon Creed and Ethiopia Habtemariam, while upping Steve Bartels to head of the label group. Additionally, in a series of high-level deals, Grainge picked up the established American Idol and promising newcomer The Voice, as well as inking hit songwriter Diane Warren.

Grainge’s MO involves taking both musical and executive talent off the table before his rivals can counter. In this regard, consider his decisive response to a 2002 speech by then-EMI U.K. head Tony Wadsworth in which he criticized UMG’s U.K. company for not being a serious player in the rock music business. Legend has it that Grainge, who was then running UMG U.K., took Wadsworth’s contention as a direct challenge and set out to systematically dismantle EMI, hiring away a number of the competition’s execs and making every deal that was put on the table (in this sense, his 2010 signing of the Rolling Stones, who had been on Virgin, can be seen as a sort of coup de grace). This extremely aggressive strategy saw Universal marketshare increase at the expense of all the other majors, but especially EMI. Everyone wanted to work at Universal, and the deals for artists continued to pour into those same U.K. coffers.

Is Grainge attempting to repeat this pattern in the U.S.? Some say that he can’t, because the size of the deals here is so much greater. Others say that he is quietly on a mission to become the first U.K. captain of a major to make the Atlantic crossing not only work but to dominate the U.S. business. It’s been said that the downfall of most Brits trying to run U.S. companies results from their inability to grasp the American black music business and their difficulty in hiring the right executives—challenges that Grainge must successfully deal with in order to break the pattern.

Of the major deals now on the horizon for Grainge, Scott Borchetta’s Big Machine and Slim and Baby’s Cash Money appear to be the biggest, with each rumored to be running at a payout north of $150m. Also coming up for renewal next year is the Disney distribution deal, as the capable, digitally aware Ken Bunt succeeds retiring industry legend Bob Cavallo. Additionally, with a return to Warner Bros. apparently a no-go, and with Sony and EMI out of the picture, Rick Rubin’s American Recordings now appears to be headed to UMG as well. Insiders are saying Iovine is not a buyer. Is there a possible return in the works to Def Jam, which Rubin co-founded with Russell Simmons? Or could Monte Lipman’s Universal Republic be interested? Rubin’s successful run with Tom Whalley at WB has spurred speculation about the two reuniting in one form or another; Whalley is presently under the Universal Republic umbrella. 

Also thought to be on Grainge’s list of collectibles are possible label deals for Capitol Nashville’s Mike Dungan and Justin Bieber manager Scooter Braun; what’s more, Grainge is rumored to be snapping up Elektra Co-President Mike Caren and former Sony Music boss Don Ienner, the latter in a likely consultancy role.

UMG’s label heads have had eventful years, with Iovine running IGA, revitalizing American Idol and making a financial killing with the wildly successful Beats Audio; Lipman playing his Cash Money and Big Machine trump cards at Universal Republic to finish the year #2 in marketshare with 7.4%; and Bartels sitting on The Throne at IDJ—the latter two comprising Barry Weiss’ rebuilt UMG East.

Grainge had a six-month head start on his longtime colleague turned fierce competitor, but Morris wasted no time implewmenting his own philosophy—which begins with putting talented executives into key slots and granting them full autonomy to make decisions. Morris has always believed that U.S. repertoire drives sales worldwide, and he’s betting that his team—Columbia’s Rob Stringer and Steve Barnett, RCA’s Peter Edge and Tom Corson, Epic’s L.A. Reid, Syco’s Simon Cowell and Kemosabe’s Dr. Luke—can do just that. Many believe Morris’ exclusive deal for the services of Dr. Luke, a street-smart, aggressive record maker, will prove to be about more than just big pop hooks. The early signs for Morris’ playmakers are promising indeed, as the Stringer/Barnett tandem has Columbia running away with label marketshare for the year, while Reid and Edge/Corson (whose label is #4 in current marketshare) expand their executive brain trusts to do battle in 2012.

Within days after arriving at Sony Music in July, Morris was decisively cleaning house and putting his own handpicked executives in place, replacing SME U.K. and Ireland head Ged Doherty with former EMI A&R chief and Island U.K. head Nick Gatfield, and tapping Edgar Berger, who was running Sony Music Germany Switzerland Austria, to succeed Richard Sanders as the head of SME’s under-performing international division.

The level of competition between the legendary record man and his onetime protégé turned formidable foe should become even fiercer when Morris’ no-poach stipulation is lifted in January. In related news, look for former Universal Motown topper Sylvia Rhone to rejoin Morris in a label joint venture soon after the first of the year… Looking down the line, could the wheel eventually go full circle, with Morris ending up with Warner Music, which he left in 1995? In any event, the Morris-Grainge narrative is sure to provide the music sector with plenty of plot lines in 2012.

WARNER MUSIC
A year ago, Lyor Cohen appeared to be the commander in chief in waiting for WMG; instead, the company was sold to Len Blavatnik’s Access Industries, and Cohen was moved sideways to the oversight of recorded music, which would have still been a big job had Warner been able to acquire EMI, while Blavatnik brought in turnaround specialist Stephen Cooper as CEO, replacing Edgar Bronfman, who has just left the company, his long-standing dream of a combined WMG-EMI shattered for good. At this point, it’s anyone’s guess what Cohen will do next.

According to Warner insiders, Bronfman’s fate was sealed when Scott Sperling and his fellow investors decided to sell and Blavatnik took the bait. In retrospect, it’s telling that Bronfman moved to London in 2009, as his bankers looked for an out—and T.H. Lee, et al., beat Citi to market by putting another major music company on the block before it could auction off EMI.

Almost 20 years earlier, Bronfman sold DuPont and in short order bought MCA, Geffen and PolyGram, the latter acquisition bringing him Island, Motown, A&M and Mercury, as well as a wildly successful European company. After spending more than $15 billion of the family money, he sold to Vivendi and lost the family yet more billions. He then bought WMG and thereafter made some bad decisions and at times misread the market. In this case, the bankers and principals got rich, while the common stockholders took the hit, as opposed to his family, which made for less stressful family Seders, if nothing else.

At Warner, Bronfman managed to shrink both records and publishing into smaller companies than they’d been when he bought them. Many believe the only smart move Bronfman made in 20 years was hiring Doug Morris and allowing him to build Universal into a monster.

Will key Warner Music executives migrate to Sony or UMG now that the EMI deal is kaput and the long-term strategic plan for Warner appears problematic? Or will Blavatnik and Cooper give Cohen the power to create a real alternative to Hertz and Avis?

Meanwhile, Rob Cavallo and Todd Moscowitz, who continue retooling Warner Bros. Records, are having a big December with Michael Buble and the Black Keys.

EMI
Roger Faxon
’s increasingly desperate efforts to convince Citigroup to keep the company intact came to naught when the bank dealt recorded music to UMG and EMI Music Publishing to Sony/ATV, headed by Faxon’s former boss and successor Marty Bandier, who is not likely to keep Faxon around once the acquisition is finalized. Could he have a future at BMG or Warner Music? In any case, Faxon has an $8m golden parachute to look forward to.

Severely handicapped by uncertainty and ineptitude at the corporate level, EMI’s U.S. company has won the respect of the entire industry by performing so effectively under the strong leadership of Greg Thompson.

NASHVILLE
Among the rainmakers on Music Row this year were Gary Overton, whose Sony Music Nashville scored the country sector’s top marketshare with 2.7%; Capitol Nashville chief Mike Dungan; and Big Machine/Republic Nashville’s Scott Borchetta, who is practically printing money with Taylor Swift and The Band Perry.

PUBLISHING
The addition of EMI Music Publishing to Marty Bandier’s Sony/ATV could put it in competition with Universal Music Publishing, now headed by Evan Lamberg following the resignation of David Renzer, for #1 in the pubco marketshare competition.

The Hartwig Masuch-led BMG Rights Management, a joint venture between Bertelsmann and New York private equity firm KKR, added Bug Music to its holdings, following the 2010 acquisition of Chrysalis Music, but failed in its attempt to bag the biggest prize, EMP. BMG’s next target will in all likelihood be Warner/Chappell should it go on the block.

TV
While the Grammys have traditionally moved the needle for certain acts, as they did this year for Mumford & Sons, TV exposure in general has become an unparalleled marketing tool for record sales; these days, nothing else comes close. That’s why Lucian Grainge went after Fox’s American Idol—which Jimmy Iovine and his savvy A&R team then revitalized in its comeback 10th season, while reigniting Jennifer Lopez’s recording career—and bet on NBC’s surprise hit The Voice—which did wonders for coaches Adam Levine, Blake Shelton, Cee Lo Green and Christina Aguilera.

Meanwhile, Glee threw off consistent track sales for Sony Music, though the series’ ratings cooled this fall. And if the U.S. version of The X Factor wasn’t quite as big a hit in the early going as Simon Cowell had boldly predicted, the show brought an unprecedented level of drama to televised musical contests via the intense dynamic between Cowell and L.A. Reid, so heated that it has nearly overshadowed the competition itself.

Meanwhile, bands and artists continued to take advantage of the exposure and revenue derived from having their music used in commercials—exemplified by the use of Foster the People’s “Don’t Stop (Color on the Walls)” in a Nissan campaign, making it a no-brainer as the breakout band’s latest single.

DIGITAL
The iTunes Store was the picture of stability in a tumultuous year for online music, even with the death of Steve Jobs in October. Amazon MP3’s Daily Deal generated headlines and 460k in sales when it priced Lady Gaga’s Born This Way at 99 cents for two days in the album’s debut week. Google spent much of the year in licensing negotiations with labels and publishers, finally launching on Nov. 16 with all of the Big Four except for Warner Music. Meanwhile, Amazon, Google and Apple all unveiled digital storage lockers, as “the cloud” became a buzzword. And VEVO held on to its slot as the most-viewed video network on the web, despite the continuing absence of WMG content.

But the year’s biggest digital music story was the July 14 U.S. launch and rapid embrace of Spotify, which some are predicting will be as big a game changer as iTunes, while causing those who had written off the streaming model to rethink their positions. Because of Spotify’s popularity, there’s a lively debate going on about its impact on record sales, with many assuming the service is having a negative effect. The service was blocked from adding Coldplay’s Mylo Xyloto and the Black KeysEl Camino by managers Dave Holmes and Q Prime, respectively, a move that appears to be gaining traction, though some criticize it as short-sighted.

Once it swallows up EMI, UMG will have enormous clout in shaping deals with new distribution platforms as it takes the lion’s share of the tens of millions in advances from newcos off the table, while Sony Music bags the rest. When a company approaches 50% in marketshare, it can muscle the marketplace in all kinds of financially beneficial ways. It’s ironic that WMG, the first music group to trumpet the digital future, winds up empty-handed, as those predictions of riches finally begin to be realized.

NAMES IN THE RUMOR MILL: Azoff & Rapino, Bob Pittman, Clive, Troy Carter, Finkelstein, Van Toffler, Angelica, Riccitelli, Bryan Coleman, Jordan Feldstein, Mestel, Peter Gray, Erik Olesen, Rick Sackheim, Livia Tortella, Shimmel and Ron Spalding.
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