HITS Daily Double
Between 2003, the last full year in which the two companies operated separately, and the first quarter of this year, the partners have lost a whopping 10 points in marketshare, plummeting from nearly 30% to barely over 20%.


Who’s In, Who’s Out and What’s Next at the Previously Non-Cohesive Joint Venture
The merger of the two Sony Music and BMG, finalized July 20, 2004, was undertaken to bring together their marketshares in order to make a run at UMG, but it hasn’t turned out that way—far from it. Between 2003, the last full year in which the two companies operated separately, and the first quarter of this year, the joint venture partners have lost a whopping 10 points, plummeting from nearly 30% in total marketshare—or within spitting distance of UMG—to barely over 20%, with four consecutive year-over-year declines. Some credit this shocking drop to a lack of stability in leadership at both the corporate level and at Sony and an overall scarcity of hits, combined with a seeming unwillingness on the parts of both Sony and BMG to fully integrate their corporate cultures. The initial plan involved staff reductions and cost cutting under then-SBMG Chairman Andy Lack, as the company began to bleed marketshare. In 2004, when the merger was initiated, the combined companies lost 1.5% to finish at 28.5%. By the end of 2006, the year of Lack’s removal, SBMG had lost another 3 points to 25.5%, followed by a subsequent loss of 3.5 points to 22% in 2007. The company is currently at a new low of 20%. As one attorney ruefully quipped, “They were trying to make 1+1 add up to 3; nobody expected it to add up to 1½.”... Against this backdrop, let’s take a look at the principals in this still unfolding narrative:

Rolf Schmidt-Holtz, Chairman/CEO of Sony BMG, has been extremely proactive in his role since taking the reigns from Lack in February 2006, ending the reign of Don Ienner and Michele Anthony four months later in his first sweeping regime change, and less than two years later making an equally dramatic move involving four of his top executives: Clive Davis, Barry Weiss, Charles Goldstuck and Tim Bowen.

Barry Weiss has been promoted from the top spot at Zomba Label Group to BMG Label Group Chairman/CEO, replacing Davis. Everyone on the BMG side now reports to the veteran Weiss, whose newly expanded role plays to his strengths as an executive who’s equally cognizant of the creative and fiscal aspects of running a company, having learned from Clive Calder and from the previous generation of Weiss record men. Word has it that Weiss wants to keep separate companies in an attempt to maintain marketshare, but don’t expect a series of memos and announcements from the veteran executive trumpeting his every move, a la Guy Hands, as he reshapes BMG; Weiss is known for keeping things close to the vest.

The legendary Clive Davis has been offered a new job as Chief Creative Officer for SBMG Worldwide. Weiss is reportedly being respectful to Davis and is genuinely hoping that he’ll stick around—and why would the new boss not want this one-of-a-kind creative executive to stay on the team and continue making records? Despite reports to the contrary, Davis is not being relegated to an “emeritus” position, a la Ahmet Ertegun during his last years at Atlantic; rather, he’s being asked to focus on his storied strengths as one of the great A&R men in history. Insiders say Davis has come to terms with the new role being offered to him and is leaning toward staying. That said, history has taught us not to underestimate the man’s ambition and team-building ability, meaning that yet another Phoenix-like return is certainly within the realm of possibility. With the change in Davis’ responsibilities, Doug Morris becomes the last of the great traditional music executives running a major record company.

Charles Goldstuck is out as BMG Label Group President/COO. He had been with Davis since leaving the top financial post at Capitol to become EVP/GM at Arista in 1998. In recent months, Goldstuck had reportedly been lobbying for Bowen’s SBMG COO post, but it’s believed that Schmidt-Holtz had no intention of giving him the gig, because Goldstuck, though bright and ambitious, was not thought to be the sort of executive who would build cohesiveness between the two companies. Not only that, but if the New York Post’s assertion that Goldstuck was gunning for Schmidt-Holtz’s own job, as many believe, he obviously stepped on the wrong toes. Some insiders go so far as to speculate that the South African native’s removal was one of the primary motives for this round of high-level musical chairs. Is it possible that EMI or Warner Music would consider taking a run at the highly regarded Goldstuck?

Richard Palmese remains RMG’s head of promotion, but he’ll soon be out of contract. It appears that the veteran promo domo, whose relationship with Davis dates back to the early days of Arista in the mid-’70s, will either try to work out a new deal to replace his nearly expired contract or leave to pursue other options.

Tim Bowen is out as SBMG COO. Bowen’s fate was thought to have been sealed months ago, as word spread that he was actively disliked by the key players on both the BMG and Sony sides.

Last week’s dramatic changing of the guard marks an attempt by SBMG to remove the longstanding obstacles to the much-desired and long-awaited meshing of the two companies and their respective cultures. With Weiss ascending to the level of Sony’s Rob Stringer, the possibility of the two divisions’ ranking executives sitting down together and getting some things done has increased. The new ruling structure is also intended to make the upcoming buy/sell option less fraught with conflict, while theoretically leading to a more realistic price tag for BMG than the inflated value Bertelsmann has put on the operation.

Before the changes went down, there had been a great deal of discussion within the executive hierarchy about the fact that SBMG simply had too many labels, with RMG, ZLG, Columbia, Epic and the Nashville division. The majority of previous major label consolidations have involved the unification of departments, and Sony had begun combining departments prior to the latest executive shuffle. Given the latest company-wide mandate, most industry watchers expect the consolidation to spread across BMG as well.