Undermine Your Own Business

EMI cleans house, Elektra merges, Arista folds, what's left?

The hot MP3 going around last week was Shame 69's "No Business," a parody of LCD Soundsystem's "Losing My Edge." "I used to work in the music business," a bitter-sounding man mutters while "There's No Business Like Show Business" fades in and out. "I was there when the music industry committed suicide."

Not a bad week for it. In the space of a few days, EMI announced that it was dumping 15 percent of its staff, a fifth of its artists, and its CD manufacturing plants in the U.S. and Europe; Elektra Records merged into the Atlantic Records Group (laying off 170 people from both labels in the process); and Arista Records folded—the same week that Usher's Confessions, released on Arista, sold 1.1 million copies, the biggest first-week sales of an r&b album ever. Among his fellow Arista acts, OutKast and Kelis haven't been doing at all badly, and J-Kwon's debut Hood Hop, released last week, looks like a hit too. Other major labels that have closed this millennium (notably A&M and Geffen) have generally endured long dry spells before going under; Arista had lost $200 million in the past couple of years (thanks to miscalculations like Whitney Houston's $100 million contract), but was a record-selling juggernaut. So what happened?

Industry politics, it appears. Clive Davis started Arista in 1974, and was forced out more or less kicking and screaming in 2000, then replaced by Antonio "L.A." Reid. Shortly thereafter, Davis got $150 million from Arista's corporate parent BMG (owned by the German media conglomerate Bertelsmann) to start J Records. Reid left Arista in January; a few weeks later, Davis became the chairman and CEO of BMG North America—just as BMG was trying to curry favor with the European Commission and American regulators for a merger with Sony Music. (A new indie-label consortium, American Music Independents, is expected to oppose the merger.)

Despite the conventional wisdom that CD sales are in a downward spiral, they're actually up 14 percent this year compared with this time last year (it helps that everybody's mom bought the Norah Jones album). A new study from Harvard Business School and UNC-Chapel Hill suggests that file-sharing has virtually no effect on sales on any given album, and that the health of the industry is probably more closely tied to the health of the economy in general. But whether or not there's actually the kind of economic crisis that can make regulators look kindly on a merger, you can give the appearance of one by tightening your belt, and Davis was in a position to declare to Arista that he'd brought it into this world and he could take it out too. Arista will continue as an imprint, nothing more; many of the acts associated most closely with Davis (Carlos Santana, Kenny G., and the like) will move to J, and others will be distributed among Jive and RCA. Oh—and Bertelsmann's chief executive Gunter Thielen has said he expects that the BMG/Sony merger will be approved in Europe and America by the end of September.

The death of Arista as a corporate entity isn't much of a public tragedy; it's not as if nobody will put out Pink records anymore. It's a little sad to see Elektra so diminished as a company, though. Started by 19-year-old Jac Holzman in 1950, and run by him until 1973, it almost always had an arty tinge to it, a willingness to stick with the good stuff until it succeeded; Elektra released the original Nuggets compilation, the early Stooges and MC5 albums, Love and Joseph Spence's best music. More recently, under Sylvia Rhone (the first woman and first African American to run a major label), it was home to Metallica, Missy Elliott, Björk, and Stereolab, among others. But when Edgar Bronfman Jr.'s coalition took control of the Warner Music Group at the beginning of March, Rhone was booted along with Atlantic's Val Azzoli and Ron Shapiro.

As for EMI—well, this isn't the first time they've cleaned house: Two years ago they laid off 1,800 employees around the world, this time it was 1,500. The fact that they're outsourcing their North American CD manufacturing to the Canadian company Cinram (as Warner did last year), though, suggests that the majors are reaching a consensus that making and selling physical objects may not be their priority much longer. At the same time, EMI announced it's paying $80 million for the final 20 percent of the Jobete song catalog, whose crown jewels are the classic Motown hits. Whether or not the industry commits suicide, there's always somebody playing "I Heard It Through the Grapevine" somewhere.

 
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