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CBS Records: Dominant, Lucrative and Troubled

February 15, 1987|WILLIAM K. KNOEDELSEDER Jr. | Times Staff Writer

It's unlikely that rock star Bruce Springsteen spends much time thinking about the directors of CBS Inc., but it's a sure bet that they have been thinking about him lately.

In the last two months of 1986, the broadcaster's record unit sold nearly 5 million copies worldwide of Springsteen's "Live: 1975-1985" album. At a wholesale price of more than $19 each for the five-record set, that represents nearly $100 million in revenue for CBS.

Springsteen's album helped push pretax profit of CBS Records to $162 million for 1986, nearly double those of 1985 and the highest ever reported by any record company. Revenue was almost $1.5 billion.

That stellar performance came as CBS' TV network has been struggling with lower ratings and weak advertising revenue. Overall CBS profits rose only 1% in 1986, and pretax broadcasting profits tumbled 31%.

Some experts say it was the expectation of such a glowing performance by CBS Records that led the corporate board to reject a recent bid from an investor group headed by CBS Records Group President Walter Yetnikoff to buy the record division for $1.25 billion.

That would have been by far the largest sum ever paid for a record company. But CBS' rejection seemed to lay to rest widespread talk that new CBS Chief Executive Laurence A. Tisch wants to unload the record division--as he recently did with its music publishing operation, CBS Songs--to help reduce debt the company took on to defeat a 1985 takeover bid by Atlanta broadcaster Ted Turner. "I think the CBS board has made a corporate decision that their business is TV and records," the president of a competing record company says. "They might sell everything else, but right now the cash flow from the record division is too important (to CBS)."

Adds John Reidy, an industry analyst for the investment firm of Drexel Burnham Lambert: "This is the dominant record company in the world, with more profits than any other. . . . It would be hard to improve on (its 1986) performance."

Indeed, for the past 30 years, CBS has dominated the record business the way General Motors has traditionally dominated the auto industry. The company has carefully nurtured its record division, and the business has come a long way from the financially ailing American Record Co. that CBS bought in 1938. CBS surpassed RCA Victor as the largest U.S. record distributor in the mid-1950s.

The company's three labels--Columbia, Epic and Portrait--boast an artist roster that is the envy of competitors, both for its size and the wealth of talent in every musical category--pop music giants Michael Jackson, Bob Dylan, Barbra Streisand and Luther Vandross, country and western singer Willie Nelson, opera star Placido Domingo and jazz trumpeter Wynton Marsalis, to name just a few on the CBS roster of more than 200 artists.

With about 6,000 employees worldwide, CBS Records deploys the most powerful--and the most widely emulated--armada of manufacturing, distribution, marketing and artist acquisition in the industry. So strong is CBS' reputation as a marketer and distributor of records that many industry observers believe a 1-million-seller for any other label would sell 2 million copies if released by CBS.

Despite all this, however, industry sources say there is trouble brewing at "Black Rock," as CBS' Manhattan headquarters is known.

"I think the record company is less of a fortress than it was in years past; there's some vulnerability," a former top CBS executive said. "I think there is a crisis ahead."

Part of the trouble centers on the supposedly strained relations between Tisch and Yetnikoff. "They simply do not get along," said a record company president, who like most interviewed for this article asked not to be identified. "Walter yells and screams a lot, and Tisch is a very soft-spoken gentleman who cannot be pushed around."

Yetnikoff has been president of CBS Records since 1975. A Phi Beta Kappa at Brooklyn College and graduate of Columbia University Law School, he is generally regarded as an extremely bright attorney and a dynamic, even charismatic, executive. He also has a reputation for being volatile, bumptious, profane and contemptuous of prescribed CBS corporate behavior. He declined to be interviewed for this article.

In a statement, Tisch described his relations with Yetnikoff as "excellent," and any suggestion to the contrary as "completely off base." He declined further comment.

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