A&M Records Chairman Al Cafaro did something this week that is unique in the music business. He severed the connection between his Hollywood label and Hits, the most influential record promotion company in the United States and publisher of the industry's best-read trade tip sheet magazine.
Cutting ties with Hits could prove to be the smartest move of Cafaro's career, saving A&M millions of dollars in promotional money and setting a precedent for other companies to follow. Or the move could blow up in his face.
Thirty years after radio corruption scandals rocked the music business--and popularized the term "payola"--the art of promoting records still remains one of the murkiest areas in the $39-billion, increasingly corporate record business.
While the music profession is no longer tainted by allegations involving underworld cash, cocaine and prostitutes, corporations pay millions of dollars each year to a tiny clique of independent promoters and tip sheet operators. These consultants contend they can influence MTV and radio airplay, though how they can do so is unclear since it is illegal to use money or gifts to influence music programmers.
But most record company heads apparently believe they won't be able to compete for radio airplay without them.
These arrangements are also unusual compared with other companies that sell products to consumers. In the film business, for example, most promotion budgets are spent to communicate directly with moviegoers.
Hits, the most successful tip sheet in the music world, is run by former Los Angeles independent promoters Dennis Lavinthal and Lenny Beer. The weekly publication--which grosses more than $10 million annually despite not being sold at newsstands--features industry gossip and data designed to alert radio stations, retailers, MTV and record companies to new trends.
Every major label in the music business advertises in Hits and pays the Sherman Oaks-based company additional fees to hype new releases to retailers and program directors at radio stations and to MTV. Lavinthal and Beer also earn considerable additional income from labels for consulting on marketing and promotional projects.
In recent years, the six major record corporations have begun to scrutinize the millions of dollars sunk annually into retail price-and-positioning fees, independent promotion and trade tip sheet advertising.
In 1997, A&M, which is owned by PolyGram, paid Hits more than $700,000 for its annual deal, sources said. But the company had a tough year breaking new acts and this week A&M notified Hits that it will not renew its annual guaranteed deal--according to industry sources the first time that a major label has made such a decision. A&M left the door open to do some business with Hits on a project-by-project basis, but only if Hits can bring value to a project.
A&M decided to nix its annual Hits deal after a reassessment of the company's advertising and promotion practices. A&M has also cut back 20% on the use of outside independent promoters to work its records, sources said. The company intends to release fewer records next year and expand its commitment to reaching consumers through TV advertising.
Cafaro could not be reached for comment, but sources inside A&M say the decision to distance itself from Hits was prompted purely by economic concerns.
"It's a waste of money. Pure and simple," said one A&M executive, speaking on condition of anonymity. "'We would rather spend the money speaking directly to the consumer."
Hits publisher Lavinthal said that although the nature of his firm's deal with A&M had changed, he anticipated doing some business with the label in the future.
"Hits magazine has a long-standing successful working relationship with Al Cafaro and A&M Records that we expect to continue in 1998," Lavinthal said in a phone interview on Monday.
But Cafaro did not sound so enthusiastic about the company's future plans in an internal memo, obtained by The Times, that he sent out last week to senior A&M officials.
"When [Hits] is enthusiastic about one or more of our records, they will present us with a plan, the cost of which will be negotiated at that time," Cafaro said in the memo. "I will only do business when it is clear that they will be providing real value. No one can do business with Hits without my signing off. This includes advertising. Don't present me with anything to rubber stamp, because I won't."
Hits dominates the tip sheets market primarily because of its connections to top executives who sometimes feed the publication's widely read rumor column with industry gossip.
Some record executives admit privately that they put little stake in Hits charts and they contend that much of what the magazine prints is designed to flatter current or potential clients--or skewer those who cut back on advertising. Still, executives say they are unwilling to risk jeopardizing a costly new recording by withholding what they called "insecurity" money from Hits.