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COMPANY TOWN | THE BIZ / CHUCK PHILIPS

Interscope Emerges as Star Act for Seagram

Label President Looks Back on Year After Merger, Discusses Industry's Future

December 14, 1999|CHUCK PHILIPS

With Death Row on a roll, Interscope also began to dominate the nation's pop charts with a string of rock and pop hits from Nine Inch Nails, Four Non Blondes and Wallflowers. When Time Warner dumped Interscope following a lyric controversy, the label was instantly scooped up by Seagram's Universal Music Group. McClain quit the company soon after.

Two years ago, Whalley also threatened to jump ship to run Disney's Hollywood Records, but stayed and was promoted to president of Interscope. After Seagram purchased PolyGram, Whalley took on a much higher profile in the corporation's new IGA division.

"The actual, physical undertaking of the merger was extremely difficult emotionally on a human level and a personal level," Whalley said. "But the transition of moving from what we were to what we are now has gone remarkably smooth. This is a much bigger organization, but we're still pumping out the hits."

Not everything is clicking. Much of the music released by Interscope does not sell overseas, where global record conglomerates typically reap their largest profit margins. And although Seagram has exceeded analyst expectations regarding its growth inside the U.S. music market, the company is having less success growing the business in other territories.

Another problem for Interscope is that it has had trouble scoring hits with recent releases by such Geffen and A&M stalwarts as Hole, Sheryl Crow, Guns N' Roses, Sting, Bryan Adams, Counting Crows and Beck. Sales of the latest recordings by those acts have been lackluster and some artists have complained privately that their music is getting second-class treatment under the Interscope umbrella. But that would not account for why expensive projects by such Interscope acts as Nine Inch Nails and Marilyn Manson have also bombed recently.

According to Whalley, the music business has changed dramatically over the last three years.

"No matter how big you are, an artist has to treat every record now like they're starting over," Whalley said. "It's a shocking development, but you can no longer assume that radio is going to play it or that fans are going to buy it. You just can't take anything for granted any more."

Apparently you can't even assume that one Seagram-owned label won't try to steal another Seagram-owned label's act, as Whalley learned this summer when war broke out between Interscope and Seagram's Def Jam/Island unit. Sources say Def Jam head Lyor Cohen tried to offer Limp Bizkit leader Fred Durst his own label pact, even though Interscope had a similar deal in the works. Hours before closing the contract, Cohen backed down under orders from corporate executives.

Whalley believes that Seagram and other music corporations need to find new ways to grow the business. "Everybody knows what this business is about: You make hits and you sell records," Whalley said.

"But everything is changing. Costs are booming and margins are shrinking. Of course, the Internet offers huge opportunities, but nobody has any idea where it will lead. The biggest task facing everybody in this industry is how to come up with new ways to grow this thing."

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Interscope's Scope

A year after the PolyGram acquisition, IGA (Interscope, Geffen and A&M) has emerged as Seagram's top domestic breadwinner, accounting for nearly one-third of the corporation's whopping 27% share of the U.S. music market. The label's roster boasts such stars as Limp Bizkit, Dr. Dre, Sting, Eminem, Sheryl Crow, Beck, Enrique Iglesias, Smash Mouth, Hole, Eve and Counting Crows.

U.S. Market Share

*--*

1998* 1999* Interscope 2.59% 5.49% Geffen 1.41 1.66 A&M 1.68 0.86 IGA 5.68 8.01

*--*

*As of December

Source: SoundScan

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