Bertelsmann is on the verge of signing an estimated $150-million joint-venture label deal with industry veteran Clive Davis. It's an appeasement, sources said, that hasn't quieted the turmoil inside BMG, the German conglomerate's U.S. music division.
Tumult has reigned within the music group since BMG's decision to hire Antonio "L.A." Reid to run its Arista Records division, a label Davis founded and has overseen for 25 years. Reid takes over Arista on July 1--at the close of a record fiscal year during which sales rose to $550 million, up 30% from last year's $420 million.
Bertelsmann's deal with Davis is expected to close in mid-July, sources said. So far, BMG has agreed to pay Davis only about half the $300 million he sought and has ignored Davis' pitch to take Arista superstars such as Whitney Houston and Carlos Santana with him, sources said.
Davis' new venture is expected to be up and running in late September, just weeks before veteran Bertelsmann power broker Mark Woessner steps down as chairman of the corporation's supervisory board. Woessner has long been viewed as a mentor and protector of Michael Dornemann, chairman of Bertelsmann Music Group for the last decade.
Sources inside the company speculate that Woessner's departure foreshadows further shake-ups, including the possible exit of Dornemann.
Indeed, Bertelsmann Chairman Thomas Middelhoff was not pleased last year when BMG's back-room battles with Davis and BMG affiliate Zomba Records spilled over into the media. Middelhoff personally intervened in the management disputes, encouraging Dornemann and his right-hand man, Strauss Zelnick, to quickly put out the fires. Sources say Middelhoff also has been unhappy recently about Dornemann's high profile in the European press and New York tabloids.