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Universal Aims to Translate Latin Music Into Profits

The record company's deal-making is part of a strategy that has made it a leader in the genre

January 12, 2003|Jeff Leeds | Times Staff Writer

Maybe Universal Music Group's rise to the top in Latin music was a matter of destiny.

Eight years ago, Zach Horowitz, now president of Universal Music Group, was among a pack of record executives begging hot rock en espanol producer Gustavo Santaolalla to cut a deal.

Horowitz's company was then known as MCA Inc. And Santaolalla, never one to ignore an omen, happened to pick up a rental car with the license plate MCA733. So he decided to go with Horowitz.

As luck would have it, Santaolalla's Surco label yielded a smash hit from singer Juanes last year, making it a centerpiece in the two-front strategy that suddenly has put Universal on top of the Latin music world.

Beyond the long-cultivated Surco joint venture, Universal has been aggressively assembling an unmatched Latin empire.

Dead last in Latin music 18 months ago, the company has become No. 1 thanks to distribution deals with hot labels such as Univision Records, Disa Records and, as of last week, Latin powerhouse Fonovisa Records -- all of which are now controlled by Los Angeles-based television giant Univision Communications Inc.

Universal also has shaken up its own once-lackluster Latin division. With the latest alliances, Universal commands a market-leading 30% of U.S. Latin sales.

That the world's largest record company would display such zeal in pursuing what major distributors once considered a backwater genre is a clear measure of the growing power of Latin consumers. As Latinos have surged to about 12% of the U.S. population, numbering more than 31 million as of the 2000 census, they have created a pocket of relative strength in an increasingly shaky music industry.

Domestic album sales dropped 11% last year, but the comparatively strong Latino market remained flat. Record executives estimate that Latin record sales of roughly $600 million accounted for 5% of the industry's $12 billion U.S. total in 2002, and that share is continuing to expand.

"Look at the demographics of this country," Horowitz said. "Any major label not in the Latin business is going to miss a major opportunity. It was irking me that in this genre, which resonates with a significant portion of the country, we were not in it the way we should've been."

Whether Universal will cash in on its top-dog position is the subject of much speculation in music industry circles.

Executives estimate that Universal's new round of distribution pacts will generate more than $18 million a year in fees, before its own costs, plus millions more in manufacturing income. But critics say the company has paid too much for distribution rights to make the deals profitable in the end. Universal also has failed to turn Latin artists into cross-over stars, while competitors have scored with such acts as Sony Music's Ricky Martin.

Horowitz claims not to be worried -- and suggests it's his rivals that are having trouble making money on Latin music.

"I don't believe this was a deal for bragging rights. We're going to make millions and millions of dollars off the distribution of Fonovisa alone," the Universal president said last week in an interview. "When I look at some of our competitors, even when they have hits, they're spending so much to market them that I don't know what their profit margin is."

Horowitz contends that because of its new distribution pacts, Universal's sales force now carries more clout when pitching albums from the parent company's own label, Universal Music Latino.

At Universal, the company replaced the Latin unit's managers 18 months ago with respected veterans Jesus Lopez and John Echevarria. More recently, it also hired a controversial executive, Jesus Gilberto Moreno, who was convicted several years ago of illegally bribing a radio programmer to play his label's music.

The success of Juanes, whose album has sold more than 800,000 copies worldwide, may be a sign that operations are falling into line. Universal Music Latino also has scored with pop singer Paulina Rubio, whose first Spanish-language album for the label has sold about 1.2 million copies worldwide.

About the time Lopez and Echevarria arrived, Universal's Latin division got another boost from a crucial court battle. It beat out Sony Music in a bidding war for RMM, a tropical music label that had been thrown into bankruptcy proceedings by a songwriting-credit dispute.

Sony executives declined to comment for this report.

Universal paid more than $10 million for RMM, which owns older recordings by such acts as Marc Anthony and Tito Puente. It also distributes tropical label Lideres Records, whose TV-driven compilations have given Universal an additional 2% of the Latin market.

New Doors Open

But Universal's biggest coup was getting two of Latin music's most independent-minded entrepreneurs -- Disa Records head Patricia Chavez and Univision Music Group chief Jose Behar -- to trust the company with their distribution rights.

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