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Getting Warner Music More Upbeat

U.S. CEO Lyor Cohen is heading a turnaround that includes a recent boost in market share.

August 28, 2006|Charles Duhigg | Times Staff Writer

Amid the recent dreariness of the record business, Warner Music Group has had a uniquely bright year: In the first half of 2006, Warner Music was the only major music company to increase its U.S. market share. That's a significant accomplishment for a company that, when it went public last year, the stock debut was criticized by at least one high-profile analyst as a dud.

At least some of the credit for the recent success belongs to Lyor Cohen, 46, chairman and chief executive of Warner Music's U.S. operations.

The 6-foot-5-inch executive started in the record industry as a club promoter and road manager for the rap group Run-DMC. In joining Warner Music, Cohen left a high-profile position heading Island Def Jam Music Group, a division of Universal Music Group that remains a leader in urban and hip-hop music.

Cohen's jump to Warner Music surprised many. Although Warner Music once sold more albums in the U.S. than any other company, it stumbled badly in the 1990s.

Expectations fell further when the company was purchased in 2003 for $2.6 billion by an investor group led by Seagram Co. scion Edgar Bronfman Jr. Bronfman immediately launched a restructuring that cost the jobs of almost 2,000 employees, cut the artist roster and loaded the company with more than $2 billion in debt. The company's stock debuted in 2005 at a disappointing $17 a share.

But Warner Music's sales of worldwide recorded music in its most recent quarter rose 15% from a year earlier to $678 million. Powered by hits from bands including Green Day, the Red Hot Chili Peppers, and new discoveries James Blunt and Gnarls Barkley, Warner Music's U.S. market share has grown to 19.3%, up from 16.7% in 2005, according to Nielsen SoundScan.

The company's stock price has jumped 25% this year, with shares closing Friday at $23.70, up 9 cents from the previous day.

Bronfman and others say much of that success is due to some controversial hiring decisions, including Cohen. An American-born son of Israeli parents, Cohen early in his career developed a reputation as a tough negotiator who relentlessly promoted his acts, occasionally poached talent from other managers and sometimes broke the rules.

In 2003, for instance, a federal jury ordered Cohen to pay millions of dollars after an independent record label accused him of fraud and of stealing away rapper Ja Rule. A trial-court judge called Cohen "morally reprehensible," but an appellate court overturned the verdict in 2005 and Cohen was largely exonerated.

Under Cohen, Warner Music has thrived, due in part to the executive's innovative initiatives, such as an incubator program that builds relationships with independent label executives the company aspires to hire.

Cohen talked with The Times about Warner Music's turnaround.

Question: What was the biggest challenge Warner Music's managers confronted when they purchased the company?

Cohen: Warner's infrastructure was way too expensive. Throughout the 1980s and early '90s, the success of the compact disc format allowed music companies to build enormous, expensive staffs. When the industry began to decline in the late 1990s, most companies decided that rather than cut staff, they would take shortcuts to sell more records. That's why Britney Spears, the Backstreet Boys and 'NSync appeared, because labels had to find huge pop hits to pay for their staffs, no matter how short-lived those hits were.

But to survive, the industry needs to develop artists who are profitable over the long term, even if they don't start out big. We wanted to give ourselves more time for artist development, but to do that, we had to lay off a lot of people so we could afford to move more slowly. The whole industry is still bloated. Everyone needs to get in better shape.

Q: What was the biggest management change that you and Bronfman made when you took over Warner Music?

A: Warner had a history of failed mergers, and executives had postponed a lot of hard decisions in anticipation of one of those mergers succeeding.

So when we took over, we were clear and decisive about who would be fired. People had been paralyzed because they were worried about their futures. We made our decisions quickly, and removed uncertainty so people could focus on the future.

The other change we've made is placing A&R [artist and repertoire, those who discover and nurture talent] executives above marketing and promotion employees. Record people want to work for an A&R-driven music company. We're still three to five years from becoming a really substantial company, but the only way we can get there is if A&R is on top.

Q: You come from a musical background, having been a club promoter, a road manager and a marketer for such bands as Run-DMC, Social Distortion, the Circle Jerks and the Red Hot Chili Peppers. Today, some music companies are run by executives with more corporate than musical experience. How does your background influence the choices you've made at Warner?

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