Hours after Doug Morris was fired from his post at Warner Music in June, he received a telephone call from Edgar Bronfman Jr. offering him a home at MCA. The telephone call signaled the start of the Warnerization of the MCA Music Entertainment Group, which would conclude less than six months later with Morris, industry titan Mo Ostin and producer Lenny Waronker all landing deals with the label.
The moves by Bronfman, whose family-controlled Seagram Co. acquired an 80% stake in MCA Inc., and music group chairman Al Teller reminded industry veterans of how the late Steven J. Ross ran the Warner Communications empire.
Ross, as the chairman of Warner Communications, encouraged intramural sparring between his record label chiefs, which fostered an intensely competitive environment. But he also had a genius for mollifying his execs by paying them lavishly, and creating a nurturing environment for talent, which enabled his execs to sign artists and develop their companies with autonomy.
MCA has seemingly taken a page from the Ross manifesto and through a series of deals has nabbed the most successful execs to emerge from the Warner empire in the past 20 years: Morris, David Geffen (whose DreamWorks SKG Records label is distributed by MCA), former Elektra/Asylum chairman Robert Krasnow and, most recently, the duo that led Warner Bros. Records over the past decade, Ostin and Waronker.
The Warnerization technically started when MCA acquired Geffen Records for a whopping $545 million in 1990. Prior to the sale, Geffen was distributed by Warner Bros, for its first 10 years. When DreamWorks was founded in October 1994, there was little doubt the multimedia company Geffen created with Steven Spielberg and Jeffrey Katzenberg would bow a label that would wind up being distributed through Geffen, with MCA handling the back office and international functions.
With the long-awaited appointment of Ostin, Waronker and Michael Ostin (Mo Ostin’s son) to lead DreamWorks Records, the Warnerization of MCA was complete.
The three respected record industry execs inked lucrative, long-term pacts with the label on Oct. 5, which include a stake in the label as well as a shares in the DreamWorks entity.
And though few in the industry doubted that any of the other suitors – Sony, Polygram and Time Warner – would win the services of the well-liked and respected execs, the announcement puts an end to the months of speculation of where the three music business stalwarts would land.
Ironic, ain’t it?
But the irony is that Teller and Bronfman were harvesting the fruits of the managerial missteps made by Robert J. Morgado, an exec who was hired by Ross to beef up and oversee the operation of Warner’s music arm.
With Bronfman and Teller landing the DreamWorks and Morris pacts, MCA is angling to boost its market share from fifth place, among the big six labels, to second or third. Some pundits suggest it’s capable of achieving just that over the next five years.
The stage is also set for an intense rivalry between the former Warner execs, as they are likely to be bidding for the same acts.
“Teller has taken MCA, which was previously near the bottom of everyone’s shopping list, and added execs that every artist wants to work with,” said a top music biz attorney. “It’s a brilliant strategy.”
Though the company, which Ross assembled from a collection of independent record labels, hardly suffered, with each label fiefdom having its own history and culture, Morgado felt a more centralized management structure was needed, where he would sign off on all deals and the label heads would report directly to him.
But the changes orchestrated by Morgado would eventually send the world’s most successful music division spiraling out of control, its executive infighting making headlines around the world.
The labels held the top slot of industry market share, with Warner Bros. Records often leading the music group charge.
Built by Ostin, a respected music industry veteran who started his career in the mid-’60s as head of Frank Sinatra’s label, Reprise, the Warner Bros, label became known as an artist-friendly musical powerhouse where development of its acts was emphasized over quick hits.
But in 1985, when Morgado took over Warner’s recorded music division, which at that time had revenues of less than $1 billion, he initially ignored the domestic record labels.
Instead, he focused on building a global network of labels that could distribute Warner’s American artists and nurture local artists of their own.
Through a series of acquisitions, Morgado increased Warner’s reach into 39 countries. He also expanded Warner’s involvement in the music-publishing business and in the direct-marketing of music to consumers through its record club.
Today, industry observers suggest that nearly two-thirds of the $720 million in revenues on $4 billion in sales of Warner Music Group are attributable to Morgado’s efforts.
But because Morgado felt the growth of the domestic group of labels was sluggish, he decided to restructure, which included pressuring Ostin to set a date for his retirement.
But Ostin left the company rather than submit to Morgado’s demands.
Tensions reached the boiling point on July 11,1994, when Morgado elevated Morris to a newly created post – chairman of Warner Music, U.S. The appointment angered his rival Krasnow, who opted to leave Elektra. Morgado was widely criticized for being insensitive to the elder statesman in Warner’s creative ranks.
Almost a year to the day later, after Morris was fired by Morgado’s replacement Michael Fuchs, he landed a joint-venture deal with MCA for his nascent Rising Tide Entertainment. Morris has since filed a $50 million lawsuit against Time Warner and for the most part has stayed off the industry radar.
Earlier this year, Teller also inked Krasnow to a lucrative distribution deal.
Several music industry attorneys said DreamWorks, with the signing of Ostin and Waronker, has moved to the top of their label shopping list, replacing Geffen Records as the preeminent label for burgeoning talent.
“It’s a great time for somebody to be in the record business,” Ostin said. “I felt incredibly lucky after all that happened at Time Warner to be able to start a record company.”
Waronker said the label would focus on nurturing artists.
“It all starts with the talent,” he said.
But, he added, they were “quite open about how we’ll do things.” To that end, there will not be any titles, though it is clear that Mo will be the senior exec in the mix.
“Because it’s a start-up company, we don’t have a set plan of how we’ll do things,” said Michael Ostin, who resigned his post as senior veep of A& R on Sept. 29 after 12 years at Warner Bros. Records. “We each have strengths and so much faith in each other’s instincts, though I expect there’ll be a lot of overlap.”
The younger Ostin’s business acumen is often overlooked in the long shadow of his father’s industry titan status, but his profile in the new venture is likely to be high.
From low to high profile
“A lot of people don’t realize Michael is an excellent executive and has a well-rounded knowledge of the business,” said a rival label lieutenant. “He consistently keeps his word, is well-liked and can be trusted. A rare combination in the music industry.”
Back office functions for DreamWorks, such as marketing, promotion and sales, will initially be handled by Geffen Records, which inked a distribution deal with the label in June.
“We hope to mirror the Geffen Records experience,” said Geffen. “We’ll build a company that at its peak can put out 30 records a year. We’ll develop, find and break new artists. And if a superstar comes along, we’ll hopefully get them, too.”