Will the Warner Music Group keep taking the rap?

For a moment, it looked like Time Warner chairman Gerald Levin could relax. Wall Street’s worries about cable were beginning to recede, helping TW’s stock price climb to 52-week-high levels.

But now Levin and his new Warner Music Group chairman, Michael Fuchs, are embroiled in the turmoil over rap music, aggravated by management upheavals at Warner Music. Levin and Fuchs appear to have support on Wall Street for the management changes – but TW’s ties to rap are a lot more divisive.

TW’s only – institutional shareholder to go public on the issue so far is New York State Local Retirement Systems, whose trustee, State Comptroller Carl McCall, raised concerns about TW’s distribution of rap music in a meeting with Levin in the last week of June.

“Certain music supports a culture of violence,” a spokesman for McCall said, adding that the comptroller also was worried about the impact of the debate on TW’s stock price. Sources said McCall pressed Levin to cut TW’s ties with Interscope, the distributor of hardcore rap that’s half-owned by the media giant.

According to McCall’s spokesman, Levin responded to his concerns by saying that “Time Warner was in the process of taking steps to change certain relationships,” although a TW spokesman denied Levin had made any commitments beyond those already announced.

It is understood, however, that Warner Music has asked Interscope to delay distribution of Tha Dogg Pound’s “Dog Food,” the new album from a key hardcore rap label, Death-row Records. Interscope principals Jimmy Iovine and Ted Field are believed to have refused, setting the company on a collision course with TW. A spokesman for Warner Music said “no decisions have been made” about the album, which “hasn’t even been completed.”

There is a growing feeling among TW’s institutional shareholders that it should get out of rap.

“This is a company that doesn’t need more internal dissent and infighting, which this issue engenders, and doesn’t need more political heat, which this issue also engenders,” says one money manager.

That is by no means a unanimous opinion. Mario Gabelli, the prominent media and entertainment money manager whose funds have a stake in TW, dismisses the controversy as a “non-event.”

As the music debate and the turmoil over the Music Group’s exec shuffle have raged in recent weeks, TW’s stock price has gone up to 52-week highs – suggesting Wall Street is not too concerned about it.

Warner Music Group as a whole continues to maintain a commanding lead over rival labels, with a 21.9% share of the domestic market in the first six months of 1995.

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