UMG lays off 500 as downsizing effort begins

More than 500 staffers across all levels were sent packing from their Universal Music Group offices Thursday as part of a UMG effort to eliminate an estimated 1,200 Stateside jobs over the next nine months.

Accompanying the widespread layoffs was Universal’s announcement that it will exit the audiocassette manufacturing business and close a returns processing operation as part of the conglom’s cost-savings program.

Thursday’s expected layoffs, following Seagram’s $10.4 billion purchase of Polygram last month, are part of UMG’s effort to downsize the world’s biggest music operation into one employing a more manageable number of artists and execs, while also eliminating redundant jobs and reducing costs.

In a statement, UMG brass said the layoffs were part of a plan to “build the best possible organizations that are first and foremost music- and artist-oriented. At the same time, the merger presents a unique one-time opportunity to create the industry’s leanest and most cost-effective firm.”

Future a bit clearer

The names and number of execs ankling at each label were not disclosed, but by day’s end it was clear which chieftains were dismissed and which employees were initially retained.

Many staffers arriving for work at the labels were met by security guards, some of whom stood over exiting employees while boxes were packed and belongings taken out to cars. The normally open front gates to the A&M lot were shut early in the morning.

Pink-slipped employees were given 3.75 weeks of severance per each year employed, provided they immediately signed a waiver precluding them from suing UMG for wrongful termination.

Staffers without contracts were given a 60-day termination notice, which required them to come to work for the next two months before being axed. They won’t get severance money.

Going worldwide

More than 3,000 employees in the conglom’s worldwide operation are expected to lose their jobs when all the trimming is completed.

Many outfits with joint-venture deals or distribution pacts through the Polygram side do not yet know their fate. But many are expecting to be jettisoned in the coming months as the conglom’s execs move through the layers of each label, closely scrutinizing the profitability of each deal, in an effort to land quick financial improvements — partly to appease Wall Street.

Seagram’s stock has posted recent gains as word of the restructuring and the conglom’s immediate business plan filtered out in recent weeks.

In spin worthy of the White House, UMG execs suggest that theirs will be the conglom of the future — lean and mean with higher profit margins — and that other congloms will be forced to follow UMG’s lead in order to remain competitive in the era of just five major music congloms.

Consultant controversy

But many insiders have suggested that the millions of dollars UMG continues to spend on outside consultants advising it on the restructuring would be better spent elsewhere, or saved — resulting in better bottom-line results without some of the massive cuts.

The next wave of exec cuts is expected next week and will likely center on the conglom’s sales and distribution operation as UMG execs reorganize the company. The publishing arm reductions will happen early next month.

The restructuring is expected to come at a price, however: It will likely result in the initial thinning of UMG’s market share — which currently hovers at 25% — as fewer albums will be released while the conglom gets its house in order.

The financial hit of paying $150 million-$200 million in payouts to artists and execs will also take its toll on the bottom line.

The company has repeatedly said it will save an estimated $300 million in annual overhead by combining the strengths of the two congloms.

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