Management expected to remain the same
Universal Music will lay off approximately 800 workers worldwide and institute a cost-cutting plan that the conglom expects will save $200 million per year.
Pinkslips will be spread out across all divisions within Universal Music Group and its distribution arm Universal Music and Video Distribution. About 190 employees will be let go in North America, with the remainder to come internationally. Some 550 staff members — 250 of which were in the U.S. — have been let go since January, making the 2004 workforce 11% smaller than the one that began in 2003.
Layoffs begin today and will continue through early next year. Process should bring the head count down to 10,850 from 12,200.
Different territories will be affected in different ways. One outside source noted that one third of the staff in Australia has been cut.
As has become customary in the music business over the last two years, piracy has been blamed as the source of the company’s troubles.
Management is expected to remain the same at all divisions and labels. In a cost-cutting move earlier this year, Universal eliminated the MCA label and cut 60 members of its staff, including imprint chief exec Jay Boberg.
Any artist roster moves that occur are not related to the cuts, which have been orechestrated by Universal Music management team led by Doug Morris and Zach Horowitz.
Universal would not talk on the record, choosing instead to issue a statement. “UMG is continually evaluating its business in order to maintain the most efficient and competitive music company in the industry and be well positioned for the future. UMG is in the process of instituting significant cost-cutting initiatives that take into account the realities of the declining music market to further rationalize the company’s cost structure around the world.”
The non-human cost for U will come in reduced A&R and marketing budgets plus infrastructure costs. Although a Universal exec said the two are not related, U began two weeks ago a program to reduce the list price of frontline releases to $12.98 from as much as $18.98. Logic dictates that for Universal to sell cheaper records, it would need to make cheaper records. The wholesales price of Universal CDs are now 20% lower than they were prior to Oct. 1; no other major has followed U’s lead.
Within the next six months, Universal Music will become a standalone unit rather than a piece in an entertainment empire. The film, television and theme parks divisions of Universal will be transferred to NBC by the second quarter of 2004. Vivendi Universal decided not to sell the music unit this year as management was unhappy with its assessed valuation. The cuts could improve the profitability of the company and make it a more desirable property a year from now.
Cost cutting is nothing new at U: In 2002 Universal Music consolidated its two Nashville labels, cut Motown to the bone and slashed the independent promotion budget in half.
Still tops in market share
Universal is No. 1 in market share, a position it has held since its merger with Polygram in early 1999. Currently, UMG market share is just under 30%, followed by BMG at 16.8%, WEA at 15.8%, Sony at 12.8% and EMI at 9.7%. BMG, which has held merger talks with Warner Music and EMI, could battle U for the top spot if a union is ever consummated.
Last year, Universal’s market share worldwide was 25.9%, with Sony a distant second at 14.1%.
Universal Music owns and distributes the labels Interscope, A&M, Geffen, Island, Def Jam, Mercury, Universal, Lost Highway, ECM and Deutsche Gramophone, among others. Among its prominent artists are U2, Sheryl Crow, Eminem and the catalog of Bob Marley; it currently has the No. 1 album in the country, Ludacris’ “Chicken & Beer.”