Sale relieves studio of costly distraction

This article was updated at 7:34 p.m.

NEW YORK — As music giants thrust and parry around billion dollar mergers, a smaller deal grabbed the spotlight Thursday as DreamWorks was expected to announce a sale of its music biz to Vivendi’s Universal Music for something just shy of $100 million.

The move would make Universal — the world’s biggest music company — a little bigger. It would relieve DreamWorks of a costly distraction in the struggling music biz even as the studio aggressively ramps up its film slate. David Geffen’s role as DreamWorks’ key business exec and dealmaker isn’t likely to change.

DreamWorks Records is run by Mo Ostin and overseen by Geffen. While top talents both, the unit has been a costly disappointment from the get-go with Gefffen unable to re-create the smash successes of his two earlier labels, Asylum and Geffen Records.

He sold Geffen Records to MCA in 1990 for $550 million, a record at the time. It’s also a gaping difference from the pricetag on the current deal, indicating either just how rotten the music business has become or just how notably DreamWorks Records failed to pan out — or both.

Early on, DreamWorks Records spent way too heavily promoting George Michael’s album “Listen Without Prejudice, Vol 1.”

Label had some noteworthy acts and underrated R&B singers but few breakout hits and some bad luck. One of its biggest rock stars, Elliot Smith, commited suicide last week. The label has had success recently in country music with singer Toby Keith and in R&B with the Isley Brothers.

DreamWorks Records is the third, and least impressive go-round for Geffen, who has now created and sold three record companies in just over three decades. As a young agent at William Morris, Geffen represented the biggest stars of the 1960s including Joni Mitchell, Neil Young and Crosby Stills and Nash. He worked with Clive Davis at Columbia Records. He founded Asylum Records and sold it in 1971 to Elektra, which sold it to Warner.

In 1980, he launched Geffen Records, which started its stellar run with John Lennon and was fired up a decade later by red hot Guns N’ Roses. The label revived the careers of Aerosmith and Cher. In 1990, it signed Nirvana. That same year he sold Geffen Records to MCA — later Universal.

Early this year, Geffen told Forbes magazine that the record division would break even or make a small profit on projected revenue of $250 million for 2003. He said DreamWorks, which was founded in 1994, had invested $59 million in the division.

It’s no surprise DreamWorks would opt to sell given the fact that even the most powerful labels are being squeezed by digital piracy and a global slump in music sales.

The deal would leave DreamWorks free to focus entirely on its film business — it’s got a big slate planned for 2004 — and on TV. The television unit currently has the drama “Las Vegas” on NBC and will pick up animated sitcom “Father of the Bride” mid-season.

Ironcially, Geffen Records and Universal have been the only two names left out of the frenzied deal talk that’s surrounded Warner Music, EMI, BMG Entertainment, Sony Music and EMI.

Universal and DreamWorks reps declined to comment, but sources indicated a deal was imminent.

(Phil Gallo in Los Angeles contributed to this story.)

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