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Amid hot streak, WMG’s Ames is right on target

Cost cutting, management revamping finally boosting A&R

NEW YORK — Try to offer Warner Music Group chairman Roger Ames praise for turning in a buoyant quarter amid an industry slump and he’ll be the first to scold you.

“We had a good quarter, yes, but it’s only a quarter,” Ames cautions. “We’re not declaring victory just yet.”

Nevertheless, the affable Trinadad native is clearly taking pleasure in signs that his dramatic — and often painful — moves to cut costs, revamp management and boost A&R over the past two years are starting to bear fruit.

At first glance, the numbers aren’t earthshaking: In Q1, WMG boosted revenues 5%, and cash flow moved up 2% from a year ago.

But set those figures against the backdrop of the industry as a whole and they look impressive. Global music sales sank by 5% in 2001. And No. 1 label group Universal Music suffered a 6% drop in sales and a whopping 24% slide in cash flow.

Warner also grew its market share to 18% from 15.7%, thanks to a strong slate of new releases and carryover from last year’s hits. Among the top performers were Linkin Park’s “Hybrid Theory,” which has sold more than 1.5 million copies since Jan. 1, and Alanis Morissette’s “Under Rug Swept,” at 780,000 to date.

The results are, if not a vindication, at least a positive gauge of Ames’ effort to bring the company together as one global unit.

“We shipped more records more efficiently at a more reasonable cost than we ever could before,” Ames says. “And really, for the first time, the company worldwide could get behind a record as a priority and cooperate worldwide on how that record was delivered.”

When Ames arrived in 1999 after heading Warner Music Intl., cooperation was hard to find. The company’s flagship labels, Warners, Elektra and Atlantic, acted independently, with separate infrastructure and entrenched corporate cultures.

“We all ran our own little empires,” says Atlantic co-head Val Azzoli. “In the old days that worked because there was enough money going around, but now the pie has shrunk and we have to deal with each other more efficiently.”

Ames’ reforms have come largely in back-office operations. He created a single structure for WMG’s accounting, royalty collection and other administrative units, and he consolidated or shut joint-venture labels like 143, Giant and Tommy Boy.

At the same time, Ames maintained or boosted spending on the “front end” — A&R, promotion and marketing — to improve artist development and exposure.

“It’s mostly now about building up the artist roster,” says Warners chief Tom Whalley, whom Ames recruited from Interscope. “We’re showing everybody that there’s a lot of strength at Warner Music that people didn’t think was there.”

Among the promising acts on deck are buzz-laden rock band the Hives, rapper Knoc-turn’al. and southern hip-hop collective Nappy Roots.

Ames was determined to get the group up to speed quickly after losing a year to a scuttled merger attempt with EMI, whose strengths in the U.K. would have complimented WMG’s in the U.S.

Without that ready-made foreign market share, WMG is having to develop its own resources abroad. So in Europe, Ames installed a single exec to oversee each country, reporting to a continental head.

“The international company is like night and day,” says Elektra chief Sylvia Rhone. “You can see that we’re now working together in a very synchronized way.”

Local oversight has paid off: Morissette’s latest LP, which came out in the first quarter, sold 1.2 million copies outside the U.S. in the first month of release and hit No. 1 or No. 2 in a dozen countries.

There’s no way to tell for sure if WMG will extend its run beyond a single quarter, but the prospects for 2002 are encouraging. Label has back-loaded the year with new material from acts like Faith Hill, the Red Hot Chili Peppers and Green Day.

“We’re taking costs out of the business, which is helping us in our margin, but we’ve not yet seen the full effects of when our A&R engine really starts to work,” Ames says. “It’s a long road, and it’s going to take time.”