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Island hopper Cohen’s off to WMG

Hip-hop pioneer tapped ahead of $250 mil cost-cutting

NEW YORK — Warner Music Group will announce today that Island Def Jam chief Lyor Cohen will, in fact, be joining the soon-to-be-annexed major record group as chairman and CEO of U.S. recorded music.

Announcement comes as the company braces for an anticipated $250 million in cost-cutting moves, with major layoffs and a cut in WMG’s artist roster both strong possibilities.

Despite the cuts, Cohen won’t come cheap for WMG. News reports indicated that Universal had already offered Cohen $50 million over five years to stay on at Island Def Jam.

The addition of the hip-hop pioneer producer marks Edgar Bronfman Jr.’s first executive decision as soon-to-be-chairman of Warner Music Group and raised immediate questions about future fallout at WMG, where Roger Ames is staying on at the helm.

Skeptics wonder just how long Ames, who is believed to have an expensive $10 million exit clause in his WMG contract, will remain in such a power-sharing arrangement with Cohen.

Moreover, some analysts question whether WMG can ultimately afford to have such a crowded — and presumably expensive — executive suite given its promise to streamline operations and cut costs as an independent music company.

Cohen, who has been rumored for months to be in line for a prized spot at the new WMG as his contract at the Universal Music Group label was due to expire, will join the company once the private equity team led by Thomas H. Lee Partners, Bronfman’s Lexa Partners, Bain Capital and Providence Equity Partners closes its acquisition deal in the next several weeks.

Bronfman’s team agreed to pay $2.6 billion for WMG and will leave Time Warner the option to buy back a minority position in the firm if the market climate for recorded music improves.

The new WMG ownership has already made clear its intention to tighten purse strings across the board. In an internal email sent earlier this month, Ames told staffers that WMG management was looking for “significant restructuring initiatives” and laid out terms for a generous severance program.

Layoffs ahead

Boston Consulting Group has been hired to identify areas for cuts, which could include layoffs of as much of a third of WMG’s 5,300 employees, merging labels and dropping some of WMG’s 800 artists. Some of WMG’s 68 offices worldwide could also close.

WMG is coming off a strong year in which it snagged 70 Grammy noms.

Based in Gotham, Cohen will have responsibility for all aspects of WMG’s recorded music operations in the U.S.

“Lyor Cohen’s role in revolutionizing, transforming and challenging the music industry over the past two decades cannot be overestimated, and I am very pleased that he will be joining Roger and me at Warner Music Group to lead the company’s recorded music operations in the U.S.,” Bronfman said in a statement.

Emphasizing the collaborative nature of their partnership, Cohen noted that he was looking forward to working again with Bronfman and Ames, both of whom had been major advocates of Def Jam in its various stages of development. “Together at WMG we will make a great team.”

Ames credited Cohen with being “a driving force behind some of the industry’s most successful artists.”

Bronfman role unclear

Bronfman’s day-to-day role in the operation is still not entirely clear, and many believe he will be forced to play the fiscal bad cop under the tight reins of his private equity backers.

Scott M. Sperling, managing director of Thomas H. Lee Partners, said: “Despite the immediate challenges in this industry that Warner Music Group must address, there continue to be substantial opportunities for growth over the long term. Lyor will be instrumental in helping the company take advantage of these opportunities and realize its full potential.”

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