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Will Lack’s luster rub off?

Sony BMG topper Lack tries new tunes to reverse music downturn

In his new gig, Andy Lack has made it a point to defy conventional wisdom. And, given his present challenges, he’d better keep doing so.

Howard Stringer picked Lack, 58, a TV news guy with no music background, in January 2003 to steer a turnaround at Sony Music Entertainment. Here’s the latest Lack innovation: Create TV and movie divisions.

On July 25, he’s expected to name ContentFilm’s Sofia Sondervan to head the film arm. Last month, Lack named Jeremiah Bosgang, the former Howard Stern Co. prexy, to head the TV wing.

The new departments are not significant to the bottom line: Lack says film and TV will never be more than ancillary businesses for Sony BMG. But the creation of the two divisions is symbolic of outside-the-box thinking, providing an untapped opportunity for the label.

“It’s not a game changer,” he says. “I see it as incremental revenue, added value and a natural evolutionary step that a music entertainment company that has the scale of Sony BMG would invest in.”

Offsetting the enrollment of the new hires is the exit of one of the label’s key execs. Last week, Sony BMG lost Michael Smellie, a 20-year music industry vet who smartly maneuvered the treacherous waters of music-biz finances and who dealt with downsizes and cutbacks with a minimum of bloodshed, first at BMG and then the combined operation.

Lack has defied the naysayers, earning respect as he applies an outsider’s perspective to a business that needs it. Now the challenge is to translate that respect into a healthy bottom line.

He has to create growth in an industry that has declined in each of the last five years and whose main product — the audio CD — is undergoing precipitous decline.

Lack freely admits that it will probably be 2008 before Sony BMG hits the same level of revenue that the two companies achieved in 2003: $4.5 billion.

“I hope it doesn’t take that long — Lord I hope it doesn’t — but if it does, Sony BMG will be able to tolerate it,” he says.

After the BMG merger, the company became the second-largest label in the world (trailing Universal Music Group slightly in market share). In picking Lack, Stringer’s move seems in synch with a new trend of placing successful media execs in a field in which they’re virgins (such as Paramount’s Brad Grey, Gail Berman and Rob Moore).

But Lack brought to his new stint plenty of experience in finding and developing new talent (Brian Williams), and keeping superstars happy (Katie Couric and Tom Brokaw).

Now into his second year, Lack is riding a string of success and luck for a TV guy who dove headlong into one of the most troubled and tradition-bound sectors of media.

Success: He pulled off the merger of Sony and BMG in less than a year, creating a label colossus and bringing some $400 million in cost savings.

Luck: A Supreme Court decision handed the labels a decisive victory over file-sharing services like Grokster.

Success: Sony BMG has been cut down to fighting weight with more than 2,000 employees axed. And, to his credit, Sony and BMG have maintained separate cultures.

Luck: His mentor, Howard Stringer, becomes the first non-Japanese chairman and CEO of Sony.

Unlike the sad mating dance of Time Warner and AOL, for example, where a lot of energy was spent in a futile attempt at oneness, the record labels at Sony and BMG can keep playing to their strengths, doing what they do best.

Part of Lack’s strategy is to refocus on the core business: Spend less on bureaucracy and more on discovering, developing and marketing artists who can become global cash machines. Under Lack, Sony BMG increased spending 15% to $500 million on A&R, including $200 million in Europe.

Lack’s second mandate is to add new revenue streams, including mobile digital download sales and licensed peer-to-peer services, and the single disc CD/DVD format DualDisc.

In addition to the music biz’s ongoing headaches — file-sharing, the CD plateau, etc. — Lack faces specific challenges. Bruce Springsteen’s contract with Sony’s Columbia Records is soon up and he’s seeking another hefty multialbum deal.

Considering Springsteen’s modest sales — his “Devils & Dust” disc has sold 530,000 copies in the U.S., typical of most of his recent records — many see the outcome of the talks as a clue to Lack’s view of the music business.

Springsteen has been with Columbia for more than 30 years and, to keep him, Lack and his team will need to do some creative bargaining. If they let him go, musicians will interpret it as Sony BMG no longer caring about its career artists.

Lack fills the room with theatrical gestures and likes to play the role of different characters as he speaks. He articulates thoughts with clarity, and is a fast thinker who does well shooting from the hip. He’s the sort who is less impressive reading from a printed page than just speaking his mind.

While his music-biz counterparts are meticulous about looking hip while dressed-down-yet-expensively, Lack sports traditional suits and ties like he never left TV land.

But another thing separates Lack from his music-biz peers: his actions. The latest is the creation of TV and film units — or, as it’s called, the label’s Audio Visual Unit — to develop music-oriented TV shows and feature films.

“Sony BMG is a music entertainment company — underscore ‘entertainment’ — so it makes sense for us, on a selective basis, to be in the film and television business,” Lack says.

Film and TV will always be ancillary businesses to Sony BMG, a way to expand on the creative possibilities for artists. “We want to be a player in the space, but we don’t want to make too big a splash,” he says. “You can lose your shirt really fast, and there are a lot of experienced players out there.”

It’s crucial that Lack realizes that point: The decision to open development units puts Sony BMG at the most expensive point in the process of creating TV and film projects. Other diskeries, such as Universal, have created units to make money off tie-ins, whether they be cars used in videos or the paring of an artist/album and a product — a much less risky operation.

Two initial projects predate Sondervan and Bosgang.

On the TV side, Sony BMG is in the process of bringing Simon Cowell’s Brit talent skein “The X-Factor” to the U.S. (The “American Idol” judge may star in the show as well.)

Fox has shown interest in picking up the show and could presumably manage Cowell’s exposure on TV as it has managed “American Idol,” keeping it fresh by airing new series in the second half of the season.

On the film side, the unit has acquired “Second Chance,” starring Christian music star Michael W. Smith, who is signed to Sony BMG’s Nashville-based Provident label. In the film, Smith plays a suburban pastor who gets involved with an inner-city church.

While the film and TV forays may bring some Hollywood glitz, they’ve added fuel to the rumors that have followed Lack since he arrived at Sony: that his ambitions are bigger than being the head of a record label.

Now that Stringer, his mentor and the man who discovered him at CBS, has been elevated to chairman-CEO of Sony Corp., it raises the question of who will take his old job running Sony Corp. of America, which includes the label, the studio and TV production businesses and some U.S.-based electronics divisions.

Officially, Sony says there’s no need for a U.S.-based emissary now that the man who’d held that job runs the entire company. So far, Stringer has retained both titles.

But Lack says he expects to play a lead role in the breaking down of the “silos” that kept the music and electronics divisions from communicating — which led to the calamitous Sony Connect music strategy, and a drubbing by Apple’s iPod and iTunes.

“He already understood the core issues and was extremely comfortable from day one,” says Sony Music Label Group chief operating officer Michele Anthony. “His very first question to me was, ‘What are the biggest problems facing the industry?’ and he immediately jumped in.”

Lack moved swiftly to
first sell the idea of the merger to Tokyo and Gutersloh and then pull it off, managing egos and balancing his president’s council — the cadre of execs who report to the chairman — between Sony and BMG execs.

Though he was entering a biz dominated with execs who were longtime music vets, Lack quickly became a leading spokesman for the music biz in its battle with file-sharing services such as Grokster.

Lack doesn’t just tell stories — he enacts them, getting inside the head of a Grokster user, for example:

“Well, you kinda get everything for free, and that’s not so bad!”

“Uh, yeah, but it’s stealing!”

If Lack lacks confidence, it doesn’t show. The larger-than-life figure cut a wide swath through the television business, first as a producer of longform programming at CBS and then as president of NBC News and ultimately president of the network.

At NBC, Lack made a midcareer transition from TV producer to corporate operator at the knee of Jack Welch and Bob Wright. “He just soaked it up,” says Erik Sorenson, the former exec producer of “CBS Evening News” later tapped by Lack to run MSNBC. “Here was a guy cut from an artistic cloth who was never really a manager until he took over NBC News.”

Sorenson, who first knew Lack when they were both producers at CBS, says the chairman-type qualities have always been there.

But when there’s any hint of conflict over who’s running the show, the results can be spectacular, such as Lack’s crack-up with old GE hand Bob Wright, which led to his departure from NBC.

At the beginning of his second act in the music business, Lack says he believes a strong release schedule, the restructuring, and even some lint-covered change from reformed file-sharers will start to positively affect the business in the fourth quarter.

“This fourth quarter is the first time as a company we’ll be able to play together and think together and create together,” he says. “I don’t want to raise the bar on expectations because we’re in year one and this is a long game. That said, I think were going to throw a couple touchdown passes in year one.”

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