British ‘Counter-Culture Capitalist’ Seeks a Place in U.S. Record Market

In England, where he lives, Richard Branson is only a little less known than Prime Minister Margaret Thatcher and Prince Charles.

At 36, he reigns as founder, chairman and majority owner of a multinational entertainment conglomerate called Virgin Group Ltd., which operates a major record label, a film company, a transatlantic airline, a chain of 100 record stores, six movie studios, a handful of popular nightclubs, a travel agency and a luxury retreat on its own Caribbean island.

Virgin’s 50 to 100 companies--no one seems to know for sure how many there are on any given day--posted revenue of nearly $400 million last year, according to Branson, whose 58% stake in the firm puts his net worth at well over $200 million.

A British version of a Horatio Alger character, Branson started out in 1969 with a single mail-order, cut-rate record sales operation located in a church basement and, according to legend, became a millionaire before his 20th birthday.

But Branson is lionized in England as much for his personal style as for his empire building. Until two years ago, he ran his company from a funky houseboat tied up on a narrow canal in northwest London, where he also lived with his girlfriend. Shaggy haired and perpetually rumpled looking, he’s been called the “counterculture capitalist” and the “hippie millionaire.”

His association with the many rock stars on the Virgin label--notably Boy George and Culture Club, the Eurythmics, Phil Collins, Genesis, Simple Minds, Human League and Julian Lennon--has made him something of a hero to Britain’s youth. His extracurricular feats of flamboyant derring-do have turned him into something of a national hero as well.

Last year, for example, he set a world speed record crossing the Atlantic in his power boat, the Virgin Challenger II. A previous attempt at the record in 1985 ended when Virgin Challenger I split apart and sank just 100 miles from its destination on the British coast. Such exploits have made Branson so popular with the English masses that when Virgin floated a public offering of stock in London last November--selling a 30% stake--the company raised about $75 million, mostly from some 85,000 small investors, he claims.

Wants Into U.S.

The primary purpose of the public offering was to raise financing for what may turn out to be Branson’s most daring venture to date: the launching of Virgin Records in America, a market that so far has eluded him.

Virgin made a brief foray into this country in 1978 but withdrew when Branson decided it wasn’t the right time. Since then, Virgin’s most popular artists have been licensed to various U.S. labels, with Virgin receiving a royalty on sales.

Whatever his success overseas, in the American record industry Branson is generally viewed as a brash but talented upstart who has yet to prove he can play in the big leagues.

During a recent stopover in Los Angeles to promote yet another death-defying adventure--a “never-before-attempted” crossing of the Atlantic in a hot air balloon, the Virgin Atlantic Flyer--Branson acknowledged the difficulties a European record company faces entering the U.S. market. The last one to do so successfully was Polygram in 1969, and that company sustained losses of $200 million before turning profitable in the last several years.

“The American companies are all waiting for us to fail; they’d love it because they’d rather not have the competition,” Branson said as he lounged on a couch in a suite at Le Bel Age Hotel off Sunset Strip. He was dressed in typically casual fashion--rumpled corduroy slacks, scuffed blue suede shoes and a white sport shirt that looked as if he might have slept in it.

“We’ve positioned ourself to be a major player, otherwise there’s no point in coming here,” he said. “We originally figured that we’d make money in three years, but as it’s turned out, it’s going to take less time than that because we’ve had quite a pleasant surprise in our first year.”

Boasts of Advantages

After opening offices in Los Angeles and New York last September, Virgin has seen its first American album, “Broadcast” by the English rock group Cutting Crew, climb into the Top 20 on Billboard magazine’s chart of best-selling records and tapes. The single from the album, “I Just Died In Your Arms,” reached No. 1, with sales of 400,000 copies, according to the company.

In addition, Virgin America recently scored a coup by signing a recording contract with English pop star Steve Winwood, whose most recent album for Warner Bros. Records, “Back in the High Life,” won two Grammy Awards on the way to selling 3 million copies. The company just released its first album by an American artist, “Sentimental Hygiene,” by singer-songwriter Warren Zevon.

“We knew we had to make a lot of money very quickly. In six months, if you don’t do well, it would be very difficult to sign the bands. But once you have the ball rolling, nothing can stop you because we have such a solid base worldwide.

“Over the last 15 years, we’ve built the largest entertainment group outside America, the backbone of which is records,” he said. “Our roster of 200 artists puts us on a level with CBS Records overseas, and we’ve never had a major artist leave us for another label.”

“I believe we have an advantage over our American competitors for the next three to four years because we’re not going to have massive production, with records coming out every five seconds. Our niche is that we have the financial muscle of the Virgin umbrella, but we’re still small enough to concentrate on our individual artists.

“And once we get to a certain size, the way I’ve always dealt with that problem is to spin off smaller subsidiary labels. I never want more than 60 or 70 people in a building.”

In fact, Virgin Group has been built on Branson’s small-is-better philosophy. “I believe in small units of creative people running their own company,” he said. “That way, instead of someone being the assistant assistant marketing manager, he’s the marketing manager of a new company with shares in that company.

Prefers Small Companies

“I think we can be a billion-dollar company in three years and still retain the small company mentality,” he went on. “We’re already nearly halfway there, and the way we managed to attain it is through these little companies. In one area of London where I work, we have 25 offices, each with their own managing director and their own purpose and the kind of people in charge who could easily be running their own companies but who choose not to.”

Dislikes Bigness

It’s sounds a little like a Utopian dream: “Our company is run from the heart by people who love what they are doing and wouldn’t dream of leaving.” He contrasts that with what he calls “the instability of the big institutions and their ever-changing staffs.”

“Just look at EMI Records,” he said. “They’ve changed their managing director eight times in nine years and you can’t run it that way, in one big building with hundreds of artists. It just doesn’t work. Banks can’t run record companies, it takes creative skills.”

Asked about his outside activities, such as flying, sky-diving, boat racing and ballooning, he shrugged: “I like to have some distractions from business, but I don’t do things that are stupidly risky. I’m not reckless, I only take calculated risks.

“When I started the airline (Virgin Atlantic Airways, in 1984) I made sure that I could hand that plane (a 747) back to Boeing at the end of the first, second and third year. I always make sure that whatever I do is not going to affect the company’s profits.

“I’m very fortunate that I can go into ventures that I love and are also highly profitable,” he said. “This balloon thing has that as well--it’s not going to cost me any money; it will the main event of the year in England and will give the the whole British public something to get their teeth into; it puts Virgin on the map, and gives me something enjoyable to do for three days.”