Arista Records Riding Crest of Industry Wave : Davis, Who Built CBS Unit Into Giant, Guides Own Company to Its Best Year

Arista Records President Clive Davis sat on a couch in his regular bungalow at the Beverly Hills Hotel recently, looking a bit like the cat that ate the canary.

The coffee table was covered with cassettes to be listened to, album cover artwork to be looked over and sheets of song lyrics to be approved. The telephone jangled incessantly with calls from people hoping for just a few minutes of his time to pitch a hot new singer or songwriter.

With record sales booming again, these are good days in general for the record industry, but they’re particularly satisfying for 55-year-old Davis.

Arista, the label he launched from scratch in 1974, is riding the crest of the success of five million-selling albums and is on the way to posting its best year ever. “We’ll have sales of more than $100 million for 1987,” he said.

Tri-Star Pictures recently signed him to produce a series of movies through his own firm, Clive Davis Entertainment Co.

CBS Records, the company he guided from also-ran status to undisputed industry dominance in the years 1967 to 1973, when he was president, is being sold to Sony Corp. for a whopping $2 billion, an unprecedented price for a record company. Many of the recording artists whose hit albums contributed to CBS Records’ perceived worth--Bruce Springsteen, Billy Joel, Barbra Streisand--originally were signed to the label by Davis himself.

“There’s no doubt that CBS is still enjoying the fruits of some of the things I did there,” he said.

And now, although Arista is a fraction the size of CBS--which has annual sales of more than a $1 billion and 200 artists to Arista’s $100 million and 31 artists--Davis believes that his company is finally in a position to challenge the industry leader.

“There is nothing to guarantee the continued dominance of the two big (record) companies, CBS and Warner,” he said. “In that aspect it’s still a creative business.

“The thing is, at some point (CBS) will have to replace those artists, which is not an easy thing to do,” he said. Arista, meantime, has signed the hottest recording act in recent years, Whitney Houston, who has sold 20 million albums worldwide in the last two years.

Arista’s earnings backbone, 23-year-old Houston is practically a Clive Davis creation. He signed her to a contract when she was only 19, groomed her, produced and chose most of the music on her first album, which went to No. 1 on the charts last year and has sold 14 million copies worldwide--the biggest-selling debut ever by a solo artist. Houston’s follow-up album, released this year, also went to No. 1 and has sold nearly 7 million copies to date, according to Arista.

Credits Good Songs

Davis’ intense involvement in the careers of some of his artists--picking the songs they sing, sitting in on recording sessions and crediting himself as producer of the records--has been characterized as intrusive by some in the record business. Davis responds to such criticism by pointing out that the careers of of Dionne Warwick, Aretha Franklin and others have been “rejuvenated” since they signed with Arista.

According to Davis, it was just a matter of “finding the right tunes for them, putting them with the right producers and bringing them back to the point where they’re now million-selling artists again.

“Whitney Houston is No. 1 all over the world based on good old-fashioned song-writing,” he said, adding that the company has the young star under contract for “about 10 more albums. We deserve it; I found her.”

In addition to current hits by such established artists as the Grateful Dead and Carly Simon, Arista currently also has three albums by new artists--Kenny G, Whodini and Expose--ranked in the top 40 on Billboard magazine’s chart of best-selling records and tapes.

“This is an exciting time for us,” Davis said. “Not only is our market share zooming, but it’s zooming healthily because we have no loss-leader deals with artists, no contracts guaranteeing someone (huge amounts) for an album that winds up selling only 400,000 copies. We have none of those seven-figure deals which are greatly affecting the bottom line at other labels because of the losses they are taking.

In fact, “I’ve never made a million-dollar deal in my life,” he said. “The biggest deal I ever did at CBS was $400,000 an album--including recording costs--to attract Neil Diamond.” Asked if he felt he had something to prove to the industry with Arista’s success, Davis responded: “There’s no question about it. You always have to keep proving yourself in this business. If there’s the slightest slow period, the knives come out.”

It was 20 years ago last summer that Davis--then a 35-year-old Harvard Law School graduate and president of CBS’ flagship label, Columbia Records--found himself in the midst of a tie-dyed, day-glowed crowd at the first Monterey Pop Festival, listening to the likes of Janis Joplin, Jimi Hendrix and the Grateful Dead.

At the time, Columbia was a conservative label that specialized in so-called middle of the road vocalists such as Johnny Mathis and Andy Williams and original cast Broadway show albums such as “My Fair Lady,” “Camelot” and “Mame.”

“We were doing sales of about $97 million a year, with break-even profits, and our old war horses had stopped selling,” Davis recalled. But in Monterey, “I knew I was at the emergence of something new and special in pop music and I wanted my company to be at the forefront.”

Davis quickly signed up as many of the emerging artists as he could--Joplin, Blood, Sweat & Tears, Santana, Earth, Wind & Fire, Chicago. Within three years, CBS had doubled its share of the market and Davis had become one of the industry’s most respected and celebrated chief executives.

Cleared of Charges

Then, in 1973, he was abruptly fired by CBS Chairman William S. Paley and subsequently charged in a civil suit with improper use of about $90,000 in company funds.

Since his dismissal coincided with a federal grand jury investigation into alleged corrupt payola practices in the industry, Davis was also mentioned in numerous news reports as being investigated for possible criminal wrongdoing. In the end, he was cleared of all charges except filing an incorrect tax return that resulted in the evasion of $2,700 in taxes.

Fourteen years later, the episode still rankles. “It was a witch hunt that I lived through, the longest, most baseless thing in the world,” he said. “The problem is, exoneration never gets the same headlines as the accusations. The fact of the matter is I was cleared of everything because I was not guilty of anything. I am not a tainted individual.”

Arista was originally owned by Davis and Columbia Pictures Industries, which provided $10 million in start-up funding. Davis and Columbia later sold out their interests and the company became a joint venture of RCA Records and Bertelsmann AG, a West German communications concern. Bertelsmann took over 100% ownership of Arista last year, when it acquired the RCA Records operation from General Electric for $600 million and renamed it the Bertelsmann Music Group.

Throughout the ownership changes, Davis has remained solely in charge of Arista. “We are a separate unit run by me and (Bertelsmann) leaves me alone,” he said. “Over the years I can’t think of a single request I’ve made that’s been turned down.”

According to Davis, he’s turned down a number of offers to leave the company in recent years. “I’ve been offered joint-venture deals by every major company to start a new label where I’d own 50% of the stock of the company.”

When his contract came up last year, he re-signed with Arista, he said, “because with the profit participations they’ve given me, there was no economic reason to leave. Besides, I’m loyal to Bertelsmann because they’ve always been loyal to me.”

As if to insure the steadfastness of that loyalty, however, Davis has included a so-called key man clause in Arista’s contract with Whitney Houston. Which means that if he leaves the company for any reason, she is free to go with him.