When RCA Records President Bob Buziak recalls the year 1986, he winces.
He'd given up a successful artist management business to become head of the record label, which was struggling through its umpteenth lackluster year in a row at a time when most of its competitors were racking up record profits.
Parent RCA Corp. was in the process of selling itself to General Electric Co., which in turn was partially financing the deal by selling off the record division to yet another corporate giant, the West German media conglomerate Bertelsmann AG.
"I recall meeting a series of corporate executives, fast-moving and fast-talking guys who sounded like investment bankers and all wore gray suits, yellow ties and big smiles," Buziak said recently of the RCA-to-GE-to Bertelsmann handoff. "And none of them wanted anything to do with the record business."
Two years later, however, Buziak is the one with the big smile. After weathering the ownership changes, a massive restructuring and a wholesale turnover of its executive team and artist roster, RCA is resurgent.
Now a division of the Bertelsmann Music Group, the New York-based label recently completed the most profitable year in its 87-year history--powered by the phenomenal success of the movie sound-track album "Dirty Dancing" and its sequel, "More Dirty Dancing," which together have sold more than 20 million copies worldwide, according to the company.
For the fiscal year ending July 1, RCA Records had gross revenue of $236 million in the United States, the highest ever, Buziak said. A privately held firm, Bertelsmann does not publicly report its divisions' earnings.
Despite Bertelsmann's years of experience operating Ariola Records in Europe, Buziak admits that he initially viewed the 1986 takeover with some trepidation. But his fears proved to be unfounded, he said, after BMG implemented a badly needed restructuring of the company and installed a decentralized style of management that allowed RCA to function as a "free-standing entrepreneurial business where we live and die by our own bottom line."
That wasn't the case with RCA Corp., which prior to 1984 reported the record division's operations in its annual report under the heading of "other products." And, according to Buziak, the way the company was structured at the time he was hired--"with no financial department for the label and all the divisional vice presidents reporting to the corporate balloon"--even he couldn't tell "how they based their annual numbers; the whole administrative process was a mystery."
What was clear, however, was the fact that America's oldest record company, the label that made history--and untold millions--when it signed up a swivel-hipped young hillbilly singer named Elvis Presley in 1955, had ceased to be a factor in the world of popular music.
"After Elvis and the moment of John Denver, there was a drought," Buziak said. "The company became a non-competitive, small appendage of the RCA organization that was only used as a vehicle to buy into Broadway plays that appealed to board members and certain people in New York and to record major middle-of-the-road artists that the financial community could identify.
Grand Life Style
"If I'd known how bad a shape the company was in, I would have thought twice about it," Buziak said. "But I didn't dig deep enough to know."
When he did dig, the first thing he noticed was that a kind of comfortable lethargy had settled on the company. "I found radio-dispatched cars downstairs wheeling in carts of booze, and production manager clerks staying in $185-a-night hotel rooms, and receptionists from temporary services who'd been working there for months--we'd spent $140,000 in two months on temps!
"People were living very well. There was this grand life style going on where everyone kept their mouth shut and their refrigerator stocked and had a very happy existence. And their attitude toward me was, 'We've seen you come and go before, and we'll still be here after you're gone.' "
At the same time, the company's big-name artists--Kenny Rogers, Diana Ross, Barry Manilow--weren't selling enough records to offset the huge advances dictated by their recording contracts. Rogers' contract, signed in 1982, guaranteed him more than $4 million an album for five albums.
"The first year I was here, the company had to take back $25 million worth of unsold records," Buziak said.
The company badly needed new--and less expensive--artists. But before that could be accomplished, it needed a new cadre of executives who knew how to find them.
According to Elliot Goldman, who served as president and chief executive of RCA Records and then of Bertelsmann Music Group from 1985 to 1987, the problems were largely institutional and historical.
"When RCA recruited me for the job, we had two interviews," Goldman said in a recent telephone interview from his home in Connecticut. "When they talked to me about the record business, they asked, 'How do you know you're doing well, if you've had a good year or a bad year?' They knew everything about the other $12 billion worth of business they were doing, but nothing about this $500 million to $800 million, and it scared them.
"I told them that they didn't understand how music gets made. I said, 'If you listened to the new ZZ Top album, you wouldn't understand what you are listening to. There's a magic to the record business. Someone, of any age, has to be able to listen to someone else playing a piano or a guitar in a room and know that it's special or unusual. The rest is just promotion and hard work.'
"The other thing they didn't understand was that a record company can't be judged and structured in the traditional corporate way. The music business doesn't lend itself to that; it's too mercurial and up-and-down. You can't count on a record company to give you a predictable level of earnings every year; it just doesn't work that way.
"I asked them for a roster of their top 25 executives," Goldman said. "And as I went down the list, the first thing I noticed was that--despite the fact that I'd been in the business for years--I only recognized two names on the list. The second thing I noticed was that only one of those executives was from the creative side of the business. Everyone else was out of business affairs, manufacturing and finance.
"That was the tone of the company," he said. "They'd never been involved in the creative battles of the record business. It was a company where freewheeling people couldn't survive, they'd be choked to death. RCA was the last place managers went with their artists because the company had never been run as a competitive, hip, today record company. I know what it looked like in the annual report, but believe me, except for the big score they made after Elvis died, 80% of the time they were losing money."
With a mandate to "repeople and restructure" the company, Goldman began by hiring Buziak, who immediately cut all but 11 performers from the company's roster of about 40 pop artists. Among those he kept was an unknown band headed by a gangling piano player named Bruce Hornsby, whose 1986 debut album "The Way It Is" turned out to be the surprise hit of the year, selling over 3 million copies.
'Dirty Dancing' Huge Hit
He acquired other artists by signing marketing and distribution agreements with small, independent record labels such as London-based Beggars Banquet and Jive Records. The latter company boasts a stable of so-called rap artists whose musical style and monikers--Schooly D, Kool Moe Dee, and D.J. Jazzy Jeff and the Fresh Prince--have brought RCA light years from the days of Harry Belafonte, Perry Como and Mario Lanza.
That's exactly the point, Buziak said. "We've moved the company from right-of-center artistically to left of center."
It was the July, 1987, release of "Dirty Dancing," however, that moved RCA solidly into the black. Originally, the project didn't seem like something that would make truckloads of money for the company.
"It was a good little music-oriented script that nobody else was interested in," Buziak recalled. "It was a $200,000 deal--that's what we spent putting the album together. We figured that if the movie was done right, it would do $20 million at the box office, and we had a shot at selling 300,000 copies and maybe going gold (500,000 copies)."
Instead, the independently produced and distributed "Dirty Dancing" movie ran up box-office receipts of more than $150 million, and the sound track shot to No. 1 on Billboard magazine's chart of best-selling records and tapes, selling 15.6 million copies.
The follow-up "More Dirty Dancing"--produced for a paltry $80,000 from song tracks left out of the first album--reached No. 2 on the charts, with 5.6 million copies sold. All told, RCA's take from the two albums was more than $150 million.
"That took our machinery and really turned it," Buziak said. "While the world was watching 'Dirty Dancing,' we were breaking a bunch of new artists--Rick Astley, Lita Ford, Love and Rockets. In the last two years, we've had 11 albums by first-time artists go gold, platinum (sales of 1 million copies) or multiplatinum."
"They're a real player again," said Joe Smith, chairman of Capitol Industries-EMI. "For a long time, you always wondered about them--they had all these resources and they were part of this huge company, but they seldom lived up to their potential. They seem to be back on track now. I regard them as a viable competitor."
"It's a genuine turnaround," said a Buziak counterpart at still another company. "All things considered, he took a company that was living off Elvis and turned it into a contender. Although RCA certainly has a long way to go before it can seriously challenge CBS, Bob is an intelligent guy who knows what the company's limits are, he's aware of its size in relation to its competitors and how much volume he can handle."
"We don't have a Springsteen, a Billy Joel, Michael Jackson or a Madonna," Buziak said. "After 20 years of bad business decisions, we don't have a catalogue that brings in profits of $100 million a year before we open the doors. So we have to keep finding and breaking new artists to make money."
While Goldman apparently had problems with Bertelsmann management--causing him to resign "by mutual agreement" last year--Buziak voices no complaints. "They have a very supportive system of management," he said. "Even though I operate a very small company for them in the scheme of things, I report directly to (BMG Co-Chairman Michael) Dornemann, who is a board member, and have had numerous meetings with Mark Woessner (president and chief executive of Bertelsmann)."
One of the things Bertelsmann did early on as a sign of its commitment to RCA Records was resurrected Nipper, the flop-eared mutt listening to "his master's voice" that served as the company's logo until he was dumped by RCA Corp. in the early 1970s. In a move that some saw as typical of the parent company's insensitivity, Nipper's departure was heralded by a two-page ad in Billboard magazine showing the pooch tossed into a trash can.
Nipper is back, and so are the hit records. But "the refrigerators are gone," Buziak said. "Or at least they're not stocked with expensive Champagne."
RCA'S BEST-SELLING ARTISTS OVER THE YEARS
Mario Lanza (above)
Ed Ames and the Ames Brothers
Boston Pops Orchestra
Hall & Oates
Bruce Hornsby and the Range
D.J. Jazzy Jeff and the Fresh