Island Records, the small, independently owned company that records the Irish rock group U2, is being acquired by Polygram Records for about $300 million, The Times has learned.
Island founder Chris Blackwell said through a spokesman Thursday that "very positive talks" were going on, but knowledgeable sources said the deal is basically done and will be formally announced next week. Sources also said the buyout plan calls for Blackwell and the current Island management team to continue running the company. The deal includes the record company, its distribution operation and music publishing catalogue, sources said.
The acquisition by Polygram, a unit of Dutch electronics giant Philips NV, comes as no surprise to the record industry. The sale of Island, one of the few successful record companies not already owned by a conglomerate, had been predicted for months, with practically every major record distributor--CBS, BMG, Capitol-EMI, Warner Communications and Polygram--named as a suitor. And the sale continues two recent trends in the recording industry--rapid consolidation and wildly escalating prices.
In the past three years, at least six other prominent record labels have been acquired--at least partially--by other companies:
The West German publishing conglomerate Bertelsmann AG paid a reported $300 million in 1986 for the 75% of RCA Records that it did not already own. Sony Corp. bought CBS Records for $2 billion in 1987. MCA Records and the investor group Boston Ventures bought Motown Records for $61 million in 1988. This year, Capitol-EMI bought 50% stakes in London-based Chrysalis Records and El Segundo-based Enigma Records for $75 million and $22 million, respectively. And Fujisankei Communications of Japan just agreed to buy 25% of London-based Virgin Records for a reported $180 million.
What's more, recent trade publication reports have speculated that BMG is angling to buy Capitol-EMI.
The sale of Island leaves only two independently owned companies of any size left to be acquired--Los Angeles-based Geffen Records, which is distributed by Warner Communications, and Los Angeles-based A&M;, which is distributed by BMG. At the moment, however, neither Geffen nor A&M; is for sale, according to their owners.
The dwindling number of acquisition candidates is partially responsible for the high price that Polygram is paying for Island--$300 million is even higher than the most optimistic predictions. According to figures compiled by Billboard magazine, Island accounts for only 1.4% of U.S. record sales so far this year.
Although many in the record industry thought that Sony overpaid when it bought CBS Records two years ago, "it's now beginning to look like they stole the company," said one record company president recently. "They could probably sell it today for $4 billion."
For its $300 million or thereabouts, Polygram will get a company with a rich history of consistent critical acclaim but uneven commercial results.
Island was founded by Blackwell 27 years ago on the proceeds from the hit single "My Boy Lollipop," by an unknown Jamaican singer named Millie Small. In the ensuing years, Blackwell, now 52, discovered such diverse performers as British rockers Traffic; Jethro Tull; Emerson, Lake and Palmer, and Jamaican reggae artists Jimmy Cliff and the late Bob Marley. Blackwell is widely credited with having almost single-handedly introducing Jamaican reggae to the international marketplace.
In 1965, Blackwell found then 15-year-old Steve Winwood singing in a dingy bar in Birmingham, England, and signed him to a record contract on the spot. Winwood remained with the label for 21 years, leaving in 1987 for a reported $12-million deal with Virgin. Island's biggest act in recent years has been U2, whose 1987 album, "Joshua Tree," reached No. 1 on the pop music charts and sold more than 10 million copies. The company had another No. 1 record this year with rapper Tone Loc's "Loc-ed After Dark" album, which has sold more than 2 million copies.
As a privately held company, Island does not publicly report its profits and losses. Two years ago, however, Blackwell told The Times that the company's annual gross revenue was "more than $150 million and less than $200 million."
Blackwell reportedly owns 27% of the company. An investor group headed by John Heymann owns 60%, U2 owns 10% and Steve Winwood owns 3%.