MCA Music Will Shift Overseas Pact to Germans : Entertainment: Bertelsmann will get the non-U.S. distribution business that Time Warner has had. The move increases the role of foreigners in the American recording industry.

In a significant loss for Time Warner Inc.’s music distribution arm and a further sign of foreign domination of the U.S. recording industry, MCA Inc.’s music unit will shift its more than $100 million in overseas distribution business to Germany’s Bertelsmann Music Group.

The agreement for Bertelsmann to distribute MCA artists such as Bobby Brown and Fine Young Cannibals outside North America, Britain and Japan is expected to be announced today. The deal comes as MCA Music Entertainment Group prepares to nearly double its capacity in January. That’s when it will take over the production and distribution of Geffen Records, which MCA acquired in March.

Of the nation’s six major record concerns, four are now foreign-owned. Bertelsmann Music Group’s U.S. labels include RCA, Arista, Ariola and Zoo. Japan’s Sony Corp. owns CBS Records. The Netherlands’ Philips N.V. owns Polygram Records, and London-based Thorn-EMI PLC bought Capitol, SBK and other labels.

Though the new deal will not affect MCA’s ownership, it will funnel a sizable amount of business to Bertelsmann at a time when the music group’s parent company, MCA Inc., is exploring a buyout by Japan’s giant Matsushita Electric Industrial Co. What’s more, Bertelsmann indicated recently that it will spend $4 billion on other entertainment deals over the next three years.

“People are concerned about foreign domination of the record industry,” said Michael Greene, president of the National Academy of Recording Arts and Sciences, which administers the Grammy awards. Some nations don’t vigorously enforce music copyright protection, he contended, and some foreign consumer electronics firms view the music industry as “a means to sell tape recorders.”

MCA’s distribution agreement with Time Warner’s Warner Music International (formerly WEA International) expires April 1. Geffen Records, which had its own deal with Warner Music International, will be distributed by Bertelsmann starting Jan. 1. Geffen and MCA represented an estimated 10% to 15% of Warner Music International’s $1.1 billion in sales in 1989.

Ramon Lopez, chief executive of Warner Music International, could not be reached for comment. He told Billboard magazine this summer that he hoped to continue distributing Geffen and MCA, but that his firm has “never been a company which relies on” distributing unaffiliated labels.

Michael Dornemann, chief executive of Bertelsmann Music Group, called the deal with MCA “an important strategic move” that would bring his company “an additional 2 to 3% share of the world” music market.

The three-year pact calls for Bertelsmann to give MCA $37 million a year in promotion, marketing and other support. In addition, MCA will maintain wholly owned operations in Britain and Germany, with Bertelsmann’s assistance.

The agreement is part of a major realignment at MCA Music Entertainment Group.

Since September, 1989, when Alvin Teller was named chairman of the music group, MCA has acquired Geffen and GRP Records, agreed to let Victor Co. of Japan market its three wholly owned labels in Japan and has been revamping its U.S. distribution system.

The moves, which helped boost operating profit 53% to $71.7 million for the nine months ended Sept. 30, are aimed at helping MCA achieve in rock and pop music the kind of dominance it enjoys in country and black music.

“When I first joined the company,” Teller said, “there were two major structural weaknesses that I felt we had. The first was, frankly, not enough market share in the U.S., and the second was not a strong enough presence overseas.”

With the acquisition of Geffen Records and other changes, Teller said, “we are going to be more important to BMG overseas than we have been to (Warner Music International) overseas.”

Industry analysts have praised the music unit’s moves and expect its performance to improve even further. But the changes have not been without mishap. In particular, MCA has had problems distributing its music in the United States.

Last year when MCA had the nation’s top three albums--by artists Bobby Brown, Fine Young Cannibals and Tom Petty--it failed to deliver records to some stores for nearly a month.

“There was a three-week period last summer when MCA could not deliver any product,” said Charles Patke, vice president of purchasing at the 30-unit Harmony House chain in Troy, Mich. “We had a lot of confused and upset customers.”

“It’s a nightmare,” added Harold Guilfoil, buyer for the 134-store Disc Jockey Record chain. “They decided to move their warehouse; and whenever you move your warehouse, you can have big problems.”

John Burns, head of MCA distributing, blamed the problem on a computer snafu, not the closing of MCA’s Sun Valley, Calif., distribution warehouse.

“We had bad timing in bringing on a new (computer) system,” Burns said. “It was an isolated thing.”

The distribution system faces a crucial test in January when MCA begins to manufacture and distribute Geffen Records.