New Record Labels Defying Industry Trend : Music: While the bigger firms trim staffs and reorganize functions, small start-ups are having no trouble finding backers.
At a time when the record industry is bankrolling an unprecedented number of major new start-up labels, some older, well-established record concerns are cutting back.
On Monday, Polygram N.V. disclosed that its Island Records label is no longer maintaining its own separate sales, marketing and promotion staffs. Those functions at Island will be handled by the newly formed Polygram Label Group, a New York-based umbrella organization headed by former RCA Records general manager Rick Dobbis. PLG will be responsible for the worldwide marketing of Polygram’s London, Polydor, Smash and Island labels.
About 75 people have left or been laid off at Polygram’s Island and A&M; record units since the summer--a 17% reduction from the 450-person work force at the two labels. Another 20 people have been trimmed from the staff at RCA Records, which is owned by Germany’s Bertelsmann Music Group.
Meanwhile, Enigma Entertainment, an independent Los Angeles-based heavy metal and alternative label, has slashed its 140-person staff to about 20. It may shut down this month if it can’t find a distributor to replace CEMA, the distribution arm of Los Angeles-based Capitol-EMI Music Inc.
“Over the past year and a half, there’s been a slowdown in the music business,” said Jeffrey Logsdon, an entertainment industry analyst at Seidler Amdec Securities in Los Angeles. Coupled with a flurry of acquisitions in the record business during the past two years, Logsdon said, some new label owners are being forced to go through “some economic downsizing.”
Ironically, the retrenchment comes as many of the six major record distributors continue to spend millions of dollars to hatch new labels in an effort to develop talent for an industry that some say sorely needs stars with staying power.
A week ago, Bertelsmann announced that it had entered into a joint venture to form a record label with former Chrysalis Records co-founder Terry Ellis. The new label, Imago Recording Co., is backed by more than $50 million in financing, industry sources say.
Imago Recording joins an unprecedented explosion of well-financed, full-service labels. At least eight other major start-up labels--including East West America, Sony Classical, Hollywood, Giant, DGC, Zoo, Charisma and Cardiac--have been launched in the past year and a half, a time of generally flat domestic music sales.
Daryl Jamison, director of the entertainment division of the accounting and consulting firm Deloitte & Touche, said new labels are still finding backers because they can initially run leaner and meaner than established labels. The start-ups are burdened with less overhead than their older counterparts, he said, and have more incentive to pound the pavement in search of the next hit record because they usually don’t have a large roster of established acts to rely on.
“The labels that are active on the streets are ultimately active at the cash register,” quipped Jamison.
To be sure, the old record companies are not in dire financial straits, despite cutbacks at some labels.
In its most recent sales announcement, for example, CBS Records said September was its best month ever. And Thorn-EMI Music, aided by red-hot performances from its two big U.S. labels, Capitol and SBK, announced last month that its profit for the six months ended in September jumped 64% to $82.7 million from $50.3 million during the same period a year ago.
Even Polygram is generally regarded by analysts as a healthy and profitable company. Although its domestic music sales have lagged its overseas growth, forcing a retrenchment in its sales and marketing staffs, the company has been beefing up the distribution unit of its music division, analysts note.
Joe Regis, chief operating officer of Enigma Entertainment, attributed Enigma’s problems to differences with its distributor but said the company also expanded too fast at a time when the economy was slowing. “When I joined the company (last spring), we were forced to begin immediately downsizing the company,” he said.
With its reorganization, Polygram hopes to avoid such a crunch. The president of its A&M; label, Al Cafaro, says the layoffs resulted as much from an effort to improve efficiency as from concern about the economy and slow sales. A&M; has laid off about 30 people and not filled 12 vacant positions.
“It was mostly done to streamline communications and structure” in the wake of Polygram’s acquisition of A&M; and Island last year, Cafaro said. “But it was also done with an eye toward the economy.”
“There’s a lot of money to be made in the record business,” Cafaro continued. “If you are a new company, all it takes is one hit. . . . But if you are an established company and you’ve been through the good times and the bad times, you want to put yourself in the best possible position to survive” the slow times.