Motown to Sign With Polygram

Motown Record Co.--engaged in a bitter court battle with its distributor and minority owner, MCA Records--is set to announce a new distribution deal with Polygram NV, sources say.

Details of the agreement, which includes responsibility for manufacturing and distributing Motown’s records, were being finalized late Friday, people close to the companies said.

If the deal is concluded, the quick change in distributors could lead to problems getting Motown’s music into record stores. The Motown-MCA legal battle--spawned by a dispute over MCA’s handling of Motown’s records--is sure to escalate as well.

Polygram will provide Motown with a $30-million line of credit under the terms of the 10-year deal, the sources say. It has also agreed to hire black music specialists to promote Motown’s music.

Motown President Jheryl Busby and Polygram Chief Executive Officer Alain Levy are scheduled to work out remaining details of the agreement over the weekend, sources said.

London-based Polygram, one of the world’s largest music companies, has been rumored for several weeks to be one of the finalists for the Motown distribution deal. The other reported finalist was CEMA Distribution, Capitol-EMI Music Inc.’s distribution arm.

Executives at Motown and Polygram declined comment Friday on the deal. Motown, however, said that it expects to formally announce a decision by early next week.

MCA, which in the past has said it will “vigorously enforce” its distribution agreement with Motown, also had no comment on the Polygram deal. Sources said Motown’s operating committee, as a formality, will give MCA seven days to review the new pact before it goes into effect.

Some record industry executives predicted that MCA would seek a court injunction to stop the Polygram deal. But others say it’s more likely that MCA, a unit of Japan’s Matsushita Electric Industrial Co., will try to recoup lost profits by pursuing its existing lawsuit against Motown.

MCA became a minority owner of Motown in 1988, when founder Berry Gordy sold the company for $61 million. The majority owner is Boston Ventures Management Inc., an investment firm.

The legal dispute between the two companies started in May, when Motown--best known as the home of such 1960s sensations as the Supremes, the Temptations and Marvin Gaye--charged in Los Angeles Superior Court that MCA had “undermined” efforts to rebuild the label.

MCA countersued, claiming that the lawsuit was a ploy to free Motown from its distribution deal so that Boston Ventures would have a better chance of reselling the company.

MCA receives 25% of all Motown’s revenue for distributing and promoting the label’s records. That’s considered high by industry standards. But MCA has argued that the deal provides Motown with support services not usually included in a standard distribution deal.

Motown’s operating committee voted to strike a new distribution deal in August, after talks aimed at resolving the company’s problems with MCA broke down. Motown has said that it intends to enter into an agreement by Sept. 28.

Sources close to the talks say that Motown and Polygram will both be legally responsible for any lawsuits that result form the deal.

“The deal offers no indemnity for anyone,” one source said. “If Polygram is found guilty of inducement, they have to pay the consequences.”

After falling into decline in the 1980s, Motown has enjoyed success recently with such acts as Another Bad Creation and Boys II Men. Polygram has also experienced a resurgence under Levy. Once best known for classical music, it recently purchased Island Records and A&M;, and it reported record sales and earnings for the first six months of the year.