COVER STORY : Rock’s Top 40 Power Players : Time again for Calendar’s survey of who has the most clout in the record biz. This year, more than half the names are new. Why the shakeout happened and why the news is good for music fans.

Two years ago, the record industry in America was wearing a black armband. Reeling from seeing companies gobbled up by foreign conglomerates, countless executives worried about their jobs and the fate of the music itself.

There were ominous predictions that the new bosses, derided as “corporate suits,” would squeeze the creativity out of the business by bringing in faceless number-crunchers who prized only bottom-line results.

Today, the armbands are off.

With profits soaring and confidence at a record high, many of the same executives now speak of how healthy the mood is in the industry.

Modern sales tracking systems imposed by the giant firms have helped identify massive growth potential in musical genres once considered on the commercial fringe--notably country, rap and alternative rock.

This emphasis on diversification has led to an explosion of new million-sellers at the top of the charts--from rap’s Dr. Dre to alternative rockers Pearl Jam--as well as a battery of fresh faces in the corporate boardrooms.

The shake-up has been so extensive that more than half of the names on Calendar’s list of the industry’s 40 most powerful people are different from a similar roll call two years ago.

The changes haven’t been painless. Some industry legends have fallen as a new generation of executives assumes the mantle of leadership.

“There’s been a revolution in music and it has forced major changes in the way the industry operates,” says Doug Morris, who last month was named to head the domestic division of Warner Music Group, the world’s largest record firm.

“We’re on a real roller-coaster ride. Musical tastes have changed dramatically and some of the people who have been in power for many years didn’t see it coming and they didn’t adjust.”

Sums up Clive Davis, head of Arista Records and one of the industry’s most successful figures for more than 25 years: “There’s much more opportunity for original, cutting-edge thinkers to make it out there these days. Music is what record corporations sell and they must count on entrepreneurs who have ears to find the best stuff to market. The future of these corporations doesn’t hinge on who’s writing the check, it hinges on who’s writing the music.”

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From a distance, the story of the last two years in the record business is simply a tale of the rich getting richer.

Warner Music and Sony--the industry leaders since the ‘60s--continue to dominate the domestic and global musical market, accounting for more than a third of of the $10-billion U.S. recording market.

But it hasn’t been business as usual in the ‘90s at either recording titan.

Both firms have gone through such major reorganizations that, in the words of one rival corporation, it’s as if Sony and Warner Music were both “gutted with grenades.”

The first shake-up began at Sony when Thomas D. Mottola, a former talent manager with scant record company experience, was tapped in 1988 to succeed Walter Yetnikoff, an industry kingpin who had ruled the former CBS music empire for more than a decade with an iron fist.

Mottola raised eyebrows by quickly installing a team of largely unproven executives in key roles, causing many in the industry to openly predict disaster for the already slumbering Japanese giant. The jokes were not kind.

Mottola is enjoying the last laugh, however. In the last two years, his team--Michele Anthony, Don Ienner and Dave Glew--has restored credibility to Sony by generating heat in a variety of areas. The team is admired by competitors for both the aggressive pursuit and marketing of such hot young acts as Pearl Jam and the revitalization of such veteran artists as Billy Joel. The result is Mottola and his three key aides have burst onto the Top 40 list. Sony Music’s 1993 global revenue: $4.48 billion.

The lesson of Sony’s reorganization wasn’t lost on Robert Morgado, chairman of the Warner Music Group, whose chief labels--Warner Bros., Elektra and Atlantic--are home to such acts as R.E.M, Madonna, Metallica and Snoop Doggy Dogg.

Although his multibillion-dollar conglomerate was already the strongest music combine on the planet, Morgado felt that a shake-up could help him slash costs and bolster an even bigger market share. Warner Music’s 1993 global revenue: $5.4 billion.

To spearhead the changes, Morgado turned in 1990 to Atlantic Chairman Doug Morris, with whom he had the best relationship of the three firms.

Like Mottola, Morris turned to a trio of untested young executives--Jimmy Iovine, Sylvia Rhone and Danny Goldberg--who, over the last three years, helped the Atlantic Group deliver an avalanche of hits and nearly double revenues. Morris was rewarded last month by being named the head of Time Warner’s new domestic music division.

Upset over the new chain of command and orders to house-clean their operations, industry titans Mo Ostin and Bob Krasnow, heads of Warner Bros. and Elektra, respectively, abruptly resigned. Their replacements: Rhone and Lenny Waronker, an Ostin protege and former record producer. Along with Morris and Goldberg, they join the Top 40 list.

EMI Music is still not over the brutal changes it experienced last year, when a slew of veteran executives at Capitol Records were replaced with a team headed up by Gary Gersh, a Geffen Records executive with a strong music background.

And PolyGram is also in the middle of a significant restructuring plan, which many believe will lead to more hands-on participation from the much-respected Chris Blackwell, who sold his Island Records five years ago to the London-based conglomerate.

As the bigwigs duke it out behind closed doors, the winners will be those companies who can best discover and nurture the emerging artists whose visions fuel the industry--the ones who are able to adjust to changes the way upstarts like Geffen Records did in the ‘70s and ‘80s, and Interscope Records has done so dramatically in the ‘90s.

“No matter who ends up running what,” says entertainment impresario David Geffen, “this business will continue to boom as long as the artists keep making good music and the companies ensure that music is available to the public.”

A gainst all expectations, Inter scope Records has become the toast of the industry. The Los Angeles-based label’s phenomenal rise has taught other executives the importance of pinpointing innovative talent and respecting creative freedom.

Started from scratch in 1991 by record producer Jimmy Iovine and investor Ted Field as a joint venture with Warner Music Group, the company ignored the industry game plan of trying to sign veteran superstars in hopes of a quick financial fix.

Instead of looking back at who has sold, they looked ahead at who was going to sell--and bet boldly on their instincts that alternative rock and rap were the direction of pop in the ‘90s. Thanks to the mushrooming popularity of such acts as Dr. Dre, Snoop Doggy Dogg and Nine Inch Nails, the company is now worth more than $300 million.

“These two guys have done more to raise the standards of what it means to be an executive at a record company than anybody I can think of in years,” says Alain Levy, chairman of PolyGram N.V., a competing conglomerate.

“It’s hilarious because I hear other executives whining about how while they were off playing golf in the Hamptons, Jimmy and Ted nabbed another band from behind their backs.”

The emphasis on adapting to the changing musical marketplace has also resulted in breaking down the barriers of sexism and racial segregation--opening the door slightly for a handful of talented women and African American executives.

The addition of two more African American figures to the list since 1992 boosts the number up to six--which is still very slight considering the dramatic commercial and creative impact of black music in the industry.

“Black music is the pop music of the ‘90s,” says Sony’s Mottola, whose company has forged deals with such street-oriented labels as So So Def and Ruffhouse. “Its roots and influences have been prevalent in pop forever. Now, however, more than any time since Motown in the ‘60s, black music is the mainstream.”

In the past two years, corporations have invested hundreds of millions of dollars in labels run by Rhone, Jheryl Busby, Andre Harrell and L.A. Reid & Babyface--African American executives who have delivered huge hits by such multimillion-selling acts as Boyz II Men, En Vogue, Jodeci and Toni Braxton.

But perhaps the biggest and most surprising breakthrough is America’s increasing appetite for rap music. Interscope Records was sharply criticized from the industry’s good old boy club three years ago when it invested a whopping $10 million to bankroll Death Row Records, a label founded by controversial rap producer Dr. Dre and his equally controversial partner Suge Knight--two young African Americans from Compton with criminal records.

But that was before Death Row pushed hard-core hip-hop into the mainstream--successfully transforming “Nuthin’ But a ‘G’ Thang,” a gangsta rap song previously rejected by all its competitors, into a Top 20 hit. Knight, who has been arrested twice on battery and weapons charges since starting his multimillion-dollar firm with Dre, hopes the success of Death Row will pave the way for other aggressive, street-oriented businessmen.

“At first, the industry didn’t want anything to do with two guys from Compton, but I think our success has helped change the way the old guard now views rap,” says Knight, whose record label has grossed more than $60 million in revenues this year alone.

“They realize when Death Row makes a gang of money, it helps everybody in the industry. The best thing our success has done is open the door for other aggressive young entrepreneurs. The record business is much more open to change than it’s ever been before.”

Don’t think there aren’t any clouds behind the industry’s silver lining.

For all the talk about how hot and heavy competition is among the Top 40 power brokers for market share, you’d never guess that the music industry is knee-deep in a federal antitrust investigation.

Looming over the future is a price-fixing probe launched last year by the Federal Trade Commission, in which testimony was recently subpoenaed from record distribution executives at the six biggest conglomerates--Warner Music, EMI Music, MCA Music Entertainment, Sony Music, PolyGram and Bertelsmann.

In addition, five of those firms are under investigation for monopolistic practices by the Justice Department for their involvement with Ticketmaster in trying to create a video music channel to challenge MTV.

With the government snooping around the back door, executives are also beginning to take a second look at the controversial world of record promotion--re-evaluating the cost effectiveness of hiring outside contractors and trade magazines called “tipsheets” that purport to have close relationships with radio station personnel.

Now able to look at which records are played on the radio and sold in stores with previously unavailable accuracy, several label chiefs say they plan to reconsider their multimillion-dollar promotion budgets--a move that could impact the power ranking of some of those in the field.

Looking ahead, the biggest problem for the Top 40 cast on the information superhighway may be high-tech theft. Record companies are currently lobbying Congress to pass performance-rights legislation that would require royalty payments to artists and record companies any time a piece of music is electronically transmitted.

“The potential for rampant piracy in the digital world of interactive on-line computer services makes catching thieves counterfeiting cassettes in their garages seem like a kindergarten problem,” says MCA Music Entertainment Chairman Al Teller. “It’s essential that the copyright laws be overhauled to protect intellectual property. This isn’t just a national problem for our industry, it’s a global mess.”

It may be a global mess, but it’s also a golden global opportunity.

As copyright enforcement improves and markets open up around the world, labels expect global retail sales to soar far past last year’s record-breaking $30-billion mark. Executives particularly look forward to exploiting burgeoning territories in Latin America and Southeast Asia, which many predict will soon become pop’s premier touring market.

While corporations are tapping into the demand for indigenous music in new territories, executives anticipate that more than 60% of the music sold overseas will continue to come from sales of albums by U.S. artists.

The future of the industry, Warner Bros. Records President Waronker says, hinges on the ability to find those vital artists. “It’s crucial for companies to maintain a musical point of view,” he says.

“Great music is what people buy. In the end, all that matters is the music. Everything I’ve learned in this business tells me that companies who do the best (in coming years) will be the ones who remember that fact.”

Album Sales

Percentage of the $4.25-billion U.S. album market in 1994 (through Aug. 21):

Warner Music: 21.77

Sony Music: 15.75

Bertelsmann Music: 13.53

EMI Music: 11.66

PolyGram: 11.42

MCA Music: 10.97

Independent labels* 14.9

* Some of these labels, including Priority and Tommy Boy, are distributed by the major conglomerates.

--Figures are based on SoundScan research.