Is Warner Music Spiraling Out of Control?

The corporate merry-go-round at Warner Music Group has finally traveled full circle.

Time Warner Chairman Gerald Levin’s decision two weeks ago to fire domestic music chief Doug Morris is causing a stir in the music business not only because it signals continued turmoil at the company--and could cost shareholders yet another multimillion-dollar buyout--but also because of who sources say is being considered to fill the post: Mo Ostin.

Ostin, who ran Warner Bros. Records for three lucrative decades, quit his job last summer after Levin authorized a controversial restructuring plan that sources say was orchestrated in part to drive the widely admired record chief out the door.

Six weeks ago, Levin unsuccessfully tried to lure Ostin and former Warner Bros. Records President Lenny Waronker back into the fold by offering them a valuable deal to launch their own label. More recently, sources say, Levin and his new record chief Michael Fuchs have been courting the pair to fill senior executive posts in the music division in the wake of Morris’ firing.

Morris was dismissed just two days before he was to be promoted to chief executive of the global music sector. The decision to boot Morris, in turn, came just six weeks after Levin fired Morris’ boss, Robert J. Morgado. And those dismissals followed last year’s departure of Ostin, Waronker and Elektra Entertainment chief Robert Krasnow.

As the management turmoil enters its 12th month, executives inside and outside the firm have grown highly critical of Levin’s handling of the situation. Neither Levin nor other Time Warner officials could be reached for comment.

“Gerald Levin is fast becoming the laughingstock of the music industry,” said one Warner executive, who predicts the Time Warner chairman will be ousted before January. “First he pushes Mo and Lenny out the door and then he dumps Morgado and Morris. Now he promotes a TV guy to run the music division and has the gall to ask Mo and Lenny back to help him fix it. Is this any way to run a record company?”

Warner Music Group has long been recognized as the most stable and successful operation in the record business. But management troubles began almost two years ago when Levin rejected a succession plan proposed by Ostin that recommended that Waronker be elevated from president of Warner Bros. Records to co-chief executive of the label in 1995.

Sources say Levin nixed the arrangement because it called for Ostin to continue to report directly to him rather than to Morgado, who had recently been installed as Warner Music Group chairman. For decades, Ostin had reported to the top man at the company, and he requested that a clause be preserved in his contract allowing him to continue doing so, fearing a loss of autonomy otherwise.

Instead, Levin last summer authorized Morgado’s plan to promote Doug Morris, formerly head of sister label Atlantic, to run Time Warner’s American music division--a move sources say was designed in part to further erode the power of Ostin and other key executives.

Rather than accept the new chain of command, Ostin, Waronker and Krasnow resigned. Krasnow, who quit the day after the plan was announced, received a $7-million buyout. Ostin and Waronker waited until their contracts lapsed and walked out with a bundle in stocks and bonuses, but neither received a severance package.

The exit of the veteran executives, however, did little to restore order in the music group.

Morris and 11 other alienated senior executives staged an unprecedented insurrection against Morgado last October that nearly paralyzed the record division. This time, Levin sided with Morris and elevated him to chairman of Warner’s domestic sector, leaving Morgado in charge only of international operations.

Just seven months later, when everything seemed to have calmed down, Levin decided to push Morgado out. Sources said he fired Morgado because of repeated complaints from Morris and other executives about Morgado’s continued interference in the domestic operation.

Levin replaced Morgado, who received an estimated $40-million severance package, with HBO chief Michael Fuchs, an executive with no experience in the music business. On the day of his promotion, Fuchs told reporters he was counting on Morris to help him guide the record sector.

Fuchs, however, stunned the industry last month when--with Levin’s consent--he fired Morris without warning. Morris’ discharge came at a time when Warner Music Group, which includes the Atlantic Group, Elektra Entertainment and Warner Bros. Records, had almost two dozen albums in the Top 50 and nearly twice the market share of its nearest competitor.

“Morale here is really sinking,” said one Warner talent executive. “It’s like we’re underwater in one of those old war movies where the submarine just keeps getting pounded by depth-charge after depth-charge. I mean, what am I supposed to tell an artist I’m trying to sign when they ask me who’s running the ship here?”

Moments after Morris was fired, competing firms started drawing up “hit lists” of Warner acts and executives whom they hoped to raid in the future. Sources said that several bands who were preparing to sign with Warner are now weighing other options.

Morris--who sued the company for $50 million 10 days ago, claiming wrongful termination--is believed to already have been pitched several job offers by former competitors.

Krasnow has recently signed on with MCA Entertainment, and sources speculate that Ostin and Waronker will soon resurface at DreamWorks, the entertainment combine formed by Steven Spielberg, Jeffrey Katzenberg and David Geffen.

According to sources, Levin believes the return of Ostin and Waronker could help stabilize the music division. But sources close to the duo say Ostin and Waronker, weary of corporate politics, are more interested in running a small operation in which they can again get involved with artist development and creative decisions.

Inside Time Warner, things have yet to calm down. There is speculation that the jobs of Morris confidants Melvyn R. Lewinter, president and chief operating officer of Warner Music U.S., and Ina Lea Meibach, executive vice president of Warner Music U.S., may be in jeopardy. Five days ago they were called into Fuchs’ office and told to immediately take a 30-day leave of absence. Fuchs is now relying on the advice of former Morgado associates Fred Wistow and Jerome Gold to monitor the company.

Levin’s fickle attempt to win Ostin and Waronker back is being viewed among competitors as evidence that the Time Warner music division is indeed spiraling out of control.