Blacks Circumvent White Control of Music Industry : Bias: Joint venture deals are a way to economic power in a business that many say locks out minority executives.

Antonio “L.A.” Reid remembers the day six years ago when he and his partner Kenneth “Baby Face” Edmonds struck the ceiling.

After helping mastermind commercial breakthroughs for such recording stars as Bobby Brown and Paula Abdul, the hot African American production team had reached what many considered to be the pinnacle of their profession.

But Reid and Edmonds had bigger goals. They saw themselves as entrepreneurs who deserved more than creative freedom. They wanted economic control over the music they produced.

Few black producers have been able to break through the stranglehold of the white power brokers who control the nation’s $12-billion record business.

While no statistics are available regarding the number of minorities working in the industry, no major company has an affirmative action program to advance blacks, Latinos, Asian Americans or women. The number of top-level black music executives at major labels can be counted on one hand, and there are even fewer Asian Americans, Latinos and women.

Locked out of the system, talented young minority entrepreneurs have begun to find success by cutting joint venture label deals with major companies, which provide financing, manufacturing and distribution in exchange for a share of the profits.

And these black-run labels are being viewed as the training ground for a new generation of African American executives.

With few options available in the corporate pop world, Reid and Edmonds decided to roll the dice and launch their own label, with financing from German-based Bertelsmann Music.

“It used to be that the guy who made the music was the guy who died broke, but these days, creative producers understand what they’re worth,” said Reid, whose La Face Records has earned more than $200 million since its inception in 1989.

“This is a software-driven business where the hit-makers hold the key to the profits,” Reid said. “With black music being such a huge revenue source, you’d think that the record industry would be doing everything it could to prepare creative African American executives to assume positions of power. But unfortunately, that’s just not the way it works.”

Popularity of Black Music

Even more than films and TV shows produced by African Americans, black music is a product that appeals to consumers of all colors and generates billions in annual revenue around the globe. In the United States alone, nearly one-quarter of the best-selling albums on this week’s pop chart were written and recorded by black artists. So far this year, black music has accounted for more than 20% of the 495 million albums sold by retailers across the nation.

The Rock and Roll Hall of Fame, however, is overflowing with examples of black artists who lived and died in destitute conditions, abandoned by the same industry that sings their praises now. Pop music continues to draw heavily on such black musical traditions as blues, jazz, gospel, soul and rap, but only a handful of black executives hold senior positions in major record companies.

The problem, African Americans say, is that the music industry’s infrastructure was shaped by whites, who have generally been reluctant to groom blacks for top executive positions.

There has been advancement by blacks and women in the companies’ legal divisions, but most black employees remain “ghettoized” in black music departments, where salaries are comparable, but budgets for recording, marketing and promotion are often lower than in the pop and rock areas.

And rising executives in black music are often stymied by another problem: When a black artist such as Michael Jackson or Whitney Houston becomes a star, the black music department loses them to the record company’s pop star-making machine. As a result, few black executives learn the mass-marketing and promotional skills needed to affect the corporate bottom line.

“There is tremendous disparity and inequality regarding the treatment of black music executives in the industry,” said Sylvia Rhone, Elektra Entertainment chairwoman and the only black or woman to head a major record label.

“The racism out there may be subtle, but it is still a problem. . . . It’s extremely difficult, if not impossible, for any black executive to move up in a record company outside of the black music division.”

Rhone’s promotion to chairwoman of Elektra last year prompted grumbling in the industry’s “good ol’ boy” network, where many predicted she could not live up to the achievements of the label’s illustrious white male executive alumni.

Women Find More Success

Some white record chiefs interviewed for this story privately questioned whether any African American executives who honed their skills in black music departments had the qualifications to navigate a pop division.

Nevertheless, white executives acknowledged that few minorities have been given a fair shake in the record business.

“No one could say that the record industry has a perfect track record in placing minorities in management positions, but compared to other entertainment industries, we’re miles ahead,” said Strauss Zelnick, chairman of the domestic music division at BMG.

For women, the picture has been slightly more optimistic. They have been more successful than minorities at infiltrating the corporate infrastructure at major labels and assuming mid-level management positions in previously male-dominated areas such as sales, marketing, promotion and talent acquisition.

But while the executive ranks of major music labels remain white and male, the six conglomerates that dominate the music business have sunk hundreds of millions of dollars into a handful of promising joint venture labels with talented young black producers.

Other black businessmen who have crafted similar corporate-financed agreements in recent years include Death Row founders Dr. Dre and Suge Knight, Def Jam’s Russell Simmons, Prospective’s Jam and Lewis, Rowdy’s Dallas Austin, Bad Boy’s Puffy Combs, So So Def’s Jermaine Dupri and Uptown’s Andre Harrell, who recently took over as chairman of Motown, which is now owned by PolyGram, a division of Dutch-owned Philips.

“The old guys at the giant companies laughed at us a few years ago when we told them we were going to have huge hits on pop radio,” said Knight, whose Death Row label has since racked up millions of dollars in sales from albums by Dr. Dre and Snoop Doggy Dogg. “Ain’t nobody laughing now.”

La Face co-founder Edmonds says black entrepreneurs working outside the system are proving themselves quickly.

“You couldn’t buy the kind of experience at a major corporation that you get working for a little label like ours or Death Row,” said Edmonds, who also produces music for major record company artists such as Whitney Houston.

“Companies like these are the real training grounds for the next wave of young black executives. Talented kids from the street get a crash course in every aspect of the business here, from radio to retail to promotion to artist development. It’s hands-on experience that teaches you how to succeed.”

La Face, however, was no overnight success.

After rejecting production offers from several major labels, Reid, 39, and Edmonds, 37, were approached by Arista Records founder Clive Davis in late 1989 with a proposal to create a tiny label with BMG, the fourth-biggest record conglomerate in the nation.

Launched with Bertelsmann’s $750,000 investment, the Atlanta-based label lost about $5 million during its first three years of operation.

Reid never lost faith though. Patterning his label after Berry Gordy’s Motown Records, he tried to develop a black artist roster that would appeal to a broad audience.

By late 1992, La Face had struck gold with hits by R & B rap trio TLC and soul diva Toni Braxton. Reid and Edmonds then renegotiated their deal and beefed up their staff by hiring about 50 employees--more than 95% of them black college graduates under the age of 30.

Success Spawns New Contract

In March of this year, they signed a new, five-year deal with BMG worth an estimated $100 million, which grants the duo control over publishing and recording rights to their work, allowing them to pocket profits from the label in perpetuity. In return, BMG gets a share of the profits generated by La Face, which last year amounted to about $10 million on $70 million in total revenues.

While BMG handles manufacturing and distribution, La Face operates as a self-contained unit with its own marketing, sales, accounting, business affairs and talent acquisition.

Competitors say La Face’s artist development program is one of the most sophisticated in the business. Its new artists are typically required to spend about six months with professional coaches who teach them about fashion and choreography as well as how to speak to journalists and pose for photographers.

Although corporations may profit handsomely by tapping into the products delivered by young black entrepreneurs, some analysts said the joint venture practice may come back to haunt the industry.

If the major companies do not improve efforts to woo budding black executives, their success at black labels could spur the birth of a separate black music industry.

Advances in digital technology allow artists to record state-of-the-art albums cheaply and monitor sales without the aid of a giant staff. And some analysts believe that the established retail distribution system will ultimately collapse as artists and boutique labels design more efficient ways to deliver music to consumers.

“If I was stuck being a president of a major label right now, every decision I made would be second-guessed by one of those corporate genius committees, who are always terrified to try anything new,” Reid said.

“But because of the racist nature of the system, we were literally forced to will this label into existence. It’s been a real learning experience for us and the young black executives working at our company. I hope the music industry is paying attention.”

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About This Series

In this series, The Times examines affirmative action, a policy that has left its imprint on the workplace and college campuses over the last 30 years. With some now questioning whether giving preferences to minorities has been fair to all, this series, which is appearing periodically throughout 1995, measures its impact on American institutions, ideas and attitudes.

* Previously: Why affirmative action became an issue in 1995, its legal underpinnings, its impact on presidential politics, the difficulties of defining a minority, the views of its beneficiaries, a Times poll showing ambivalent attitudes on the issue, how informal preferences have molded American life, the mind at work in racial stereotyping, the evolution of diversity programs in the workplace, affirmative action in sports and recruiting minorities, the legacy of affirmative action in the public and private workplace and public contracting programs, the controversy over college admissions, a profile of diversity-related tensions at Occidental College, and a look at the TV and movie industries, which are perceived to be open to diversity, but which minorities--especially blacks and Latinos--say are not.

* TODAY: In pop music, blacks have found success by bypassing the major record labels and creating their own companies.