Charting Sony Music’s Future

Sony Music Entertainment President Thomas Mottola remembers the night seven years ago when Michele Anthony told him that no rock band in its right mind would sign a contract with his record company.

Anthony was a hip young entertainment attorney who represented a dozen of the nation’s hottest rock acts, including Guns N’ Roses and Alice in Chains.

Mottola had summoned her to a Los Angeles restaurant to discuss offers for several of her clients to join Sony Music, home to such aging icons as Michael Jackson, Barbra Streisand and Bruce Springsteen.

It was a very short meeting.

“She said to me, ‘Tommy, I wouldn’t sign a rock act with Sony if my life depended on it,’ ” Mottola recalls. “ ‘You guys are arrogant and out of touch, and your company has been living off the fat of its superstar roster for so long you don’t have a clue how to develop a new act.’

“And you know what? She was right. We had a serious credibility problem at the time,” Mottola says. “Rebuilding this company has been a real humbling experience for me, let me tell you. People were betting we would fail. People were laughing at us behind our backs.”

Nobody is laughing now.

Last week, Sony Music dominated the nation’s pop charts with five albums in the top 10. No longer content to rely on superstars to pay the bills, Sony is cashing in on a fresh crop of acclaimed newcomers such as the Fugees, Oasis and Rage Against the Machine, whose angry “Evil Empire” album just debuted at No. 1.

Indeed, more than half the 25 Sony albums on the top-200 chart were recorded by new artists from a broad spectrum of music genres, including alternative rock, industrial, rap, R&B;, country and pop.

How hot is Sony? So hot that Offspring, the most popular punk band in the world, chose last week to turn down a multimillion-dollar offer from the industry’s leading independent label to join the Japanese giant.

Ironically, Offspring’s Sony deal was brokered by Anthony, who joined the firm six years ago and has become a key player on Mottola’s highly regarded management team, which also includes Mel Ilberman, Dave Glew and Don Ienner.

“I think Tommy surprised a lot of people,” says Michael Ovitz, president of Walt Disney Co. “From my vantage point, he made all the right moves and has created the most stable executive team in the entire business.”

Over the last five years, Mottola’s team has restored credibility to Sony by retooling the corporation to serve the needs of a wide range of artists in the $40-billion global record industry.

With Pearl Jam, Sony proved it could transform a cult rock act into international stardom without damaging the band’s anti-corporate image. Sony also raised the stakes in the soundtrack market with its smash “Forrest Gump” collection and struck gold in mainstream pop, turning unknown singers Mariah Carey and Celine Dion into multimillion-album-selling divas.

And while the sales punch of such warhorses as Jackson and Springsteen is down in America, Sony continues to sell millions of their albums around the world, where the firm has shown dramatic growth in recent years. Sony also has had remarkable success lately in marketing Australian and British acts, such as Silverchair and Oasis, to American audiences.

Mottola’s aggressive management team has drawn kudos from the creative community as well as admiration from corporate brass. This year, Sony Music is expected to post a record performance, generating nearly $6 billion in worldwide revenue and an estimated $650 million in profit. The Japanese giant paid $2 billion for the CBS Records Group in 1988.

“Under the strong management team headed by Tommy Mottola, Sony Music has proven success on the charts as well as in the financial statements,” says Nobuyuki Idei, president of parent company Sony Corp. “Sony Music will continue to play a crucial role and be a great asset as Sony regenerates itself for greater competition in the 21st century.”

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Sony’s renaissance hasn’t come easily. Mottola suffered through several dry spells while waiting for the young acts his team signed to gain a following. In the process, he developed a reputation for being abrasive and spending too much money chasing and promoting new acts--particularly regarding superstar Mariah Carey, to whom he is married.

Critics also question whether Sony’s latest discoveries will turn out to be one-hit wonders or have the sales punch to match profit margins established by previous superstars. Last year, follow-ups by several fledgling Sony rock acts bombed, contributing to a market share plunge that allowed PolyGram to move temporarily into second place.

Sony’s share of the $12-billion U.S. market shrank 2% in the last five years as PolyGram and Bertelsmann have pushed forward to close the gap behind their rival. And like its competitors, Sony’s future is threatened by a troubled U.S. retail market, where sales are flat and several big chains have filed for bankruptcy.

Despite its current hot streak, Sony still ranks second among the six major record conglomerates, trailing Warner Music in the U.S. and PolyGram in most international markets except Japan and Australia.

“We’ve got a lot more work to do,” says Mottola, 46. “We need to get a lot leaner and a lot meaner. We’ve got a global plan for the future. Our goal is to be No. 1.”

Sitting in his office on the 32nd floor of the Sony building in New York, Mottola seemed relaxed as he reflected recently during a rare in-depth interview on his eight-year tenure at the firm.

Dressed in jeans and a safari jacket, the Bronx native laughed frequently and poked fun at himself as he discussed his “roller-coaster ride” to the top at Sony Music.

Mottola, a former artist manager and song publisher, took over as president of CBS Records Group in 1988--about three years after the company ended its two-decade reign as the dominant force in the pop world.

At the time, the CBS music empire was run by Chief Executive Walter Yetnikoff, a flamboyant industry titan who headed up the firm’s global record division for more than a decade. Mottola says CBS fell behind Warner Music primarily because the corporation bet the bank on its fat superstar catalog and neglected to groom new talent.

Warner, he says, operated under an entirely different philosophy. The company was divided into three distinct labels led by Mo Ostin, Ahmet Ertegun and Jac Holzman, a management team that took risks and nurtured the careers of young acts.

“I completely idolized Mo and Ahmet and Jac,” says Mottola, who had no executive experience when he joined Sony after a decade as a manager for such acts as John Cougar Mellencamp and Hall and Oates. “Those guys are the greatest record executives that ever lived, hands down. They invented ways to cultivate and promote alternative music that nobody had ever dreamed of.

“I knew coming in that the only way we were ever going to catch up was to copy them. CBS was so far behind the curve it was a joke. It was a stodgy old monolith full of complacent yes men who wondered why no band would sign with us. I understood the challenge ahead. I also understood my own limits.”

Following Warner’s lead, Mottola set out to build a strong management team.

To bolster Sony’s credibility, he brought in Anthony as executive vice president, the most powerful position ever held by a woman in the record business at the time. To revitalize the Columbia and Epic labels, he installed promotion and marketing experts Ienner and Glew. To restructure the corporation, he turned to Ilberman, a shrewd industry veteran with 30 years of experience.

Mottola’s team got lucky fast, benefiting from a quick burst of superstar products delivered by Jackson, Springsteen, Billy Joel and others. They also struck gold with hits by such big-hair bands as Warrant and dance acts C&C; Music Factory and New Kids on the Block.

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But Mottola’s flashy image and brash approach alienated a number of powerful entertainment attorneys and artist representatives. Questions were raised about the quality of Sony’s new hit makers, and competitors--as well as people inside his own corporation--began predicting that Mottola and his team wouldn’t last long.

“I made a lot of mistakes,” Mottola says. “I used to have a reputation for being a very abrasive individual. When I took this job, ‘no’ was not a word in my vocabulary. I knew nothing about budgets or boards of directors and I didn’t want to hear about it. I laugh at my naivete back then. But I guess my bullish ambition is what drove me to keep pushing so hard.”

Some people say Mottola’s bullish ambition drove him to push his own boss right out the door.

Yetnikoff has privately long blamed Mottola for stabbing him in the back and orchestrating a coup to steal his job.

Mottola denies the allegation. It was well known in the industry, he says, that Yetnikoff, after a long battle with substance abuse, had aggravated a number of top artists as well as senior Sony executives before he was forced out by Sony’s top brass in September of 1990.

“I was the guy who took the hit, and I still feel terrible about the way this whole thing has been represented in the press,” Mottola says. “I used to be Walter’s closest friend. The man was terrific to me. I tried to reach out to save him. . . . But as everybody who was around then knows, there came a point where he just spun completely out of control.”

In an interview last week, Yetnikoff declined to discuss the circumstances surrounding his ousting, but said: “The whole thing is irrelevant to me. I am now engaged in bringing to fruition much more important projects than dealing with past history.”

Mottola also took a lot of heat early on for his relationship with pop diva Mariah Carey, whom he discovered in 1988.

Critics had a field day when the executive became romantically involved with Carey in 1990, divorced his wife and married the budding star. The 26-year-old singer has since sold more than 80 million albums around the world.

There are still some who credit Carey’s swift rise to Mottola’s power, claiming he spent a disproportionate amount of time and money developing his wife’s career, at the expense of other acts on the roster.

Mottola scoffs at the notion, and a number of his competitors who were interviewed for this story, including entertainment impresario David Geffen, side with Mottola and think it’s time that Carey be given her due as an artist.

“Mariah Carey would be a huge star no matter what label she was on,” Geffen says. “The fact that she is married to Tommy is just a coincidence. He deserves credit for signing her. She turned out to be one of the biggest record sellers in the world. His belief in her was right on the money.”

Carey wasn’t the only bet that paid off.

Patient development of Pearl Jam, Rage Against the Machine and other new acts have helped bolster Sony’s credibility in the rock market. Fledgling singers Patty Loveless, Des’ree and Dion also broadened Sony’s presence in country, R&B; and pop.

The Fugees and Bone Thugs-N-Harmony put Sony back on the map in the rap world, silencing critics who snickered two years ago after Mottola cut ties with rap label Def Jam Records--a move that cost Sony almost 2% in market share.

Competitors say Mottola’s unwavering loyalty to his team has served him well.

Mottola stood behind embattled Columbia chief Ienner during a protracted dry spell, allowing Ienner the time to transform such unknown acts as Dog’s Eye View, Stabbing Westward and Presidents of the United States into big sellers.

Instead of trying to boost market share by purchasing an existing firm, Mottola decided to launch his own boutique label named Work. With former Virgin Records executives Jeff Ayeroff and Jordan Harris at the helm, Work is already turning heads with new acts such as Fiona Apple.

Epic Records, which eight years ago was viewed as little more than a marketing department for Michael Jackson, has been transformed into a diverse powerhouse with hits by Pearl Jam, Rage Against the Machine, Oasis and Korn. Glew beefed up the company’s rock and pop roster with help from advisors Richard Griffiths and Polly Anthony. Epic also set new standards for how to market film music, thanks to soundtrack ace Glen Brunman, who had breakthrough hits with “Sleepless in Seattle” and “Forrest Gump.”

Still, Sony Music’s 14.93% domestic market share is down 2% from where it stood in 1992--as is industry leader Warner Music’s. Critics say Mottola continues to write far too many multimillion-dollar checks to lure acts such as Offspring and pacify stars such as Springsteen. And there have been several defections in recent months, including pop singer George Michael and talent ace Michael Goldstone, both of whom jumped to DreamWorks.

There were questions about whether Mottola and his team would survive the industry’s recent rash of boardroom shake-ups after Idei ousted former Sony Music CEO Michael Schulhof. But Idei, who credits Mottola with transforming Sony Music into the Japanese corporation’s largest entertainment profit center, gave the team a vote of confidence and negotiated new five-year deals for Mottola and his top advisors.

Several competitors also give Mottola high marks as a global record chief. Even some of his old critics say he has done a commendable job streamlining Sony and has developed into a strong leader adept at delegating power.

“It’s not easy to run a giant record conglomerate,” says MCA Music Entertainment Chairman Doug Morris. “There are a million creative and financial decisions to make. It’s not like selling tires. Musical tastes change. Companies go through tough periods. Tommy didn’t know one thing about operating a corporation when he started. Now he’s one of the most savvy record guys out there.”

Having been through several cyclical sales dips already, Mottola says he is cautious about the future. The entire music industry, he says, is plagued by trouble in the domestic retail market.

Indeed, sales in this country--which account for only 30% of the industry’s annual take--were virtually flat last year. But analysts are optimistic that markets will soon begin to open up in Asia, Eastern Europe and South America, where Mottola says he hopes Sony will lead the charge.

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Mottola believes his team has succeeded in creating a new culture at Sony--one that attracts both artists and executives he hopes will help him attain his goal of global domination during the next century.

“When people talk about success, I always think of Mo and Ahmet and Jac--and [Arista Records founder] Clive Davis too,” Mottola says. “Those guys were the pioneers who built this industry, and no one coming up now will ever be able to touch what they did.

“But it’s a different world now. And guys like me, guys who run these giant global corporations, we have a different role in the business. I only hope that I can carry on somewhat in the tradition they started. My goal is to run a profitable music company with a strong team of people who provide continuity and a feeling of comfort for the artists. With an agenda like that, we can’t help but win.”

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Chart Topper

Sony Music is on a roll, dominating the nation’s pop charts last week with five albums in the top 10. Sony just signed top punk act Offspring and is cashing in on a fresh crop of acclaimed newcomers such as Pearl Jam, the Fugees and Rage Against the Machine. Despite its current hot streak, Sony still ranks second among the six major record conglomerates:

Total albums, estimated market share to date: 1996:

Warner Music: 22.6%

Combined independent labels: 21.6%

Sony: 14.9%

PolyGram: 13.4%

Bertelsmann: 10.3%

EMI: 9.9%

MCA: 7.5%

Global estimated profitability

(In millions of dollars)

1996: $650 million (projected)

Source: Music industry sources

Global revenue

(In millions of dollars)

1996: $5.90 billion (projected)

Source: Sony Music