Discord Echoes in Industry

Two months ago, pop music trio Dreams Come True did something few Japanese musical groups have ever done. It dumped its record company.

And Dreams Come True wasn’t just any act. It is the most popular pop group in Japan, a superstar that has sold more than 22 million albums for home-grown giant Sony Corp. That number puts it in an elite category shared with only a few dozen superstars internationally.

Dreams Come True signed with foreign competitor Virgin Records. The trio’s exit sent shock waves through Sony Music Entertainment Japan, the Tokyo-based record unit of Sony Corp. that has dominated the Japanese music business for decades, and temporarily caused stock prices at the record company to tumble nearly 10%.

As sales level off in the United States, the largest market in the $39.8-billion global music business, the faster-growing international markets have become increasingly important to the world’s six dominant music companies. The battle for talent is getting fiercer in such growth areas as Asia--where competitors have begun to employ cutthroat tactics imported from the United States.

When Sony learned that its top act had joined a British competitor, the Japanese company rushed out an unauthorized greatest-hits compilation of the trio’s music. That collection came out Wednesday--just six weeks before the band’s Virgin debut, “Sing or Die,” is scheduled to appear in Tokyo stores.

“It is obvious that Sony is pulling out the heavy artillery to hurt Dreams Come True,” a source close to the trio said this week in a translated phone interview from Tokyo. “This kind of vindictive behavior is unusual in the Japanese record industry. There is no doubt that by rushing this album out, Sony is trying to injure the career of the very act that used to be its best-selling star.”

The members of Dreams Come True were infuriated that Sony released the greatest-hits package without asking for their input about album artwork or song selection--an action they see as a violation of their Sony contract, sources said. The trio responded by filing for an injunction in Toyko District Court to force Sony to recall the recording--an unprecedented move in Japan that required the trio to deposit $2.5 million in advance with the court.

It is unclear when the court will rule on the matter. Three years ago in the U.S., the Eagles won an injunction against their former record company, Elektra Entertainment, to stop the release of a greatest-hits collection that the rock group thought would cannibalize sales of its then-current Geffen release, “Hell Freezes Over.”

Sony Music Entertainment Japan denied Thursday that the company was trying to hurt sales of Dreams Come True’s Virgin debut. The release of the compilation this week, a spokesman said, was permitted under its contract with the trio.

“We strongly believe that the best-of album we released presents a good opportunity to appeal to the fans,” Sony Music Japan spokesman Shigeto Saito said in a written response to questions. “This release will lead people to pay more attention to Dreams Come True and give a good effect on album sales of Virgin.”

Sony Music Entertainment Japan is the leading record company in Japan, accounting for nearly 23% of all recordings sold. The label operates independently of Sony Music Entertainment in New York and is listed separately on the Tokyo stock exchange from parent Sony Corp., which owns 71% of it.

Dreams Come True has sold 22 million albums and 12 million singles since 1989 for Sony Music Japan, representing an estimated 6% of the company’s total record sales over the last five years, sources said. This week, the company announced that its first-half net profit will be 17% better than previously forecast--thanks primarily to an estimated $53 million windfall expected to be generated from the surprise Dreams Come True greatest-hits release.

The album was not budgeted in Sony Music Japan’s initial projection because the company’s management had not expected to release it, sources said. Although Dreams Come True’s contract ran out last October, sources say Sony assumed that Dreams Come True would re-sign and deliver another album of new material, which the company projected would sell fewer copies than the greatest-hits collection.

After its contract expired, Dreams Come True became the target of a heated bidding war among the world’s six music giants: PolyGram, EMI Music, Bertelsmann, Time Warner, Universal and Sony, sources said. EMI’s Virgin label won out, luring Dreams Come True away from Sony with a multimillion-dollar deal that included a promise to aggressively market the group’s music outside of Japan--particularly in the United States.

“Dreams Come True wanted a chance to make it outside of the Japanese market, and they felt Sony was not taking them seriously,” said Ken Berry, chairman of EMI Recorded Music and Virgin Records Worldwide. “These are tremendous artists who write terrific songs. I believe this group has what it takes to translate their success throughout Southeast Asia--and possibly even in America.”

Over the last decade, the multinational conglomerates have grown increasingly more efficient at exploiting music globally by coordinating marketing campaigns for superstar acts with common advertising and video and packaging all over the world.

The U.S. portion of the world record pie, long the industry’s largest profit center, has fallen from 34% in 1986 to 31% in 1996 and is expected to shrink to 25% before the turn of the century.

But the reason isn’t just that Americans aren’t buying as many records; it’s that new world markets are opening so quickly--and the record companies are devoting much of their resources to targeting those new markets.

More than half of the $26 billion that the industry earned last year outside the United States can be attributed to the sale of albums by American and English-speaking artists, according to the London-based International Federation of the Phonographic Industry.

As the conglomerates continue to try to penetrate new global markets with English-speaking repertoire, the demand for indigenous music is exploding in dozens of countries. Last year, nearly 70% of the world’s music growth was generated in less developed markets--particularly from Latin America and Asia.

“The explosion of international talent has really kicked in the last couple of years,” said Richard Sweret, senior vice president of international artist & repertoire for Bertelsmann Music Group. “It’s a global market, and the competition for regional talent is fierce. The fight for Dreams Come True is a good example of how things have changed recently. Every major corporation was after them.

“Scoring local success with a regional act is paramount, but the goal these days is much bigger than that,” said Sweret, who signed German superstar Ace of Base, whose recent album sold 15 million copies internationally. “‘The hope now is to eventually break the act outside of their home in other regions of the world. The goal now is global success.”

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World’s Music

The United States is still the largest music market in the world, but as sales have flattened out, companies have been battling more fiercely for top acts in other countries.

Top Markets

Percentage of worldwide sales in 1996:

United States: 31%

Japan: 17%

Germany: 8%

Britain: 7%

France: 6%

Brazil: 4%

Canada: 2%

Australia: 2%

Netherlands: 2%

Italy: 2%

*

Total Revenue

Worldwide value of retail sales, in billions:

‘96: $39.8

Source: International Federation of the Phonographic Industry