The Calm Amid the EMI Storm

Over the last four months, British music giant EMI Group has shut down two of its New York record labels, overhauled the West Coast office of its Virgin Records division and fired about 150 employees, including most of its top U.S. executives.

The reorganization and cost-cutting have renewed industry speculation that EMI is dressing itself up for sale to one of the large entertainment conglomerates. The rumors flared up again last week when EMI Group Chief Colin Southgate met in Los Angeles for breakfast with Frank Biondi, chief of Seagram-owned Universal Studios. High-level sources at both companies, however, deny that any talks regarding a purchase or merger are taking place.

The turmoil at EMI has raised questions about the fate of West Hollywood-based Capitol Records--the only American label in the EMI empire left unscathed.

Capitol, home to such acts as the Beatles and the Beach Boys, still remains housed in its landmark tower overlooking Sunset Boulevard. But much has changed since EMI hired talent scout Gary Gersh four years ago to rejuvenate the languishing label, whose past management had been criticized for relying too heavily on old catalog.

The management team that hired Gersh has been fired, and much of the previous regime’s plan to expand EMI’s North American operation has been gutted by Ken Berry, the architect behind EMI’s recent shake-up, which included the abrupt departure this week of Virgin Records President Phil Quartararo.

Although Capitol’s 41-year-old president and CEO has yet to deliver a blockbuster hit, Berry says Gersh’s future is secure.

“I think Capitol is in good shape and Gary is doing a great job,” Berry said in an interview this week. “It’s not easy running a record company. Gary didn’t inherit a particularly strong artist roster when he took over, and he’s had his work cut out for him. But I think he’s right on track and is building a quality artist roster at Capitol.”

Capitol, whose domestic market share is still hovering at a meager 2.5%, has just six albums on the Billboard pop chart this week, including collections from pop singer Meredith Brooks, metal band Megadeth, rock acts Radiohead and the Foo Fighters, and the triple-platinum soundtrack from the film “Romeo and Juliet.” Revenue at Capitol in 1997 is projected at about $250 million, including catalog sales, sources said.

Gersh has yet to score a commercial breakthrough a la Hanson or the Spice Girls, but his new team of talent scouts has succeeded in putting Capitol on the map in the signing wars for cutting-edge rock and pop acts. Indeed, such notable artists as Vic Chesnutt, Roseanne Cash, Everclear, Jeb Loy Nichols, Paul Westerberg, Butthole Surfers and the Jesus Lizard have joined the Capitol roster on Gersh’s watch.

In addition, Gersh has also negotiated label deals with the Beastie Boys’ Grand Royal, Glen Ballard’s Java, Matador and Miramax to put together, market and distribute soundtracks to their films.

“It’s true that we haven’t had that one giant, shining star of great commercial success yet,” Gersh said. “But we’re building something here and we intend to just keep our heads down and keep working until our moment arrives.

“Honestly, I had no idea how complicated this job was going to be when I took it. Capitol is like this huge steamship. You can’t just turn it on a dime and take off in the direction you want to go. We had to rebuild everything. It took so much more time to get this thing going than I would have ever imagined.”

Gersh, who got his start 26 years ago as a clerk at a hip Los Angeles record store called Licorice Pizza, is regarded in music industry circles as a talent-friendly executive with sharp creative instincts. He landed his first record company job in 1975 at Capitol as a customer service representative who put up posters and counted albums at retail accounts.

After working a series of jobs in sales, distribution and promotion, Gersh was hired as an artist-and-repertoire man during the late 1970s at EMI America, where he signed such hit acts as David Bowie, the Stray Cats, Kim Carnes and John Waite. By 1985, he had joined Geffen Records, where he went on to sign and work with some of the hottest rock and pop acts in recent history, including Nirvana, Hole and the Counting Crows.

Four years ago, Charles Koppelman, former head of EMI’s North American division, fired Capitol’s veteran management and took a chance on Gersh. While critics questioned whether a rock talent scout had the skills to run a label with a rich legacy in black music, Koppelman said he believed Gersh could jump-start Capitol and quickly restore its credibility as a creative force on the West Coast.

During his first year at Capitol, Gersh axed dozens of employees and recording acts from the payroll. He implemented changes in the marketing and accounting sectors and hired a respected team of talent agents, including Dave Ayers and Perry Watts-Russell.

Although Gersh is regarded as an industrious executive who has excellent relationships with acts, critics contend that he is still lacking in business acumen. Indeed, he shocked the record industry several years ago when he succumbed to EMI’s order to shut down the black music division at Capitol, once home to Nat King Cole. At the time, Capitol’s black music sector was drowning in red ink, sources said.

Gersh now acknowledges that closing the black division was a mistake. He declined to comment about whether Capitol is close to finalizing a deal to align itself with rap powerhouse Priority Records, but he said rejuvenating Capitol’s black music department is a top priority under the new EMI regime.

Gersh, whose contract runs out in March, also declined to discuss rumors that he has been wooed in recent months to take a post at such rivals as Walt Disney Co. “I started my career at Capitol,” he said. “I love it here.” Berry says he intends to renew Gersh’s contract next year.

It is unclear how Berry plans to address cost inefficiencies at Capitol’s Nashville division and its new EMI Capitol Entertainment Properties catalog division--each of which was broken off from Capitol by the former management team.

Berry, who was promoted from head of EMI’s international sector to oversee all of EMI’s North American labels, is regarded as the heir apparent to take over EMI when Chairman James Fifield steps down, which sources say is likely to happen sometime next year. The 45-year-old executive joined Virgin in 1972 and rose up through the ranks to take charge of Virgin’s international record company when EMI purchased it in 1992.

In his first move as president of EMI Recorded Music, Berry in May fired the management team that hired Gersh, closed EMI’s New York corporate office and shut down its sluggish Enclave and EMI Records labels. On Monday, Berry revamped Virgin Records in Beverly Hills and replaced Quartararo, longtime president of the label, with the executive team of Ray Cooper and Ashley Newton, co-managing directors of Virgin’s British division.

In addition, Berry promoted his 38-year-old wife, Nancy Berry, to vice chair of Virgin Records America and Virgin Music Group Worldwide. Nancy Berry, formerly the executive vice president of Virgin Music Group Worldwide, has been with the company since 1978 and is credited with creating successful global campaigns for such superstars as Janet Jackson, the Rolling Stones and George Michael.

Ken Berry says he plans to consolidate EMI’s North American division into two strong music groups, Virgin and Capitol, which he hopes will deliver hit music to feed EMI’s growing global machine.

Gersh believes his company is up to the task.

“It took awhile for us to turn the corner,” Gersh said. “You know it’s funny--David Geffen told me when I left his company that I was an idiot if I thought I could turn Capitol around in less than four or five years. But you know, you walk into a job like this thinking well, I’m a little bit younger and a little bit faster. But you know what? It just doesn’t happen that way. You can’t create a culture overnight. It takes time to grow it.”