Levy Sounds Off on Legacy at PolyGram

Philips Electronics stunned the entertainment world in May, when the Dutch conglomerate decided to sell PolyGram--the world’s largest music company and home to such popular acts as Hanson, Sheryl Crow and U2--to Seagram Co. for $10.4 billion.

But nobody was more surprised than PolyGram’s then-chief Alain Levy, who had been kept in the dark before discovering that Philips, 75% owner of PolyGram, was in talks to sell the company out from under him.

Levy quit the company last week with an estimated $10-million buyout following a month of tense negotiations in which he had accused Philips of breaching his contract by initiating the sale talks without him. At the same time Levy was being encouraged to develop future strategies for PolyGram, sources say, Philips was in talks with Seagram.

Levy, a former record producer who joined PolyGram as head of its French music operation in 1984 and took over as chief of the entire global group in 1991, is credited with transforming the once-quiet classical music company into a major competitor in the pop arena. He convinced PolyGram to invest more than $1 billion over the last decade to acquire a handful of prominent U.S. labels, including A&M;, Island, Motown and 60% of Def Jam.

The 51-year-old French executive also pushed PolyGram into the movie business, investing another $1 billion in production companies and a distribution network. On Levy’s watch, the value of PolyGram’s stock nearly quadrupled--from $16 to $57 per share, the price that Seagram has offered to pay in the tentative deal.

In his first interview since Philips announced its intention to sell PolyGram, Levy spoke by phone from his London home about his abrupt exit from the company and the problems executives face in the global music business.

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Times: Do you feel like Philips stabbed you in the back?

Levy: I didn’t like the way things happened. I really don’t want to discuss the details. In a capitalistic system, when you have a 75% shareholder, he can do what he wants with his share holdings. In the end, I just had to respect that. I’m not bitter--contrary to what you read in the papers. Sure, I was angry, but that anger is gone. I will not forget the experience and what it does. But for me, the past is the past. It’s over now. I want to move on.

Times: Sources say you had a phone conversation last month with EMI Group Chairman Colin Southgate and spoke at a party out here with Warner Music Group co-chairs Bob Daly and Terry Semel. Have those conversations led to any serious job offers?

Levy: I’ve had very preliminary discussions, on a very informal basis, with a number of parties--including some investment managers who want to put money in my hand. But for the time being, I really want to have a better idea of what I want to do with my life. I’ve had a fairly traumatic experience. You don’t immediately start dating after you have had a bad divorce. Besides, I’ve been working 15 hours a day since I was 10 years old. I want to take some time out to reflect.

Times: How has the industry changed since you orchestrated PolyGram’s expansion into the music business in the late ‘80s?

Levy: The compact disc boom--which was almost like a drug for the industry--is over. Conditions have gone back to the way they were in the late ‘70s, where there was no new technological advance to drive buyers into the stores to renew catalog. Plus, there has been a freezing of an entire generation of superstars with no new superstars reemerging to replace them. That makes the business less stable and more unpredictable. Where you used to break one or two acts, now you break five or six.

And what’s worrying for the shareholder is that the follow-up by a new act may never make it. Another big change is that local repertoire in other countries has become much stronger, making the exportation of American repertoire somewhat of a losing proposition. Now you need both.

Times: PolyGram generated about $750 million in cash flow last year, but you failed to make quarterly forecasts. Is it unrealistic for corporations to expect hit-driven companies like record labels to report on a quarterly basis?

Levy: Entertainment companies are creative companies and when they are required to report on a quarterly basis, you end up being forced to make wrong decisions. Corporations with parks and stores and movie divisions, as well as music, can spread out the damage easier, but basically, the two objectives--creativity and quarterly reports--are totally incompatible.

Times: Were you forced to make wrong decisions?

Levy: I’m guilty of more than that. I’m guilty of putting pressure on the real creative people: the artist, the A&R; person [executives who find and sign new talent] and the head of label. I’m guilty of it and I’m sure other people in the same position as I was do it all the time.

What happens is you need a specific album by June 30 to make your numbers--even though you can’t possibly set that album up properly. At first you say that you’re not going to do it. But then you end up doing it. It’s so contrary to how I was raised. I was raised with total respect for artists and the creative process. Back in the ‘70s, . . . it took a year or two to break an artist. It wasn’t done on a quarterly basis, believe me.

Times: You’ve been criticized for overpaying for such independent U.S. labels as A&M;, Island and Motown. Did you?

Levy: No. We did not overpay. What people do not look at is the worldwide picture. These labels did not have foreign distribution. The distributor makes an additional $3 or $4 on a record when it’s sold foreign. When you factor that into the price, we nearly doubled the value of the labels. The acquisitions also helped position PolyGram and improve its image. It took us from a company that basically had Def Leppard and Bon Jovi to a company with an absolutely enormous artist roster. But I’m the first one to admit that we didn’t reach the market share I wanted to achieve in the U.S.

Times: Why not?

Levy: Because I operated by trial and error and I made some errors. I had no management team in the U.S. when I took over. It takes time. The target was 15% market share and I think we could have achieved it. But I admit, it took longer than I expected. It’s a very difficult, unique market and there are very few executives who can be label presidents.

Times: You’ve been criticized for hiring and firing Andre Harrell, who spent lots of money but failed to score a hit during his two-year tenure as head of Motown Records.

Levy: Andre Harrell was a mistake. He was a great A&R; man, but I overreached and put him into a position he probably couldn’t cope with. . . . I was accused by some people of keeping him too long and by other people for not giving him enough time to prove himself. . . . Andre was a big gamble. I lost.

Times: You’ve been accused of driving out the founders of labels that you purchased by interfering with guys like Island’s Chris Blackwell. What do you think about that?

Levy: I think it’s unfair. It’s very difficult for an entrepreneur to sell their business and not want to run the company as if they had not sold it--and in some cases that raises conflicts. The shareholder paid a certain value and the only way that value is going to be realized is by integrating the backdoor services of the company into the mainstream--and that creates pressures. People tend to forget that Chris and I worked together great for six years. Then we had a very serious difference of strategy. He wanted to go into various businesses where I didn’t want to go. I am responsible to my shareholders, the same shareholders that were financing Chris. I had a duty to say no to him, so I said no. But I have the greatest respect for the guy.

Times: How did you feel when Def Jam founder Russell Simmons began attacking your management style this year in the media?

Levy: Russell is a difficult guy. Before he criticized me, he used to go after [Sony Music chief] Tommy Mottola. Russell has made a career out of being a malcontent. He wanted me to go into a clothing line and I didn’t want to finance it.

My job isn’t always to say yes. Saying no is part of my job. People that say yes all the time end up being bankrupt. You have to walk a fine line between trying to help people realize their vision and stopping people from destroying the values in their company. When I read that I can be difficult and so on, it comes mostly from people I have fired or who have left the company.

Times: You’ve been described as difficult and aloof in the press for years. Last week, the Wall Street Journal called you “prickly.” What do you think of that kind of reputation?

Levy: I really believe it’s an unfair reputation. I believe that being French and having a French accent, I’m seen somewhat as a foreigner--and there is some resentment about a foreigner being in the position that I was in.

Times: What do people misunderstand about your nature?

Levy: What people misunderstand is the loyalty that I had on both sides with a team of about 20 to 30 executives around the world who built that company. There was a lot of mutual respect and friendship in our team. God knows, we used to scream at each other, but I let them have a lot of autonomy. I think I helped create an environment for people to grow in, whether they were in New York or in Tokyo. I respected them and they respected me. I gave the spirit to the company.

Times: What do you consider to be your most important accomplishments?

Levy: Building a team of people that made PolyGram the No. 1 music company in the world. Over the years, I changed almost all of the managing directors and built a multicultural team of people who shared the same values. At other corporations, there is typically a U.S. operation and a head of international. Our approach at PolyGram was unique in that all of the regions were on equal footing with the U.S.

That sent a clear signal to the organization that music was music, whatever culture it came from. Our local directors weren’t treated like marketeers of English-speaking product. They were asked to push local repertoire, so they acted more like entrepreneurs. This is what helped PolyGram to become an important force in local repertoire early on. And that’s a big reason why we were No. 1.

Times: PolyGram’s film division released a number of critically acclaimed movies, but never turned a profit. Is it disappointing to watch your dream of building a major studio disappear before you could complete it?

Levy: Yeah, I’m disappointed, but maybe the story will go on. We really were very close to building a major studio--or at least the equivalent of a major studio, in terms of output. We were just a couple of years away. But we didn’t have a chance to finish our plan.

Times: You spent 14 years of your life building PolyGram into the No. 1 record company in the world before they sold it out from under you. Do you have regrets?

Levy: No. I think it’s very pretentious to think that you’re totally in control of your life. And obviously I learned that I was not. Something which I had not foreseen happened.

I think I did a good job at PolyGram. I just want to have what I built . . . to be respected. I don’t really have any regrets. A lot of people in the company come to me and say, “I’m sorry.” But frankly, I’m more sorry for them. At least I know what I will not be doing. They don’t know what’s going to happen to them in the next six months.