With PolyGram, Universal Would Conquer World Market

Move over Hanson, Shania and Elton. Say hello to Glay, Andrea Bocelli and E o Tchan.

The latter are the top-selling artists in PolyGram’s current catalog in Japan, Europe and Brazil, respectively. And their local success provides an important clue as to why Seagram Co. is so eager to add PolyGram’s music operation (which also includes U.S. and British stars Hanson, Shania Twain and Elton John) to its own Universal Music division.

Music industry observers have long pointed to Universal’s meager presence outside North America as its principal weakness in the recorded music market. This year, Universal’s estimated 3% overseas market share is burying it in last place among the six major record companies in non-North American sales.

By contrast, PolyGram has dominated the same category throughout the 1990s, currently holding a market share of roughly 19%. (Sony currently holds first place overseas on the strength of its “Titanic” movie soundtrack.)

“There’s no comparison,” said Peter Mensch, co-president of the leading artistic management firm, Q-Prime, which represents such globally popular acts as Madonna and Metallica. “PolyGram has been an international player for as long as I can remember--more than 25 years. “Universal has been trying very hard, but before 1994, they didn’t exist [overseas].”

As Universal Studios Chairman and Chief Executive Frank Biondi observed at Thursday’s news conference announcing the PolyGram deal, 75% of PolyGram’s sales have been outside North America, whereas fully two-thirds of Universal’s sales have been within the continent.

A combined company would be catapulted to an undisputed first place overseas, music industry executives say. That is important because markets outside the U.S. now account for nearly 70% of the $40 billion in worldwide record sales--up from about 60% a decade ago.

Some of those markets present the greatest potential for expansion.

“On a global basis, the real potential for growth in unit sales comes from places outside the well-developed markets of the U.S. and the European Community,” said Jay Berman, the incoming chairman of the International Federation of Phonographic Industries, a leading Washington-based trade group.

Whereas mature markets such as the U.S. and Europe remain principally hit-driven, he said, sales in regions such as China are likely to grow explosively as international companies win marketing access to the countries for the first time.

Other observers say it is no longer enough to be able to distribute English-language singers across the globe. The most successful recording companies overseas have been those that have been able to develop local artists, which now handily outsell even the hottest American and British acts.

“The music industry is very different from the movie industry,” observed Rudi Gassner, president and chief executive of BMG Entertainment International, a unit of Germany’s Bertelsmann entertainment conglomerate. “In the movie industry, you can sit in Los Angeles and market for the world. You can’t do that with music.”

Overseas fans are increasingly likely to prefer well-recorded albums by indigenous artists to even top U.S. and British superstars, he added.

PolyGram’s performance exemplifies that trend. Of the company’s five best-selling albums of 1997, two are from home-grown acts overseas--Italian tenor Andrea Bocelli’s pop-operatic mix, “Romanza,” which was a top seller in Germany and France; and a best-of album by Japanese rock group Glay, which has become the top-selling album in Japanese history with 4.5 million sold. (Bocelli’s album ranked among the top 50 in last week’s Billboard 200 list of top-selling pop albums in the U.S.)

Universal--or MCA, as it was known before its 1995 acquisition by Seagram--has long been an also-ran in the global music stakes.

Al Teller, the former chairman of MCA Music Group, said in an interview that he sought to buy Britain-based Virgin Music in 1990 but that the initiative was vetoed by MCA’s then-owner, Japanese conglomerate Matsushita. Virgin was subsequently sold to London-based EMI.

As recently as 1995, Teller had urged Seagram to consider buying EMI, again to strengthen its hand overseas. That deal never took place because Seagram executives considered EMI overpriced. (The two companies ended their long courtship earlier this month, after it became clear that Seagram was pursuing PolyGram.)

Under Teller, who left MCA in 1996, the company tried to build an overseas operation from scratch, opening 10 offices in Europe and Japan starting in 1993 and gradually building up to its current complement of 28. The strategy finally paid off under Teller’s successor, Doug Morris, with the Danish rock group Aqua, whose “Aquarium” LP was a top-10 hit in the U.S. last year.

But for the most part, Universal’s overseas efforts were limited to licensing Bertelsmann Music to manufacture and distribute its recordings outside the U.S. and Britain. That has given Universal artists access to foreign markets but deprived the company of the ability to develop foreign acts of its own.

Times staff writer Chuck Philips contributed to this report.

* RECORD DEAL: Seagram agreed to acquire PolyGram in the biggest music deal ever. A1

* UNCERTAIN FATE: Deal leaves PolyGram CEO Alain Levy’s future up in the air. D5