Music Now Calls Tune at Seagram, Says Bronfman

Seagram Co. emerged last week as the world’s music superpower after its announcement that it would acquire PolyGram for a whopping $10.6 billion--an unprecedented deal in music business history that required more than a year of intense back-room analysis and negotiations.

The tentative deal to buy PolyGram from Dutch electronics giant Philips is being billed by analysts and rival executives as a shrewd move. If Seagram’s Universal Music Group and PolyGram were counted as one company, they would dominate this week’s music rankings, having the No. 1 album in the nation, by Def Jam rapper DMX, and two other titles in the top 10--by Rockland/ Interscope R&B; singer Sparkle and Universal rapper Eightball--as well as dozens of other pop, rock and country acts listed on the upcoming Billboard top 200 chart. In all, they would account for nearly 25% of records sold last week in the U.S.

The deal arguably would make Seagram’s 43-year-old chief executive, Edgar Bronfman Jr., the most powerful figure in the $40-billion global music business.

A lyricist who co-wrote pop star Celine Dion’s current single, “To Love You More”--under the pseudonym Junior Miles--Bronfman is the antithesis of the corporate suits that have overseen the record industry for the last decade, and he views music as the most critical piece of Seagram’s entertainment strategy.

Bronfman got his family’s liquor company into the entertainment business in 1995 when he engineered the purchase of MCA Inc. (since renamed Universal Studios Inc.). Criticized lately for having an unfocused entertainment strategy, he rebounded with last week’s deal with PolyGram, which is home to such stars as Hanson and Shania Twain. He recently terminated two years of talks to buy British music giant EMI.

While Seagram has yet to work out who would oversee the combined Universal/PolyGram entity, Bronfman told The Times in his first expansive interview since announcing the deal that the corporation’s new music hierarchy will be determined before the end of June.

What is clear is that the entire music division, now run by Doug Morris, will report to Universal Chairman Frank Biondi Jr. and Universal President Ron Meyer. Bronfman sought to quash rumors that Biondi’s future is uncertain. That speculation began last year when Bronfman cut a deal to turn over most of Universal’s TV assets to Barry Diller in a transaction the two men initially hatched without Biondi’s knowledge.

Bronfman and Biondi, 52, were interviewed by phone.

Times: Until just a few weeks ago, everybody thought Seagram was set to buy British music giant EMI. Then out of the blue, you snapped up PolyGram. Exactly how did you pull this deal off?

Bronfman: It started a little over a year ago when I put in a call to [Philips Chief Executive] Cor Boonstra. In March of 1997, I met in New York with Cor and [PolyGram head] Alain Levy and basically said, “Look, these two businesses belong together, and if you ever feel like you want to explore that opportunity, we’re ready, willing and waiting.”

Boonstra and I kept in touch more through letter-writing than anything else over the course of last year, and then in January he called me. We met in New York in February and things started to slowly accelerate after that. We sat down about 10 days after the Philips meeting in April and discussed this in earnest. But meanwhile, for more than a year, under Frank, we had been internally studying this company as exhaustively as we could.

Biondi: Yeah, we studied PolyGram and EMI and the industry as a whole. The big question for us underlying the obvious benefits of foreign distribution, globalization and the inherent good economics of the music business were two things: What does digital mean and what is theft?

The music business is not a business [in which] there is a lot of expertise in the investment banking or consulting community. So an enormous amount of this work was done by the Universal staff and the Seagram staff working with them. And most of it--until the very end--was done out on the West Coast. This is about as good a piece of work analytically as I’ve ever been involved with. It was meticulously thought out, and the way it was handled in terms of execution was pretty remarkable. Tactically, we had the good fortune to have two potential sellers in the marketplace and only one potential buyer.

Times: What are the three best things about being in the music business?

Bronfman: It’s a tremendous economic business. It provides high cash flows with little capital. You’ve got a great return-on-capital business. You’ve got a great creative business. And you’ve got what I think is the exponential upside of the digitization of the world. Music is digital information, and a business which is now in a couple of hundred thousand retail outlets around the world is going to ultimately be in hundreds of millions of outlets around the world when people download directly into the home. And that’s going to happen. There is only a moment in time when assets like this are available. So we had to buy it well enough to make sure that we could continue to grow this business, whether that happens five years from now or 10 years from now or sometime in between.

Biondi: The economics of the music business are the best economics of any entertainment business. In three words: It’s geography, technology and demography.

Times: In the future, independents believe, artists will be able to make records in their homes and bypass the traditional manufacturing and distribution infrastructure by downloading their music directly to fans. Do you have any fears that digitization will make record companies obsolete?

Biondi: Ultimately there is a kernel of truth to what they say. In fact, as you are well aware, independents do quite well--and digitization will certainly not make their life more difficult. The fact is there will be an independent world and it may even be more vibrant, but it’s not going to dramatically change the music world as we know it.

Bronfman: We modeled that out very carefully--and we really think that there will continue to be a seminal role for the record companies in the digital future.

Times: I’m curious as to who some of your own musical heroes are.

Bronfman: My musical heroes vary. In one sense, [Motown founder] Berry Gordy, because he was a writer, he was an executive, he had an ear for talent and he built a great business. In terms of the people I have always listened to, I love the writers: James Taylor, Billy Joel, Stevie Wonder, Paul Simon and particularly Elton John. One of my favorite albums now is the Wallflowers, for the same kind of reasons. He is a great singer-songwriter. And I love a lot of R&B.; I love the new Sparkle album and I loved “No Diggity” by Blackstreet.

Biondi: I grew up in the ‘50s and ‘60s with Elvis and Motown and the Beatles. At home I play Carole King and Motown’s greatest hits.

Times: Edgar, you have written some lyrics over the years. How serious do you take songwriting? Bronfman: I really don’t have a lot of time. The little that I get to do, I try and do it well. Having said that, Stephen Sondheim is significantly more talented than I am. And while that is disappointing to me, it doesn’t keep me from writing.

Times: You co-wrote Celine Dion’s new Sony Music single, “To Love You More.” It’s hard to imagine Time Warner chief Gerald Levin or the head of Bertelsmann or Sony writing a song that would be played on the radio right now.

Bronfman: Well, I’ll tell you what I think the advantage is. The music business is now going to be the most important business to us--which it’s not to most of the other companies that are running large entertainment businesses, with the exception of EMI. And Seagram has corporate management that loves music, loves the music business and loves the creativity of the music business. I think that’s a good place for a music company to be.

Times: Before you took over, MCA was so lackluster, it was derided in industry circles as the Music Cemetery of America. It took guts to try to turn a firm with a reputation like that into the No.1 record company in the world.

Bronfman: What it took was a lot of talented management. We were very fortunate that Doug Morris became available when he did. Through Doug, we built an almost entirely new music management team, with the exception of Nashville, which is outstanding. Doug was very much a part of the Interscope acquisition. I’m very proud that whether we made the PolyGram acquisition or not that MCA will never be the Music Cemetery of America again.

Times: There has been speculation in the media that your family does not share your desire to turn Seagram into an entertainment giant. How much grief did your Uncle Charles give you about the PolyGram transaction?

Bronfman: The bottom line is that nothing of significance happens at Seagram unless my father, my uncle and I agree. It was much more difficult to get my uncle to agree to the original MCA/Universal transaction. He definitely was concerned about the Universal investment. But having made that investment, he clearly saw the wisdom of this investment. Here, he held our feet to the fire to make sure that the analysis was correct and defensible--as any board member should. But he was an enthusiastic supporter of this transaction.

Times: What about speculation out there that you plan to spin off the spirits company?

Bronfman: No, it’s not going to happen.

Times: Ever?

Bronfman: Well, I’m not in the business of saying “ever.” But we have no plans to do it. Zero. None. If I’m 84 years old, I don’t want to be told that I once promised never to do it. We think the business can grow, will grow. It’s a very strong cash contributor. We can use that cash to either build it or our entertainment business. But what we do have now is a coherent company where 75% of our business is entertainment and then we have this very strong cash flow every year from our spirits business.

Times: Edgar, there has been a lot of industry talk about you cutting Frank out of some key deal-making decisions at Universal, particularly the Seagram-Diller TV pact. Would you explain Frank’s role in the PolyGram deal?

Bronfman: The Diller deal was a little bit like that George Bush story when he didn’t know what a [universal price code] was in the Florida supermarket. It never happened. But you know it made the front page of the New York Times and was therefore considered to be the truth--despite the fact that it never happened. Well, the same is true with the Diller deal. To say that Frank was left out of the deal is just simply untrue, but this thing apparently has a life of its own.

The fact is that this PolyGram deal went down with Frank very much involved. Frank and I sat in together at 25 or 30 different meetings about music over the last year plus--including probably four or five board presentations.

Times: You’ve caught a lot of flak recently in the press for your entertainment strategies. What’s the thing that disturbs you most about recent negative media coverage of you and Seagram?

Bronfman: You know what? I can’t tell you that I like the coverage, but my life is not about coverage--good or bad. To be honest with you, the press has been very kind to us this week and it’s been very unkind to us in weeks previous--which I think goes to show you that you can’t pay attention to the good or the bad. Because we’re not that much smarter this week than we were last week, and we weren’t as stupid as they thought we were last week. I just don’t think you can spend your time paying attention to all the media coverage. I think Winston Churchill had the best line of all [about coverage]. He said, “It’s difficult to look up to leaders who keep their ears to the ground.”