Interscope Emerges as Star Act for Seagram

Last week marked the one-year anniversary of Seagram’s $10.4-billion purchase of PolyGram, which created the world’s biggest record company and triggered the most brutal restructuring in the industry’s history.

In Los Angeles alone, more than 100 artists and 300 employees got the ax as Seagram collapsed the anemic Geffen and A&M; labels into Interscope Records, the controversial Westwood-based company founded by record producer Jimmy Iovine and financier Ted Field.

The messy task of executing the firings fell primarily to Tom Whalley, Interscope’s press-shy president who landed his own job after being fired 10 years ago during a shake-up at a competing music firm.

“The process of closing the companies was a brutal thing. Horrible. Something I never want to go through again,” Whalley said in his first-ever newspaper interview. “I know what it feels like to be fired. It’s devastating. That’s why I tried to handle it in as sensitive a way as possible. Did we handle every single situation perfectly? In hindsight, probably not. But we tried extremely hard to be fair. . . . Our goal was to forge something new here. And in that, I believe we totally succeeded.”

A year after the acquisition, Interscope has emerged as Seagram’s top domestic breadwinner, accounting for nearly one-third of the corporation’s whopping 27% share of the U.S. music market, according to SoundScan. Competitors say that the post-merger Interscope Group’s roster contains so many superstars that the label has a virtual stranglehold on radio and MTV.

The new Interscope has done little, however, to shed its image as an irresponsible upstart that profits from the sale of violent and sexually explicit rap and rock. Expletive-laced blockbusters by Eminem, Dr. Dre, Eve and Limp Bizkit were among the hits that have helped the label contribute an estimated $40 million in profit over the last six months to Seagram’s bottom line, sources say.

And though Whalley and his bosses continue to be criticized inside and outside of the corporation for spending too much to promote acts, sources say the label is on track to meet its revenue projections for fiscal 2000. In fact, the post-merger Interscope Group, now named IGA, has sold 30% more albums this year than the three labels (Interscope, Geffen and A&M;) did separately a year ago. IGA ranks as SoundScan’s second best-selling label in the nation, behind Sony’s Columbia Records.

“These guys are tough competitors,” said Columbia Records Chairman Don Ienner. “It seems like we’re always in a fight with Tom trying to sign some act. He’s a real quiet guy, but look at how he runs that company. Just think about how much innovative talent this guy has signed over the years.”

Whalley has been a behind-the-scenes force at Interscope since its 1989 launch, signing some of the company’s biggest hit makers, including Tupac Shakur, Nine Inch Nails, Wallflowers, Limp Bizkit, Four Non Blondes and Smash Mouth. The 47-year-old executive is regarded as one of the most consistent discoverers of talent in the music business and has been involved with recordings that have sold an estimated 30 million copies.

A former schoolteacher, Whalley quit that profession 20 years ago to pursue a career in the music business. He started as clerk in the mail room at Warner Bros. Records and worked his way up to talent scout in the label’s artist and repertoire division, where he worked with such critically acclaimed acts as the Blasters.

During the mid-1980s, Whalley joined Capitol Records, where he ran the talent division and signed such acts as Bonnie Raitt, Poison and Crowded House. On Whalley’s watch, members of his artist and repertoire team also signed the Beastie Boys and Hammer, who ultimately delivered some of the company’s biggest hits.

He was fired in 1989 during a Capitol regime change and had trouble landing a job until Raitt personally thanked him for believing in her during a nationally televised speech at the Grammy Awards show. The next day, Whalley was inundated with job offers--including one from financier Field, who wanted to hire him to discover bands for a new start-up label later to be known as Interscope.

By the time Whalley took the job, Field had already hired black music expert John McClain. Soon after, the trio linked up with Jimmy Iovine, a record producer who had been involved with such acts as John Lennon and Bruce Springsteen. The foursome struggled during their first few years, scoring sporadic hits with such teeny-bopper acts as Marky Mark.

It wasn’t until McClain cut a deal with Death Row Records, a rap label run by Dr. Dre and his partner Marion “Suge” Knight, that Interscope began making any real noise in the music business. Death Row’s gangsta rap quickly generated sales of about 25 million records for Interscope, but also caused tension with affiliate Time Warner after sparking protests from media watchdogs and political figures.

With Death Row on a roll, Interscope also began to dominate the nation’s pop charts with a string of rock and pop hits from Nine Inch Nails, Four Non Blondes and Wallflowers. When Time Warner dumped Interscope following a lyric controversy, the label was instantly scooped up by Seagram’s Universal Music Group. McClain quit the company soon after.

Two years ago, Whalley also threatened to jump ship to run Disney’s Hollywood Records, but stayed and was promoted to president of Interscope. After Seagram purchased PolyGram, Whalley took on a much higher profile in the corporation’s new IGA division.

“The actual, physical undertaking of the merger was extremely difficult emotionally on a human level and a personal level,” Whalley said. “But the transition of moving from what we were to what we are now has gone remarkably smooth. This is a much bigger organization, but we’re still pumping out the hits.”

Not everything is clicking. Much of the music released by Interscope does not sell overseas, where global record conglomerates typically reap their largest profit margins. And although Seagram has exceeded analyst expectations regarding its growth inside the U.S. music market, the company is having less success growing the business in other territories.

Another problem for Interscope is that it has had trouble scoring hits with recent releases by such Geffen and A&M; stalwarts as Hole, Sheryl Crow, Guns N’ Roses, Sting, Bryan Adams, Counting Crows and Beck. Sales of the latest recordings by those acts have been lackluster and some artists have complained privately that their music is getting second-class treatment under the Interscope umbrella. But that would not account for why expensive projects by such Interscope acts as Nine Inch Nails and Marilyn Manson have also bombed recently.

According to Whalley, the music business has changed dramatically over the last three years.

“No matter how big you are, an artist has to treat every record now like they’re starting over,” Whalley said. “It’s a shocking development, but you can no longer assume that radio is going to play it or that fans are going to buy it. You just can’t take anything for granted any more.”

Apparently you can’t even assume that one Seagram-owned label won’t try to steal another Seagram-owned label’s act, as Whalley learned this summer when war broke out between Interscope and Seagram’s Def Jam/Island unit. Sources say Def Jam head Lyor Cohen tried to offer Limp Bizkit leader Fred Durst his own label pact, even though Interscope had a similar deal in the works. Hours before closing the contract, Cohen backed down under orders from corporate executives.

Whalley believes that Seagram and other music corporations need to find new ways to grow the business. “Everybody knows what this business is about: You make hits and you sell records,” Whalley said.

“But everything is changing. Costs are booming and margins are shrinking. Of course, the Internet offers huge opportunities, but nobody has any idea where it will lead. The biggest task facing everybody in this industry is how to come up with new ways to grow this thing.”

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Interscope’s Scope

A year after the PolyGram acquisition, IGA (Interscope, Geffen and A&M;) has emerged as Seagram’s top domestic breadwinner, accounting for nearly one-third of the corporation’s whopping 27% share of the U.S. music market. The label’s roster boasts such stars as Limp Bizkit, Dr. Dre, Sting, Eminem, Sheryl Crow, Beck, Enrique Iglesias, Smash Mouth, Hole, Eve and Counting Crows.

U.S. Market Share

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1998* 1999* Interscope 2.59% 5.49% Geffen 1.41 1.66 A&M; 1.68 0.86 IGA 5.68 8.01

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*As of December

Source: SoundScan