Virgin Records Bets Big on Carey’s $80-Million Deal

Pop singer Mariah Carey has signed a four-album contract with Virgin Records worth an estimated $80 million, a deal representing a colossal wager on the label’s international marketing machine.

The Virgin deal, announced Tuesday, won out over rival offers from Arista Records and several other labels, sources said. The contract is the first such blockbuster in several years, following a series of mega-deals in the 1990s by stars such as R.E.M., Janet Jackson, Michael Jackson, U2, Aerosmith and the Rolling Stones.

Such mega-deals have fallen out of favor, analysts say, because they failed to deliver the profits hoped for. Indeed, rival executives said they were stunned at the size of Virgin’s offer, suggesting the company would never see a profit.

But in an industry filled with single-hit acts, a superstar like Carey is considered the closest thing to a sure bet. The superstars also provide the companies with leverage in seeking retail space for their other offerings.

The deal comes at a time in the record business when sales are essentially flat, the number of record retailers is shrinking and the Internet is potentially threatening already-thin profit margins.

But competition for market share among the five conglomerates, including Vivendi Universal, remains fierce, and Virgin’s parent, British music giant EMI Group, is behind. EMI, which also includes the Capitol record label, has 11.1% of sales of current albums in the U.S. this year, ranking it fifth, behind AOL Time Warner, according to SoundScan.

For Virgin, the deal is a chance to demonstrate its ability to market a U.S. star globally at a time when many competitors are trying to increase sales by developing local acts in their international territories. Indeed, sources said bidders were required to submit a global marketing plan to Carey for her next album, a soundtrack for the film “All That Glitters”--though record executives hadn’t viewed the movie.

The pact also comes at a crucial juncture for EMI, which has been the subject of takeover rumors for years.

Adding Carey to its roster should provide EMI with luster in the event it fails in its current negotiations to merge with German media giant Bertelsmann. EMI was set to merge with AOL Time Warner’s Warner Music Group before the objections of European antitrust regulators pressured the companies to scrap the deal in October.

The giant contract “shows the world, and Bertelsmann, that they’re not just going to die a slow death if there’s no [merger] deal,” said Michael Nathanson, an analyst at Sanford C. Bernstein & Co. “They haven’t [signed] a new U.S. superstar in quite a while. She’s a bona fide superstar.”

But Nathanson warned that “superstars aren’t selling like they used to,” and added, “I wonder about the return on their investment.”

Representatives for Carey and Virgin declined to comment on the deal, which was negotiated by EMI music Chief Executive Ken Berry, Virgin Music Group Vice Chairwoman Nancy Berry and the singer’s attorney, Donald Passman.

But sources said the deal includes paying the 31-year-old Carey a $20-million advance upon signing, part of which is an estimated $7-million non-recoupable payment to reimburse her for the cost of buying the rights to the last album on her Sony contract, the movie soundtrack. The deal, which covers four albums of new material and gives Carey full creative control over her work, guarantees an estimated $20-million advance per album plus a 25% royalty on each record sold. Virgin will deduct money from her royalties until the advances are paid off.

The film soundtrack is to be her first Virgin release. Sources said Sony retains the album’s distribution rights in Japan, one of the areas where she is most popular.