Universal Music Plans Cutbacks

In the latest indication of the music industry’s blues, Vivendi Universal today will unveil a restructuring plan that would slash $200 million in annual costs by shrinking operations across 71 countries worldwide.

The reorganization relies heavily on job cuts and a more cost-conscious approach aimed at reversing operating losses at Universal Music Group, the world’s largest record company.

Universal executives say the company is paying the price for the rise of free Internet file-sharing networks such as Kazaa and Morpheus and the emergence of massive counterfeit CD markets around the world.

The anticipated cuts are “evidence that what people are doing is not a victimless crime,” Universal Music Group Chairman Doug Morris said Wednesday. “This is almost directly attributable to the piracy we’ve seen.”

For Paris-based Vivendi, the plan would streamline the $7-billion-a-year music unit as it moves forward without ties to Universal’s film studio and other entertainment operations, which are being sold to General Electric Co.

Under the blueprint, Universal’s international label operations would be scaled back significantly with the company outsourcing some CD distribution and accelerating plans to cut 1,350 jobs worldwide, leaving the workforce at about 10,850. The company eliminated about 550 jobs this year and expects to issue 800 more pink slips, including about 190 in the U.S.

Universal joins its four major rivals in moves that have sharply cut the industry’s workforce. Sony Corp.’s music unit eliminated about 1,000 jobs in a reorganization this year, and EMI Group, Bertelsmann’s BMG and Time Warner Inc.’s Warner Music Group have made cuts on a similar scale.

Vivendi executives said they did not plan on axing acts from its four major labels. But sources said the company would reduce its scouting in areas of the world where the work of recording artists tends not to sell outside their own countries.

All told, the cuts would represent the most sweeping reduction since the company ascended to the top of the corporate heap five years ago, when then-parent Seagram Co. engineered a $10.4-billion purchase of Dutch powerhouse PolyGram Music. In the wake of that deal, the new conglomerate slashed an estimated $300 million in costs and integrated dozens of business operations, firing about 3,000 employees.

The latest wave of layoffs has sent shudders through the company, where insiders say financial pressures already are forcing shifts in the way music is recorded and marketed.

Among other things, Universal Music and its competitors have curtailed spending on music videos, radio promotion, travel and subsidies for tours. Some executives said the question now was whether outside, corporate sponsorship could be used to defray costs.

The effect has been felt in more subtle ways too.

“It’s become part of your day,” said one top Universal executive, noting that questions are raised even about whether it costs too much “to take a car service home from central Brooklyn after seeing a show.”

Despite Universal Music’s financial problems, the company still outpaces the four other music conglomerates and now accounts for an estimated 30% share of sales of new releases in the U.S. Universal’s Island Def Jam label has the top album on the nation’s pop chart this week, Ludacris’ “Chicken & Beer.”

Indeed, as rival media companies scramble to unload their recorded-music divisions, Universal executives maintain that their French parent remains committed to the industry.

“We believe we’re going through a transitional period,” said Universal Music President Zach Horowitz. “There are a lot of positive signs, with [legal] online services getting traction, Kazaa traffic being down. We actually feel optimistic that the changes we are making are going to position us for the future.”