BMG Forces Out CEO of Arista in Shake-Up

In an abrupt shake-up, Bertelsmann Music Group ousted Antonio “L.A.” Reid as the chief executive of Arista Records, the label that has owned the top spot on the nation’s pop chart with its double CD from rap duo OutKast.

The move, announced Tuesday, was BMG’s response to lackluster financial results at the New York-based label, once BMG’s biggest U.S. unit. The company didn’t name a successor to Reid, who sources said had about a year and a half remaining on his contract.

BMG, a unit of Germany-based Bertelsmann, said Arista would be managed by Executive Vice President Larry Mestel. He will report to BMG Chief Operating Officer Michael Smellie.

Sources inside the firm speculate that Reid’s exit was the first step in a sweeping realignment of BMG’s domestic music division, which releases music by such acts as the Dave Matthews Band and Britney Spears.

Bertelsmann and Sony Corp. have proposed merging their recorded music businesses.

If that deal is approved, insiders suggest, Arista now could be more easily combined with BMG’s Jive Records or another label.

The move also could become an opportunity for Arista founder Clive Davis, who was forced aside upon Reid’s ascent, to seize a bigger role. Davis currently runs BMG’s RCA-J unit.

A BMG spokesman downplayed such talk, saying Reid’s departure “is unrelated to our proposed joint venture with Sony Music.”

Insiders noted that Reid’s ouster came as Arista was on a roll with the success of OutKast, the acclaimed Atlanta act Reid brought to Bertelsmann in the mid-1990s through the label he ran at the time, LaFace Records.

Ranked the No. 1 album in the nation last week, OutKast’s “Speakerboxxx/The Love Below” has sold an estimated 3.2 million copies since its release, according to Nielsen SoundScan, and is in line to win several awards at next month’s Grammys.

Arista also has enjoyed solid sales recently from Sarah McLachlan and British singer Dido.

Reid has been criticized inside and outside the company for overspending on marketing and for money-losing joint ventures with outside music producers. Arista -- which Reid took over in 2000 -- lost an estimated $110 million last year, after heavy losses the year before, sources said.

The new album from pop singer Pink, another Reid protege, has been a particular sales disappointment.

Still, Reid, a Grammy-winning producer who started out making hits for such dance acts as Bobby Brown and Paula Abdul, has received high marks from competitors for nurturing young talent.

“He’s one of the top creative people in the entire business,” said Doug Morris, chairman of Vivendi Universal’s Universal Music Group, the world’s biggest record conglomerate.

“If a guy like that became available, we’d be more than interested.”

Indeed, sources said Reid already had talked with Universal and Edgar Bronfman Jr.’s newly acquired Warner Music Group. Representatives for the companies declined to comment.

Reid was brought into the Bertelsmann camp by Davis, who struck a joint venture agreement for Arista to distribute albums from LaFace, the label Reid founded with partner Kenneth “Babyface” Edmonds. LaFace, which released a string of R&B; and rap hits from Toni Braxton, TLC and others, significantly bolstered Arista’s market share and profit throughout the 1990s.

Trouble started when Reid began discussions with then-BMG chief Strauss Zelnick to sell LaFace to the company. Zelnick proposed that BMG buy the stake in the label it didn’t yet own if Reid would promise to relocate from Atlanta to New York and take over as president of Arista, sources said. Zelnick began grooming Reid for the job, enrolling him in an executive training course at Harvard Business School.

Zelnick’s move outraged the legendary Davis, who rejected the succession plan as a move to shove him out the door of a label he founded more than two decades earlier.

Davis’ battle with BMG ultimately enraged many executives and Arista artists, and Zelnick was later shown the door by former Bertelsmann chief Thomas Middelhoff. BMG first tried to placate Davis by financing the start-up of his joint venture, J Records, then brought him back inside the company to run a combined RCA-J label.

Reid could not be reached for comment.

“He is a huge talent magnet. I would never count out L.A. Reid,” said Rob Walker, manager of hot production team the Neptunes and president of the Arista-affiliated Star Trak label.

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Arista Records

Founded: In 1974 by Clive Davis

Headquarters: New York

Major artists: OutKast, Pink, Dido, Avril Lavigne, Santana, Sarah McLachlan

Parent company: BMG Entertainment

Estimated 2002 sales: $33 million

Sources: Arista Records, BMG, Dun & Bradstree