Sony CEO Backs Sony BMG Chief

Howard Stringer, Sony’s chairman and chief executive, issued a statement of support Monday for the head of Sony BMG Music Entertainment after reports surfaced that his contract might not be renewed.

Bertelsmann, the German media giant that last year merged its BMG Music with Sony Music to form the nation’s second-largest record company, has expressed dissatisfaction with the performance of Andrew Lack, a former NBC television executive who took over Sony Music in 2002, sources confirmed Monday.

According to executives involved in the discussions, Bertelsmann directors informed Stringer more than four weeks ago that they opposed renewing Lack’s contract when it expires in about six months. That move was first reported by the New York Times.

On Monday, however, Stringer commended Lack for having “executed this very complicated merger between Sony Music and BMG Music brilliantly.” He added, “Andy is exceptionally well-suited to manage the company in this challenging and ever-changing environment.”

Bertelsmann spokeswoman Liz Young said the company had no comment. A representative for Sony BMG said executives there also had no comment.

Supporters of Lack claim that Bertelsmann’s withdrawal of support is a tactic intended to force Lack to appoint a BMG-affiliated executive to replace Michael Smellie, who in July announced plans to retire as Sony BMG’s chief operating officer.

“This is all going to be amicably resolved very, very soon,” said a source close to Lack who requested anonymity for fear of reprisals. “No one is going anywhere.”

That source said Lack was in Europe, where he might meet with Bertelsmann executives.

But executives at Bertelsmann and BMG Music said Bertelsmann’s top brass had lost confidence in Lack’s leadership and might ask for his ouster regardless of who was hired as chief operating officer. Smellie, who came from BMG Music, resigned after clashing with Lack, said sources close to the company, but he has indicated that he may stay on if Lack is replaced.

Under the terms of the joint venture, Sony has the right to name the company’s chief executive until 2009, company executives said. However, Bertelsmann eventually has the right to unilaterally fire the CEO.

Sony BMG has seen a sharp decline in its U.S. market share. For the first six months of this year, the company’s share of sales of newly released albums in the U.S. was about 26%, down from about 33% when the companies were merged, according to Nielsen SoundScan. In the quarter ended in June, Sony BMG recorded a net loss of $18 million, including one-time restructuring charges, on revenue of about $1 billion.

Executives familiar with Sony BMG said that when Lack returned from a September vacation he focused on renewing his contract but ran into complications when Bertelsmann executives heard complaints from BMG Music employees.

The cultures of Sony and BMG have clashed, insiders say. Some BMG employees believe that Lack favors Sony’s divisions, and some executives said they were dismayed by Lack’s unfamiliarity with the music industry.

Still, others said such creative tension was inevitable. Said one BMG executive, “Merging two companies is never easy.”