In these times of major label mergers, downsizing, the slashing
of label rosters, and thousands of record company jobs being
lost over the last three years--not to mention the enormous sea
change and seismic shifts that technology has wrought--comes one
of the most disturbing reports we have come across. It further
reveals just how profoundly out-of-touch certain companies TRULY
are when addressing the problems within their own record
divisions.

The Financial Times reported 'Warner Music paid its top five
executives more than $21m in salary and bonuses following last
year's $2.6bn acquisition of the US music group by a private
equity consortium.' The article points out that Edgar Bronfman
Jr, the Chairman who led last year's buy-out, received a $1M
salary and $5.25M bonus. Lyor Cohen, head of the US recorded
music business, received $1M and $5.24M in salary and bonus,
respectively. Paul Rene Albertini, head of Warner's
international operations, was paid $1.25M in salary and a $3.15M
bonus. Departing Warner/Chappell CEO, Les Bider, received a
$2.44M total payment.

These payouts include further guaranteed bonuses or change of
control payments. According to documents filed with the U.S.
Securities and Exchange Commission, last year's total executive
remuneration was more than three times higher than Warner
Music's $7M operating income for the 10 months to September
30th. The management payments reflect Warner's success in
cutting costs following last year's sale of the Music Group by
Time Warner. The company expects to deliver $250M of annualized
savings by May this year, achieved mainly through 1,600 job
losses.

What is so truly disturbing here is that it speaks volumes about
the value system of an owner of a company that would pay its
top-five Record Executives more than three times the amount of
operating income for a ten-month period while dismissing 1,600
employees.

What the article failed to mention was that in addition to the
employee layoffs, Warner Music Group also dropped 93 of the 193
artists signed to Warner Labels in the US, approximately 47% of
the artist roster during this same period. If the financial
health of a company is truly so dire that it calls for these
kind of dramatic and severe cuts for the financial well being of
the company, how does one justify the kind of staggering bonus
payouts to the top five executives in the company? Don't get us
wrong, we have no problem with executive compensation when it's
tied to actually rewarding performance, but in this case, one is
truly hard pressed to grasp or to understand what is actually
being rewarded. The claim that the Warner Music Group will save
$250M of annualized savings mainly through the decimation of
1,600 jobs is not something that we think should be financially
rewarded.

On Feb 11th at the Grammy Foundation Entertainment Law
Initiative luncheon in Los Angeles, WMG Chairman Edgar Bronfman
spoke to the 460 attendees of the luncheon, "We must employ our
creative imagination - and we must resist the temptation to
conduct business as we always have - by experimenting with new
approaches, new structures and new relationships, so that we can
move more quickly and appropriately respond to the ever-changing
marketplace."

He went on to request that music attorneys bring a new level of
creativity to the deals they forge. "Your willingness to join
with us is critical to the success of our industry."

If only he had "resisted the temptation to conduct business like
we always have" and not given so much to so few while so many
went without. In business, as in life, you lead through example.
Mr. Bronfman, with all due respect, you need to have to have
your own house in order before you have the credibility to make
a request like that to the creative and legal communities.

In an open letter to Warner Music Chairman Edgar Bronfman,
Carlos Anaia, a five-year Warner Music Group employee in London
who was leaving the company wrote, "We understand that you took
on a huge task to turn around the ailing, forgotten division of
AOL Time Warner, but informing the already morale-drained staff
(via a third party - The Financial Times) that the salary and
bonuses that the top five executives took individually equal
more than 20 times my total lifetime salaried income (assuming I
started at 18 and retired at 60), is somewhat more than
insensitive. If you want to make us feel like maggots, you
succeeded. Paul-Rene Albertini gets paid $4 MILLION in total?
Hello!!? The only deals we are all aware of have all LOST money.
Walt Disney Records? It's still more than $15 million
unrecouped. Milan Records? A French turkey. Need I go on? What
deals has this guy done that actually MADE money?"

Throughout my own career in the music business, and especially
in the last ten years, I've always been fascinated by the
extremely disproportionate amount of money paid to CEOs in the
Entertainment Business. Being in the music business for
twenty-five years, we've seen Major Label CEO salaries/benefit
packages go from $200,000.00 - $500,000.00 in salary and bonus
payments in the mid 1980's to literally ten-times that amount,
and more, just eight to nine years later for the same job.

Throughout the 1990's, the amount of money and compensation paid
to CEOs and other top executives at film studios and major
labels continued to reach new levels of financial absurdity,
especially in the area of severance packages (the part of their
contract that kicks in if they are fired or "leave the company
for any other reason"). You want to know how absurd it's gotten?
It's to the point now where if you really stop and think about
it, there's no real incentive for CEO's to try and succeed
anymore, other than ego (which we do not underestimate as an
extremely powerful and driving force in this business).

Why? Because today, we live in an era where more often than not,
the consequences of failure for a CEO have become far too
financially lucrative! If you don't believe me, look back over
the last ten years and think about all of the labels that have
had regimen changes such as when EMI made Charles Koppelman CEO
of its music division only to have the entire EMI label close
down a few years later with over 135 employees losing their jobs
(many with just a two week notice) while Koppelman exited with
well over $30M along with other contractual compensation.

Consider also the revolving door of CEOs appointed by Gerald
Levin (then CEO of AOL Time Warner) to run Warner's music
division in the mid 90's. Between 1994 and 1998, Warner hired,
promoted and fired Doug Morris, Bob Morgado and Michael Fuchs to
run the Music Division. Each outgoing executive cost them
between $15M - $25M.

Of course, let's not forget the very well-documented hiring (and
very public exiting) of Michael Ovitz, who after eighteen months
as President of The Walt Disney Co. (on a multi-year contract)
left with over $96M in compensation and stock options - a matter
that became a very public battle last year when the stock
holders took Disney to court over this enormous payout to
Ovitz). Think about it - this works out to about $533,000 a
month, or maybe only $213,000 a month after taxes. Not bad for
eighteen months' work, if you can get it.

Today, more often than not, this is something contractually
sanctioned by the corporation. It's destructive, I believe,
because as we've seen over and over, especially in the last four
years in other industries, the consequences of these types of
compensation packages DO NOT promote any sense of commitment,
devotion or loyalty to a company, its growth, financial
well-being or even in the most extreme cases (e.g. Worldcom,
Enron) its very survival.

So what could possibly be the primary reason corporations
continue to do this? It's driven, we believe, by a core yet
completely misguided fear that no one else is capable of doing
the job -- NO ONE!! Consequently, these executives have to be
given whatever they ask for! Nothing reflects this mentality
more clearly than the often-obscene severance packages you see
CEOs carrying away when leaving or being fired from a company.

A further manifestation of this mentality in the business is
reflected in the hiring of the same CEOs and executives over and
over again regardless of their track records or past performance
levels. As we always say, "the names in this business never
change, just the addresses underneath them."

This practice of rotating top executives further creates the
very powerful perception that there are very few people who can
actually do the job. In 25 years of being in this business,
we've never believed this, yet this deeply held belief is very
difficult to change, especially at the highest levels of a
company.

A few years ago at a party, I asked a CEO of a major label why
this practice seemed so prevalent at the top executive levels of
the music & film industries and the response was astounding. He
said, "What you have to understand about the decisions to hire
executives at that level is that very often the boards of the
company hiring them are much more comfortable with someone who's
already had the position and done the job regardless of their
past track record than someone they don't know regardless of
their ability!"

It was a sobering statement to say the least from someone who
really understood this process and the mentality that goes into
these choices. It also provided real insight into why so few
companies today have any executives that go up all the way in
the ranks. There are a few, such as Jason Flom, Sylvia Rhone and
Jordan Katz, but not many.

So, the question in the boardroom today needs to be, "How can we
inspire a level of dedicated commitment and accountability in
our top CEOs to grow the company we've made the consequences of
failing so financially lucrative?"

In this day and age, when so many of our firmly held beliefs
about the way things are in the music industry are continually
being broken apart and we're repeatedly being challenged by the
brutally sobering new financial realities in the post-merger
major label world now emerging: (Viacom's $18 billion decrease
on their radio station valuations; Sony and BMG merging their
recorded music operations worldwide; the fracturing of
powerhouse NYC law firm Grubman, Indursky & Schindler, once one
of the largest and most powerful law firms in the music
business, who recently had one of its name partners, Paul
Schindler, depart to a competing law firm as well as laying off
several attorneys), it's a very powerful statement of just how
out of touch and destructive corporate values like the financial
compensation packages at Warner Music are to even their own
financial well being and survival.

The tragedy, and I use the classic definition of tragedy as "a
fall from greatness due to an unseen flaw in one's own
character," (and labels truly don't get much greater than Warner
Bros., Elektra & Atlantic, historically speaking), is that the
leadership at the Warner Music Group in the most profound sense
just does not get it! They truly don't see it. They still
believe, "this is the way our business needs to be run."

This isn't so much a case of "corporate greed," but rather
something that has become much more pernicious, especially in
the last ten years, and that's this pervasive mentality of "I
truly don't care as long as I'm taken care of." The Enron &
WorldCom scandals are absolutely classic text book examples of
this mentality on a grand scale in every respect!

As Bob Lefsetz, a leading music industry consultant and writer
so aptly said recently, "To be this out of touch is to
demonstrate you should not be running this enterprise." And in a
creative industry like music that has always thrived on
innovation (radio, TV, CDs, the Internet, iPods, satellite &
internet radio), and in a time where such rapidly developing and
emerging technologies are creating dramatic changes in the
culture at an alarming pace as well as creating incredible
opportunities and challenges, what great artists starting their
career in music would want anything to do with a company that
cares more about itself and its own survival than it does about
the artists and music on the label?

Is it any wonder the Major Labels Market share continues to
stagnate? Or that their ability to break new artists has reached
an all time low? This is exactly why major labels in their
current state have no future in this New World Order. If they
are to be a part of it, they're going to have to reinvent
themselves in a completely new way that reflects the world and
times we live in today, not some fantasy of the past.

In closing, I'm reminded of a quote that a brilliant man named
Breck Costin once said: "Always remember that your fantasies
have to die before your dreams can come true."

Ritch Esra 818-995-7458 ritch@musicregistry.com

About the author:
Ritch Esra is the publisher of the Music Business Registries.

Author : Ritch Esra
Site : www.goarticles.com

BobPaton.com � 2010
Hosted by Midsouth Marketing

Online Games | New Media Blog | City News Magazine | Collierville Advertising | Collierville Dragons