Cowboys and Indies: The Epic History of the Record Industry (48 page)

As the record market became progressively global, majors were demanding bigger distribution territories from independents—paricularly in Europe. Instead of regional blocs like Benelux or Scandinavia, majors like CBS, WEA, PolyGram, and EMI increasingly wanted sales rights for all of Europe. As Obie rightly predicted, all these independents, being hand-to-mouth operations, would immediately spend the huge advances on new signatures and whatever expenditures happened to be urgent when the money arrived. However, once those licensed records began charting overseas, the artist managers would come looking for money already spent.

In the early eighties, Obie watched the fastest-growing youngster in the British market, Virgin, sail straight past Island. Although not a music man, Richard Branson was another naval commander quick to understand that in the eighties, size did matter. From about 1978 onward, he worked from his houseboat, building a global group, leaving the day-to-day running of the main U.K. label to Simon Draper.

Soon after Chris Blackwell bought Ian Fleming’s former Jamaican residence, Goldeneye, Branson bought a Virgin Island—Necker, his very own paradise retreat fit for a Bond villain. Opening recording studios, record stores, and record companies around the world, Virgin was becoming an empire. As Simon Draper pointed out, “Consider the artists that we signed in the seventies—all the Soft Machine and Canterbury sort of acts, the German acts, Tangerine Dream, the instrumental music, it was all incredibly sellable throughout Europe. So right from day one we sold records throughout Europe while all of the other record labels were focused too much on the U.K. and America. And of course America was a hard nut to crack. It’s much easier, actually, to sell records to Europe.”

As well as a significant chunk of the synth-pop and new romantic groups of the era, Virgin signed pop blockbusters like Culture Club, Phil Collins, UB40, Human League, and Peter Gabriel, whose textured sounds were instantly appealing throughout non-English-speaking markets. “I was very idealistic in the seventies, less so in the eighties, more pragmatic,” admitted Draper almost apologetically. “In the eighties there was more pressure to have success, to run it as a business, to sell records.”

Virgin’s success was so sudden that “by 1983, we’d become one of the major labels in the U.K. and had set up companies around the world. I was actually enjoying selling, you know, millions of records, dominating the charts, making lots of money. The negative part of it, for me, was that by having these foreign companies we needed to sign bands in Canada, in Australia, in Germany, in France. And we had a great deal of pressure to do it … We had loads of A&R men in the U.K. and around the world all wanting to find acts. You couldn’t have A&R men and not let them have their own room to move. So we signed all these acts. And from there you start to get this thing where the passion starts to go out of it.”

Evoking what he terms “the Richard Branson factor,” Draper lamented how “we had Richard, entrepreneur par excellence, pushing the thing forward—
pushing,
ambitious beyond belief, always trying to think of new things to do. So in 1984 and 1985, he says, ‘I want to be in the airline business!’ Problem is,
I
didn’t want to be in the airline business. I would have liked to be in book publishing or maybe get involved in the art world, which I did subsequently. And I certainly didn’t want to be involved in retail shops. Richard could have been doing anything. And he did. He started countless businesses that failed. So you had this tension between what we were doing with the record company and Richard’s driving ambition. I enjoyed the growing process up to a point, but then we get to 1986 and we’ve gone public and suddenly I own fifteen percent of a company that’s worth £250 million and I realize that my stake is now real.”

On both sides of the Atlantic, things started going slightly mad somewhere in the mideighties. In America, the already exorbitant cost of independent radio promotion was changing the very game of selling music. By now, musical programming on Top 40 radio was tightly controlled by “the Network”—the allegedly Mafia-connected group of radio promoters including Fred DiSipio in New York, Joe Isgro in Los Angeles, Jerry Brenner in Boston, Jeff McClusky in Chicago, Gary Bird in Cleveland, Jerry Meyers in Buffalo, and Jimmy Davenport in Atlanta.

“You couldn’t get your records played!” said Harold Childs, A&M’s head of sales and promotion at the time. “The radio stations gave independent promoters carte blanche to choose whatever got played. And the majors used independent promotion to basically get rid of the independent labels. A&M couldn’t spend that kind of money, nor could Motown. Back in the seventies, it was record company against record company. We all had our own radio promotion staffs and we’d go out there and fight for the radio stations, wine and dine the program directors. We were companies fighting companies. But when the independent promoters came in, which was around the early to mideighties, you were competing with a third entity.”

“One of the reasons I sold half my company to Warner Bros. in 1986,” admitted Tom Silverman, founder of the hip-hop label Tommy Boy, “was because I didn’t have access to the indie promoters that controlled Top 40 radio. This wasn’t payola anymore. Actually, I have no problem with payola. It was great for the fifties labels because they could get their R&B records on air by paying a few deejays. There was something democratic about payola. It’s when five or six national pop promo guys ended up cutting deals with the radio stations that it turned into an extortion game. They ended up working every record that was on the radio. It wasn’t promotion anymore. What they ended up doing was extortion.”

As the eighties progressed, all the larger independent record labels were starting to wobble. In chess terms, all the proverbial knights and bishops were exposed as queens and rooks controlled the corridors. A corporate endgame of global proportions was in motion.

When the increasingly eccentric Maurice Oberstein was fired from CBS in 1985, the British record industry gasped as he moved to PolyGram, the biggest of the continental heavyweights, whose Dutch mother company, Philips, co-owned the compact disc. PolyGram was floated on the stock exchange the very year Oberstein took over its British company; then, in 1987, Philips de-merged from Siemens and reorganized full ownership of PolyGram. Illustrating the tactical importance of the compact disc, Jan Timmer was being groomed to take over the entire Philips group.

As Philips began mobilizing for a major assault, in 1986, a 150-year-old German book publisher, Bertelsmann, bought RCA from General Electric for $300 million. Meanwhile, back in Manhattan, cloaks and daggers were dashing around the corridors of CBS Inc. Its corporate president, Laurence Tisch, wanted to sell CBS Records to an American food industry billionaire named Nelson Peltz for $1.25 billion. Determined to block the deal, Walter Yetnikoff telephoned an American senior executive at Sony, Mickey Schulhof, and initiated a rival offer. It was a smart choice. Following the debacle with the Betamax video, Sony understood, like Philips, that the success or failure of the compact disc would depend almost entirely on the availability of good-quality content.

The inevitable haggling and stalling between Sony and CBS Inc. continued for a year until Black Monday, October 19, 1987, brought negotiations to a head. Fearing a massive upheaval in the financial markets, Laurence Tisch panicked and called Schulhof, asking sheepishly if the $2 billion offer was still on the table. Schulhof then telephoned Sony cofounder Akio Morita, who confirmed that despite the turbulence of Black Monday, yes, CBS Records was still worth $2 billion. With that final showing of cards, America’s oldest record label, effectively Columbia, went into Japanese ownership.

Although Sony’s buyout of CBS had been a tactical success for Walter Yetnikoff, the new owners wouldn’t tolerate his drinking and cocaine addiction. Within just months of the buyout, Yetnikoff checked himself into rehab. He came out sober but was ushered into retirement with a generous severance package of $25 million. Yetnikoff’s protégé Tommy Mottola took over at the newly named Sony Music. Yetnikoff’s track record as a businessman had been as spectacular as his personal story. The jury, however, is still out on the long-term legacy of the court he left behind.

With an arms race officially on, a flurry of indie buyouts followed in close succession. In May 1989, EMI bought out the troubled Chrysalis for $75 million. “A lot of things aren’t for life, are they? You change as people,” sighed Chris Wright in reference to his fateful split with cofounder Terry Ellis in 1985. “We had our problems throughout our relationship. When we worked well together, we worked really well together. But I think Terry, you know, he had a lot of emotional baggage. Under his own admission, I think he was drinking too much, and because he was drinking too much, he was probably doing other stuff too much. It got a little bit difficult. He became very difficult to work with, and he started wanting to do deals that I felt we shouldn’t be doing.”

“Partnerships are difficult,” Terry Ellis responded. “In my case with Chris, we were and still are very different people. In the early stages of our partnership, that was an advantage. We came at things from a completely different point of view. So often we’d find a compromise. And I think that’s a good way to run a business because you never end up in one extreme or another. But I think with success, you get a bit of arrogance. We each became less willing to compromise, and that really was the cause of the split.”

“The last straw,” said Chris Wright, “was when Terry went down to the Cannes Film Festival and made a £4 million commitment to invest in the film
Santa Claus: The Movie
. I stopped it and he got pissed off, saying, ‘If you don’t let me do this deal, that’s it.’ And so that was it.” With the benefit of hindsight, Terry Ellis regretted they didn’t have a lawyer friend like Allen Grubman to lock them both in a room until peace was reached.

In 1985, Chris Wright bought out Terry Ellis’s stake and continued Chrysalis as its sole general. Because Ellis had been running the American company, however, Wright inherited unfamiliar problems. “The cost of business in America had got so big that it was hard for us independent companies to cope. Island, Virgin, Motown, A&M, the same story,” reasoned Wright. “Basically, we had too large an operation; we were employing something like eighty-five people in the American company and we had a complete dry-up of product … and we ran into cash-flow problems.”

Looking back with some regret, Wright said, “We could have just closed down the American company, which in hindsight might have been the most sensible thing to do, but we thought we’d do a ten-year joint venture deal with BMG until the negotiations broke down and we ended up doing the same thing with EMI. And the other companies all kind of followed suit quite quickly because they were, in their own way, experiencing similar kinds of problems.

“The reason Island sold,” Wright speculated, “was because they had a similar kind of situation to us. Blackwell couldn’t pay the U2 royalties, and he had a partner in the company, the film producer John Heyman. When they saw the Chrysalis deal with EMI, I think they thought, ‘Shit, if there’s that much money around, here’s our chance to get out and make a shed load of money.’”

Chris Blackwell’s bagmen, his closest confidant, Tom Hayes and CFO Art Jaeger, had spent the previous four years struggling to keep Island financed. “It took a toll on Tom and it took a toll on me,” admitted Jaeger. “Tom and I basically kept breathing air into Island for a lot of years. I think we were very successful in insulating the rest of the company to go about and do their jobs. Tom’s a goddam genius. Tom Hayes might be the smartest guy I know.” Lionel Conway, Island’s head of publishing, also recalled the constant scramble to extend subpublishing deals to raise money—mainly to pay U2.

As Tom Hayes described the bigger picture, “There was a realization towards the end of the eighties, like that old saying, you’re too small to be big and you’re too big to be small … In America, the cost of promotion is hideous because you’ve got so many stations and so much coverage and the big companies have much deeper pockets. So as an independent, MTV was useful for us, but at the same time, towards the late eighties, every act wanted a video. Plus, we were an established independent so therefore we didn’t have such a niche market anymore. There was us and Chrysalis, we were the big [British] independents, then there were the Beggars Banquet labels who were a younger version of us. So it was clearly the right time to sell.”

With the compact disc overtaking vinyl sales in 1988, “probably the late eighties was the most prosperous period in the record industry for the older majors,” reasoned Hayes. “They held vast back catalogs that were long since amortized. Certainly on a lot of the classical records, they didn’t owe anybody any royalties because they were either public domain or buyouts. And they were selling them at fifteen quid a throw.” Thanks to the compact disc, the likes of PolyGram turned their dusty old vaults into cash dispensers.

Island circulated a brochure, “Warner was interested,” admitted Hayes, who held a 1 percent stake in the company, “but PolyGram engaged quickly; they were
very
interested.” Tactically, PolyGram was the perfect fit—rich, European, and with ambitions to break into America. As Hayes explained, “You need a certain critical mass in order to be able to have a proper America-wide distribution. CBS had it, Warner had it, but PolyGram needed sufficient volumes of turnover to justify having regional depots.”

In late July, the news was official. Island Records went for $300 million. “We were very happy,” recalled Island’s chief negotiator, John Heyman. “I think it goes beyond doing a brilliant deal. If the company was going to expand and if it was going to keep pace with all of the changes that were going on, it needed to be part of a larger animal.” Earning a tidy $30 million, U2 was celebrating also. Since they were Island’s biggest act, Paul McGuinness had been regularly consulted in the negotiations to give PolyGram assurances U2 was not going to throw any tantrums.