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Home , Barbra Streisand, Bob Dylan, Columbia Records, Doug Morris, EMI Records, Epic Records

A PPLICATIONS IN A CCOUNTING Lesson Plan #4

Corporate Focus Music Has Upbeat Tune as Label Turns Around

The Wall Street Journal February 23, 1998

By Patrick M. Reilly Staff Reporter of Street Journal

Not so long ago, wood Mac, bumped back to No. costs to deal with slack consumer Entertainment President Thomas D. 2, with 16.3%. Sony Music has seven demand. Mottola had reason to sing the records in the top 30, including the Last year, when Sony Music’s . The was fifth in three best-selling in the prospects were dipping, Mr. Mottola market share among the six leading country, led by its No. 1 “Titanic” put Barbra together with record companies in 1997, making . At this rate, rivals say , his newer , for a many in the industry wonder if the Sony Music may be able to sustain a . The result ignited a sorely veteran music executive had lost his market share higher than any needed pre-Christmas hit record for touch, although Mr. Mottola says record company has in recent years. Ms. Streisand that is still selling well. Sony Music’s profits never suffered. “Sony is going to have a fabu- Ms. Streisand’s record of inspira- His painful and public separation lous year,” says Doug Morris, chair- tional songs, “Higher Ground,” is from his wife, , who man of rival , outselling buzzier acts such as also happened to be Sony’s biggest the Co. unit. “The resur- Mouth and ; it recording artist, raised speculation gence of the company just shows has sold 2.5 million copies in the that their corporate relationship that when you have a talented U.S. alone after only three months might be on the rocks as well. leader, they are going to come and is her fastest selling record in But thanks to some shrewd through big .” years. management decisions, a little Mr. Mottola, a Bronx native “It doesn’t matter who you are diplomacy, and a dose of good luck, who once was a manager of acts like today: you’ve got to come out blaz- the company, a unit of Tokyo-based John Cougar Mellencamp and Hall ing,” says Mr. Mottola, who is in the Sony Corp., is in the midst of an and Oates, has proved skeptics third year of a contract with Sony impressive turnaround. In recent wrong by betting his stable of aging Music that pays him an estimated months, Mr. Mottola, 47 years old icons. But he also has been able to $10 million a year. In 1996, the par- and in his 10th year at the helm of nurture new acts such as former ent company gave Mr. Mottola a Sony Music, has successfully market- “Fresh ” , Aus- package that extends through the ed a blend of high-profile “event” tralia’s SavageGarden, and Britain’s year 2001. records like the “Titanic” sound- soulful . And Sony is Mr. Mottola also had unexpect- track and releases from musical doing better at a time when world- ed success with , whose icons such as and wide music sales are flat and records in recent years raised little Bob Dylan, who rivals thought were demand has dropped in Asia. Last interest. Mr. Dylan’s latest record for washed up. Ms. Carey has decided to week, the U.S. Sony, on , “Time stay on at Sony, and a new reported that for the first time in Out of Mind,” has been nominated record is off to a promising start. more than a decade, the dollar value for a Grammy as of the year. Though the year is young, and units shipped to retailers of His first album of original work through Feb. 15 Sony’s market share compact disks dropped. The total since 1990, Mr. Dylan went on an in the U.S. had risen to 23.4% for value of CD shipments for 1997 was unusual publicity blitz, making the current, or recently released, album $9.9 billion, a 0.2% drop, while units cover of . Mr. Dylan, who sales. Time Warner Inc.’s Warner fell 3.3% to 753 million units. Many will perform on the Music, the perennial No. 1, whose labels, including Warner Music, artists include and Fleet- have slashed staff, artists rosters, and (Continued) A PPLICATIONS IN A CCOUNTING Lesson Plan #4

broadcast Wednesday night, has sold Mr. Mottola’s handling of his artists, looking at the long-term pic- more than 523,000 copies in the separation from Ms. Carey has ture rather than the short-term situ- U.S., or close to five times more than drawn admiration from colleagues. ation.” his recent releases. Ms. Carey, who Mr. Mottola had dis- Spending on new acts today is Last fall, Sony made what was covered in 1989 and married in also a strain on Sony Music’s bottom then considered a risky move of pay- 1993, is one of Sony Music’s most line. , the waif-like ing close to $1 million for the sound- valuable assets; industry executives , has had a string of hits, and track rights to “Titanic,” which estimate that her last album, “Day- her debut album, “,” on the included Ms. Dion’s single, “My dream,” contributed at least $250 label, has sold close to Heart Will Go On.” For the week million in revenue. Her new album, three million copies. That’s great for ended Feb. 15, the “Titanic” sound- “Butterfly,” released after the cou- a rookie, but industry executives say track was the No. 1 album in the ple’s separation, is another hit, sell- Sony spent $2 million on making nation for the sixth consecutive ing 2.6 million copies as of last week. music videos, Ms. Apple’s touring, week, selling close to 850,000 copies, Mr. Mottola kept Ms. Carey in and other marketing costs. Mr. Mot- a staggering 259,609 more copies the fold, remaining on good terms tola won’t say what it cost to make than the previous week. And sales even after she hired a new attorney Ms. Apple a star. But he notes that aren’t slowing down: On Feb. 17, and manager soon after they sepa- “developing artists, while they have Sony received orders from retailers rated last summer. He continued to high upfront costs, they can sell for more than 1.3 million copies of support her label, Crave. “We still internationally and can be prof- the “Titanic” soundtrack. have an incredibly good relation- itable.” Sony Music’s results will boost ship,” Mr. Mottola says. Ms. Carey is Sony Music Spins the Hits the parent Sony’s fiscal year, which expected to deliver at least three to ends March 31. In the third quarter, four more albums. A spokeswoman Sony Music Entertainment is a unit of Sony Corp. cited a “modest for Ms. Carey said the singer is Sony Corp., Thomas D. Mottola is decrease” in operating profit at the “happy at Sony and plans to stay.” president and chief operating officer. music group because of “increased Mr. Mottola has also kept a sta- Vital Statistics artist-development costs.” Sony ble team of executives working 1998 revenue $6 billion doesn’t break out its music unit around him while rivals have gone 1998 Operating profit $700 million results, but Sony Music world-wide is through wrenching executive Some Sony labels and artists: expected to finish with revenue of turnover. Don Ienner, Columbia Columbia Records: Bob Dylan, Mari- $6 billion, well above the $5 billion Records Group chairman, has run ah Carey, Will Smith, Barbra in revenue for fiscal year 1997, and that is home to Mr. Dylan Streisand with an estimated operating profit and others for nine years. : , of more than $700 million, about a Glew, Epic Records Group chair- Pearl Jam, 5% increase, according to people man, has worked with Mr. Mottola 550 Music: Celine Dion, close to the company. for 10 years. Mr. Mottola has also Five To be sure, Sony has had promoted women in an industry Work Group: Fiona Apple, Jamiro- some duds. The new album from dominated by men; Michele Antho- quai Billy Joel has had a slow start, and ny joined Sony in 1990 and as execu- Leading the Pack releases from Offspring and The tive vice president is Mr. Mottola’s Music industry U.S. market share Presidents of the of No. 2. Polly Anthony (no relation) (for recently released albums), as of America fizzled. Of the weak perfor- was recently named president of Feb. 15 mance by ’s pop Epic Records, and also heads 550 Sony Music 23.4% record, “All That Matters,” Mr. Mot- Music, the home of Ms. Dion and Warner Music 16.3% tola says, “I am personally disap- newcomers . BMG 14.1% pointed with the results on that Trouble spots do remain, EMI Records Group 12.8% record. I wish we had done better.” such as the industrywide music-sales Universal Music Group 11.3% But there is some consolation — Mr. slump in Asia, where Sony Music PolyGram 9.8% Bolton is finding success with a new gets 10% of its sales. Mr. Mottola says *For fiscal year ending March 31, classical record, “My Secret Passion Sony will address the problem by 1998 — The Arias,” which is the No. 1 finding Asian talent that sells. “We Sources: SoundScan, industry ana- classical album in the country. are aggressively developing local lysts, company reports

©1999 Dow Jones & Company, Inc. All rights reserved. Lesson Plans contributed by Classroom Edition. This material may be reproduced for classroom use. A PPLICATIONS IN A CCOUNTING Lesson Plan #4

Questions for: “Corporate Focus” Sony Music Has Upbeat Tune as Label Turns Around

1. What was Sony Music Entertainment’s market share among the six leading ? U.S. record companies in 1997?

2. Sony Music world wide was expected to finish the 1998 fiscal year with rev- enue of $6 billion and estimated operating profit of more than $700 million. Despite all this success, what duds has Sony had?

3. Sony Music gets 10% of its sales from Asia. Why is this a problem? What is Sony’s solution to this situation?

4. What has happened to worldwide sales recently? Based on Sony’s success, ? do you think this trend is likely to continue? Why?

©1999 Dow Jones & Company, Inc. All rights reserved. Lesson Plans contributed by The Wall Street Journal Classroom Edition. This material may be reproduced for classroom use. A PPLICATIONS IN A CCOUNTING Lesson Plan #4

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