Warner's New Structure Is Taking Shape

NEW YORK-Time Warner's move to separate its Warner Music Group from sister movie company Warner Bros. should bring new energy to the music unit, whose recent sales performance has been sluggish.
Both units will have new operating heads who will report to Richard Parsons, Time Warner's behind-the-scenes president.
Many observers had criticized the previous setup, in which the music and movie operations fell under co-chairmen/co-CEOs Robert Daly and Terry Semel. Sources say those executives
were spread too thin and did not have a good handle on the music business.
Moreover, the executives named to head the movie company-chairman/CEO Barry Meyer and president/COO Alan Horn-have had no experience in the music business. Their backgrounds are in film and television, as are Daly's and Semel's.
A spokesman for Time Warner says, "Parsons and [Time Warner chairman/CEO Gerald] Levin said that the studio executives would have a lot to do just running the studio and that the music company needs a music-centered executive."
Parsons and Levin have told the press that they expect to name someone to head the $4 billion music company soon and that they "hope" that the person will be an insider. But they did not rule out the appointment of an outsider.
Billboard sister publication The Hollywood Reporter quoted Levin saying: "I clearly want at this point to have the studio management on the front line and the music management on the front line, concentrating 24 hours a day on their respective operations. At the same time, having these enterprises report to me through [Parsons], I'm retaining my notion of synergy between the music business and the studio."
A securities analyst who follows Time Warner says, "They were running a business model that has to change. In music, it's not news that they haven't seen great performance."
The analyst, who asked not to be identified, adds that the changing of the guard at the company represents a "change in the corporate culture and a change in the company's direction."
He characterizes the close of the Daly/Semel era at Time Warner as the end of a 10-year company transition that began with the merger of freewheeling Warner Communications and the more buttoned-down Time Inc.
For the first time, Parsons, who was a banker before joining Time Warner in 1995, was scheduled to address the music company's label and distribution employees Aug. 6, during its annual convention Aug. 4-7 in Burbank, Calif. Sources at Time Warner said it was unlikely that Parsons or Levin would announce at the event who was to lead the music group. The decision is expected to be made before October.
The most intense speculation has centered on insider Val Azzoli, co-chairman/co-CEO of Warner Music's most successful label unit, the Atlantic Group.
Another executive frequently mentioned is Roger Ames, who will be joining Warner Music in some high-level international capacity, according to the Hollywood Reporter. Ames' appointment had been held up because of a contractual problem with Universal Music Group, which last year acquired PolyGram, of which Ames had been president of music.
Some sources believe that Ames, a British citizen, would not be interested in heading the music group because he does not want to be based in the U.S. Insiders say that Daly has been a champion of Ames.
Daly and Semel stunned many industry observers July 15 when they announced their resignations, which will be effective Oct. 4. They had been co-heads of Warner Music since 1995, in addition to being co-chairmen/co-CEOs at Time Warner's film, video, and television company, Warner Bros.
Time Warner announced last week that it had appointed Meyer and Horn. Meyer had been executive VP/COO of the filmed entertainment unit, and Horn had been chairman of Warner-owned film company Castle Rock Entertainment.
What has also changed is that Parsons, who previously did not have oversight of either the movie or music company, now will have the heads of those units reporting to him. Parsons in turn, reports to Levin.
At the headquarters of the music and movie companies in Burbank this past week, Warner Music's distribution company Warner-Elektra-Atlantic (WEA) was holding its annual get-together, during which labels presented new releases for the year, showcased developing artists, and held strategic meetings.
WEA's chairman David Mount has also been named in the speculation about a new head of Warner Music. But sources discount his appointment because he has not had label or international experience.
Other names mentioned have been Les Bider, chairman of the company's music publishing unit, Warner/Chappell Music; David Foster, senior VP of Warner Music Group; and Paul Vidich, executive VP of the music group. But sources say that Bider is not in the running for the position and that Foster and Vidich have no experience running multinational music companies.
Some observers say that although Levin and Parsons have indicated that they could look outside Warner Music for a new music chief, it has been Levin's goal to promote from within.
Warner Music poses a challenge for whoever runs it. The unit has been sluggish in recent years. In the most recent quarter, which ended June 30, the music group's financial results were mixed. Although cash flow-defined as earnings before interest, taxes, and amortization-rose 5.2% to $101 million, revenue fell 8.5% to $828 million.
The decline was attributed to softness in Warner Music's international operations, which gives credence to the notion that Time Warner needs an executive with an international outlook to run the unit. Some observers have said that the music company has been behind in efforts to create successful "local repertoire"-star acts in countries outside the U.S.
But Warner Music has been weak in the U.S., too. Its market share of current, or new, albums slipped to 14.7% in the first six months of this year, according to SoundScan, from 17.2% in the same period a year ago. For several years it had been the market leader with more than a 20% share.
Some sources say the company's virtual abandonment of the hard rap genre, which has yielded some of the biggest-selling albums of the past two years, has hurt its domestic market share. Time Warner gave in under pressure from investors and advocacy groups several years ago over music deemed obscene and violent and sold its stake in hot rap and rock label Interscope Records to Universal Music.