Edgar Bronfman Jr.'s second act deserves some credit—and some scrutiny, too
Fortune's Fool:Edgar Bronfman Jr., Warner Music,and an Industry in CrisisBy Fred GoodmanSimon & Schuster; 323 pp, $28
The music business, Hunter S. Thompson once suggested, is "a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There's also a negative side." So what, one wonders, is Edgar Bronfman Jr., scion of the Seagram liquor empire, doing as the CEO of Warner Music Group?
As Fred Goodman tells the tale in this latest entry in the music industry apocalypse genre, Fortune's Fool: Edgar Bronfman Jr., Warner Music, and an Industry in Crisis, Bronfman is the victim of his own genuine interest in entertainment. In high school, Bronfman glommed onto a script that had been sent to his father for financing and ended up working on the movie. He skipped college and co-authored songs for Dionne Warwick and Ashford & Simpson. At 27, Bronfman went to work in the family business; two years later, he was promoted to run the flagship liquor division. He bought companies and sold others. Investors were not much impressed, so in the mid-1990s he bought music companies—MCA, Interscope, and PolyGram.
Thanks to Jimmy Iovine at Interscope, Bronfman experienced a quick gusher of music business success. Iovine's portfolio of rap artists delivered outrageous profits, but that revenue gutted the industry's venerable business model. In the past, record companies developed careers and built catalogs. Now the business was moving toward the cocaine model: hit, hit, hit.
In 2000, Bronfman made a catastrophic merger—he hitched his family's fortune to Vivendi and Jean-Marie Messier, the out-of-control French CEO who led the company to an $11.8 billion loss the next year. The cost of the Bronfmans' entry in the multimedia business: $3 billion. Damage to Edgar's reputation: priceless. And then, as if on cue, a chance for redemption. Owing to an even more disastrous merger—AOL and Time Warner—another music company was on the block looking for a savior. Bronfman made a great deal; for half the purchase price, he got control of Warner Music and took it private. As Goodman tells it, Bronfman tried everything to reinvigorate Warner. He hired Lyor Cohen, a proven hitmaker. He pushed Warner to license music on iTunes; for a while he allowed YouTube to show its videos. He is even said to have discovered British singer James Blunt, whose debut record sold 11 million copies worldwide.
The effort was valiant, but the timing was all wrong: iTunes was turning albums into collections of 99 cents singles while much of the target audience believed music should be free. (And if it wasn't free, it could surely be pirated elsewhere.) Warner gained share, but in a rapidly shrinking market. In 2007, Warner had the year's best-selling album, Josh Groban's Noël, which sold 3.7 million copies. In 2000 that wouldn't have made the top 10.
Warner isn't alone in failing to deliver a creative or technological breakthrough. Meanwhile, independent labels—staffed by people who love music more than they dream of taking a chopper to the Hamptons on Friday afternoon—are finding artists like Yeasayer and Beach House: acts that may never sell in the millions but attract audiences willing to pay for their music. Could such nimble enterprises represent the future of the business?
If the allocation of Warner's $750 million public offering, in 2005, is a guide, we may not be there yet. Bronfman's priority was his investors; only $7 million was earmarked for the company's expenses, and Bronfman and Cohen each collected bonuses of $5 million. Another transaction makes Bronfman look even shakier. Goodman reduces this story to a single paragraph, but in 2007, Len Blavatnik, a Russian-American billionaire who had invested $25 million in Warner Music Group in exchange for a seat on its board, bought Bronfman's New York townhouse for $50 million in cash—the second-largest private real estate transfer in Manhattan, ever—shortly before he resigned as a director. Curious: Blavatnik already owned two homes in Manhattan. Just as curious: The sale was never presented to the board.
Anecdotes like this one—and the $2.8 million distribution deal Warner made with Bronfman's sister and her husband, who then subcontracted the work to another firm—prevent Bronfman from getting respect and offer insight into the industry's continuing spiral. As does the fact that, in May 2009, as he was starting his fifth year as CEO and with Warner Music stock mired around $5, he announced he was moving to London for two years. Ironically, in London, Bronfman finds himself No. 1 on the Sunday Times's Music Millionaire's List. It might be a prudent time to declare victory and sell. Alas, that would require a deep-pocketed believer—and, unfortunately, there's only one Edgar Bronfman Jr.