The headquarters of Warner Brothers Records, home to Madonna and the Red Hot Chili Peppers, could symbolize the troubled company's fate. Designed in the mid-1970s by a trend-setting West Coast architect, the building, in Burbank, California, once echoed Warner's huge success as an artist-friendly label. Now it is known derisively as the ski chalet or the country club to its critics -- including Roger Ames, head of the Warner Music Group, the AOL Time Warner unit that includes the Warner Brothers, Atlantic and Elektra labels.
"The building is irrelevant," said Ames, 51, a veteran music executive hired by Warner in 1999. "My view is you can sign an artist on a park bench."
The allusion was to the out-of-vogue creative culture fostered by Steve Ross, the late Time Warner head who encouraged his music executives to spare no expense in developing artists like Neil Young, James Taylor and Joni Mitchell. Over two decades, that extravagant approach helped make Warner Music the respected leader of the American music industry.
The Ross legacy faded in recent years because of the rising costs of talent and marketing. And in the mid-1990s, management struggles destabilized Warner, often leaving executives with scant recording-business experience running the music division. Warner's domestic market share of recently released albums plummeted from 22 percent in 1995 to 15.5 percent last year, according to SoundScan, the research firm. It ranks fourth among major companies in worldwide share, behind Vivendi's Universal Music Group, Sony and EMI.
But now, because of its ties to AOL Time Warner, it may have a unique opportunity to shape the record industry's future, particularly on the Internet.
It won't be easy. Late last year, European regulators rejected a Warner proposal to merge with the music operations of the EMI Group, a move intended to reduce manufacturing and distribution costs. While Warner Music points to recent hits with albums by Tim McGraw, Stevie Nicks, Eden's Crush, and Uncle Kracker, its revenue fell 6 percent in the first quarter of 2001.
Ames is in a tough spot. He must invest in new artists at a time when cutting costs is a top priority. Warner Music recently cut about 600 jobs through layoffs and early retirement packages.
Some analysts see hidden benefits in Warner Music's diminished role. "These guys have a tremendous advantage," said Michael Nathanson, at Sanford Bernstein & Co. "The stock market doesn't care about this division anymore,'' he added. ``It has real Trojan-horse potential."
Jessica Reif Cohen of Merrill Lynch said, "There is no better-positioned company than AOL Time Warner to be a leader in new forms of music distribution, because they have all the elements" -- a leading subscription service, established music properties and a thriving cable business.
There are plenty of hurdles. While use of Napster and other free online services is tailing off, because of the removal of much copyrighted music, record companies have yet to offer consumer-friendly alternatives.
"Warner is stuck in the same Catch-22 situation as all of the major labels," said Dave Allen, content development director at Intel and formerly of the rock group Gang of Four. "Their reluctance to allow major-label music onto the Internet for digital distribution today is based around the simple fact that they can't just take the artists' material and make it available."
RSS