article

05.12.10

Sony's Family Saga

A succession battle is brewing at the second-largest music company in the world, as Sir Howard Stringer must choose between the head of RCA—and his own brother.

Five years ago, Howard Stringer, an affable and diplomatic Brit, beat out Ken Kutaragi to become the first non-Japanese CEO of Sony Corp. The promotion shocked the business world, not just representing a departure from Sony’s ethnic identity, but also its corporate culture—Kutaragi was a technology visionary responsible for the massive success of Playstation; Stringer chiefly oversaw Sony’s entertainment assets. But in a company known for infighting among far-flung divisions, Stringer’s consensus-building skills at a time when Apple and others had out-innovated it in its core consumer electronics competency were the difference-maker.

Those skills are about to get a dramatic test: the contract for the chief of Sony's high profile music division, Rolf Schmidt-Holtz, is set to expire at the end of the year, and the race to succeed him puts Barry Weiss, the head of the RCA Music Group against Stringer’s own brother Rob Stringer, leader of Columbia/Epic Records.

The elder Stringer now has a perfect business rationale for a favoritism-free switch to his brother as CEO.

No one at Sony or its music unit would discuss the situation on-the-record, saying privately that Schmidt-Holtz is under contract and there are no plans for him to leave. But close to a dozen current and former executives told me that it is considered a fait accompli within Sony Music that Schmidt-Holtz will step—or get pushed—aside once his contract expires, opening up a vacancy in the CEO post of the second-largest record company in the world. Tellingly, for instance, Schmidt-Holtz still resides in Hamburg, Germany, though his company’s main regions for business are the U.S., U.K. and Asia.

Enter Sir Howard’s sticky problem. Multiple executives inside Sony say that the 68-year-old prefers to install his brother as CEO of the music unit. Rob Stringer held executive posts at Sony Music, including running its UK operation, before his brother ever even joined the company. Yet those in the Weiss camp say such a decision would be tinged with nepotism. Making things more complicated, says one former Sony executive, Schmidt-Holtz has gone so far as to put Weiss forward as the preferred candidate to succeed him.

“Rolf went way off the reservation with that one,” says this former executive, who is familiar with Stringer's thinking. “Howard was not pleased and basically said that there’s only person who will decide on Rolf’s successor, and it wasn’t Rolf, it was him.”

Though it is one of the smallest parts of Sony, the music division gets outsized attention. In a bid to combat shrinking CD sales, piracy, and the rising power of artists, Sony merged with BMG Music, the record label arm of Germany’s Bertelsmann, in a 50-50 joint venture back in 2004. The combination imploded almost from the beginning, with the corporate cultures of a Japanese company and a German company co-existing as well as one might expect, which is to say not at all. A long political bloodletting ensued—Tommy Mottola gone (though he technically left before the merger closed), Don Ienner gone, Michelle Anthony gone, Andy Lack gone, Charlie Walk gone—leaving bitterness between Weiss and the younger Stringer, as well.

What’s most impressive about the list of departed is how thoroughly the BMG side has outmaneuvered the Sony side—all of those executives hailed from the Japanese side of the company. Not coincidentally, Schmidt-Holt hails from the BMG side of the organization and remains in charge though Sony bought out that company’s stake for $1.2 billion in 2008.

That explains the bitter positioning in front of the power struggle. Payback’s a bitch: Schmidt-Holtz’s contract is expiring at precisely the same time that the younger Stringer’s Columbia/Epic group is ascendant—Michael Jackson’s death goosed sales, while Susan Boyle, Glee, hipster act MGMT and a new AC/DC album all outperformed expectations. The elder Stringer now has a perfect business rationale for a favoritism-free switch to his brother as CEO.

Weiss’ side counters that RCA has also produced lately, including the mainstream breakthrough of Kings of Leon and Kesha, along with the revival of Usher, who has the No. 1 song on iTunes with OMG. “If Weiss doesn’t get the job he should and will walk,” says the former executive. “It means his opportunities there are over.”

Your move, Sir Howard.

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Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post. His work has also appeared in Avenue, Blender, Black Men, and Media Magazine, and he’s appeared on CNBC, Bloomberg, BBC Radio, and Reuters TV.