Music's Misunderstood Genius
When Atlantic Records founder Ahmet Ertegun found out that Edgar Bronfman Jr., scion of the Seagram’s family fortune, had bought Warner Music Group in 2004 his first thought was, “I can’t believe the company is being sold to that snot-nosed kid.” Bronfman, it’s worth noting, was 49 years old at the time.
But at least Ertegun—whose remarkable pedigree included writing the Ray Charles hit “Mess Around,” producing the Queen of Soul, Aretha Franklin, and signing Led Zeppelin—was sufficiently accomplished to have an opinion on Bronfman. Unlike, say, former EMI Chairman Sir Colin Southgate. During a dinner in London to discuss a potential deal with Bronfman in the late ‘90s, Southgate, whose lack of music industry knowledge equaled his absence of grace, said to the Seagram’s heir: “I have nicknames for all you Hollywood guys. You know what my nickname for you is? Bootlegger.”
“It’s the downside of a family business: anything good is because I’m somebody’s son; otherwise, I’m a schmuck.”
Bronfman bashing has long been a favored sport of media executives and writers alike, and judging by the title of Fred Goodman’s new book in which these two stories are contained, Fortune’s Fool: Edgar Bronfman Jr., Warner Music, and an Industry in Crisis, you’d think the billionaire was in for a 273-page beating. But instead, Goodman, a well-known music journalist whose work has appeared in Rolling Stone, The New York Times, and other national publications, offers a contrarian view of Bronfman. He argues that Bronfman’s emergence as the unlikely leader of the crippled music industry is helping to restore his tarnished reputation. Indeed, while executives continue to flee the industry and artists like Radiohead lead singer Thom Yorke pronounce the major label system dead, Bronfman remains a true believer. He could have sold WMG a few years ago, made a handsome profit, and left the industry’s problems to someone else to figure out. But running WMG isn’t about money for Bronfman. It’s about pride and purpose. Perhaps the most misunderstood executive in media, Efer, as he is known within the family, is out for respect.
Conventional wisdom is that Bronfman, desperate to be a big swinging dick in Hollywood, grabbed control of Seagram’s and promptly recast the liquor giant as an entertainment conglomerate, losing $3 billion of the family fortune in the process through an ill-advised merger with France’s Vivendi SA. It’s a cliff notes version of Bronfman’s resume that glosses over his considerable hesitation with joining the family business and adheres primarily to the script written by his uncle Charles, himself an aggrieved heir who never got over being outmaneuvered by Bronfman’s father for control of Seagram’s.
The problem with this theory, which business reporters have gleefully and gullibly regurgitated, is that it ignores not only Bronfman’s many successes, but also the nuances and strategic rationale behind his mistakes. The virtue of Goodman’s book is that it is definitely not a defense of Bronfman—it’s simply a reexamination of the facts that ultimately reveals Bronfman to be far from the buffoon portrayed by business writers.
The $3 billion that Bronfman lost, for instance, was money that his deal-making added to the family’s net worth, which is still north of $5 billion, according to Fortune and Canadian Business. Or consider the performance of WMG under Bronfman’s leadership. Sure, WMG’s stock price has collapsed, but that’s less a function of Bronfman’s management than macroeconomic factors that have shaved the share price of every entertainment company. Moreover, as the only publicly traded pure-play music company, WMG’s stock gets punished for the entire industry’s woes.
The inconvenient truth for Bronfman haters is that WMG is currently the best-managed and best-positioned record label among the big four. Revenue at WMG has come in between $3 billion and $3.5 billion throughout Bronfman’s tenure, while revenue for the rest of the industry has shrunk by upward of 15 percent. More telling, though Universal Music Group, the industry’s largest label, generated $1.1 billion in revenue during this year’s first quarter vs. $918 million for WMG, Bronfman’s company posted cash flow of $112 million while UMG only recorded $84 million. Digital sales make up 30 percent of WMG’s overall revenue, by far the highest percentage in the industry, and Atlantic Records stands alone as the only music label to generate more than 50 percent of its revenue digitally. Translation: Bronfman is doing more with less, and he’s doing it more innovatively than the rest.
That’s to say nothing of the fact that Bronfman, before acquiring WMG, helped build UMG into the industry leader it is today. In Goodman’s tale, the real fools are former Time Warner CEO Gerald Levin and entertainment division leader Michael Fuchs. After the duo fired Doug Morris, Bronfman promptly signed him up to run MCA Records, marking the beginning of an eight-year relationship that, as the book notes, would use the discarded labels, artists, and executives of Time Warner as the foundation for what would eventually become UMG, where Morris still resides as CEO until the end of this year when he is set to retire. Bronfman’s partnership with Morris then, as well as with current WMG top lieutenant Lyor Cohen today, is indicative of his ability to spot and nurture top executive talent—a rare quality that betrays the media’s view of him as a limelight seeker out for his own fame.
Next, Bronfman deftly snapped up WMG’s most profitable label, Interscope Records, after political pressure over Ice-T’s controversial “Cop Killer” song forced Levin and Fuchs into a sale. “I felt the genre would ultimately mature,” Goodman quotes Bronfman as saying about the commercial prospects of Interscope’s gangsta rap acts, a prescient understatement born out by both the chart and pop culture dominance of Eminem, Jay-Z, and others.
But the sum of Bronfman’s successes have been undercut by two deals that have tattooed him as a sucker: the sale of Seagram’s television studio and cable networks USA and Sci-Fi to Barry Diller and the subsequent merger of Seagram’s with Vivendi. (Disclosure: Diller is Chairman and CEO and Bronfman is a director of IAC, which owns The Daily Beast.)
Reaction to the Diller deal was typically harsh, with pundits crucifying Bronfman for giving up control in exchange for a minority stake. What the press didn’t understand was that for Bronfman the deal wasn’t about money—it was about gaining access to Diller’s operational acumen to grow what was then a weak collection of cable networks. Nor did the press read the deal’s fine print. If they did, they would have seen that the deal Bronfman cut was actually rather shrewd. As Goodman notes, along with a 45 percent stake in the enlarged company, Bronfman also secured veto power over large deals and the exclusive rights to buy back Seagram’s stock from Diller.
Even with the benefit of hindsight, however, there’s still no real justification for the Vivendi merger. It was a bad deal that succeeded only in destroying value. Not unlike the AOL-Time Warner merger which preceded it, the shotgun marriage was based on the faulty logic of synergy. Putting the entertainment assets of Seagram’s together with Vivendi’s telecom and Internet holdings was a great theoretical idea that turned into a practical nightmare. And based on the absurd premium Vivendi CEO Jean Marie-Messier agreed to pay—$77.35 per share, 53 percent above Seagram’s share price, which netted the family a $12.4 billion payday—Bronfman should have realized that he was getting into bed with the wrong partner.
The Seagram’s deal was the first in a buying binge by Messier that brought Vivendi to the brink of bankruptcy. Though Messier continued to pronounce publicly that the company was in great financial condition, it quickly became apparent to Bronfman that he, along with everyone else, was being duped. Recognizing that Messier was simply a corporate charlatan, Bronfman stepped up and led the charge to remove the megalomaniac. (Messier is currently on trial in Paris on charges of misleading investors.)
While that move helped Bronfman save Vivendi Universal from financial ruin, the deal further hurt his credibility. For more than a decade he has been labeled a “mogul-in-training,” a “ludicrously vain pretender,” “Wall Street’s favorite whipping boy,” and much worse. That’s what Goodman means by “Fortune’s Fool”—it’s a Shakespearean reference suggesting that no matter what achievements Bronfman accomplishes, the vast wealth he was born into leaves him powerless to change the predetermined view that he hasn’t earned anything on his own. Except derision, of course.
“I made the decision when I came to Seagram that it had to be OK that my public persona would be bad,” Edgar says in the book. “It’s the downside of a family business: anything good is because I’m somebody’s son; otherwise, I’m a schmuck.”
Or maybe he’s simply a guy who has made a lot of smart moves and a few dumb ones—kind of like every other CEO out there.
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.