In opting for the new job, Cohen spurned a $50 million pact to remain at Vivendi’s Universal Music Group, the world’s largest recorded music company, where he was CEO of the Island/Def Jam division. But his new package is believed to be even larger, including a stake in the soon-to-be independent Warner Music.
The weekend announcement instantly propelled ripples across the industry, with speculation raging about Cohen’s potential successor. Antonio “L.A.” Reid quickly emerged as the top candidate. Reid is one of the industry’s top talent spotters, having launched the careers of OutKast, Pink and Toni Braxton, among others. But he was fired earlier their month as CEO of BMG’s Arista label, which posted losses of more than $100 million last year. Doug Morris, chairman of Universal Music Group, is said to be negotiating with Reid now for an unspecified post.
Cohen, who wasn’t immediately available for comment, is one of music’s most bankable stars outside of the recording booth. Helping execute the vision of Russell Simmons, hip-hop’s pioneering entrepreneur, he has ridden the dominance of rap music almost to the top of the industry. Together, he and Simmons established Def Jam Records, now part of Universal Music Group, as one of one of the industry’s premiere labels, launching superstar acts from the Beastie Boys, LL Cool J and Public Enemy to Jay-Z, DMX and Ludacris. And in recent years, as boss of Island Def Jam, Cohen has also compiled an enviable record in rock, signing new hit acts like Sum 41 and Saliva.
At the same time, however, his aggressiveness has landed him in a mountain of legal troubles stemming from a dispute with an independent label, TVT Records. Last year, Cohen was on the losing end of a lawsuit filed by TVT accusing him of unsavory tactics, including fraud. Although later reduced by more than half, the initial judgment was $132 million; Cohen himself was personally liable for some $54 million. An appeal is pending.
And another legal cloud hangs over Island Def Jam because of its co-ownership of The Inc. (until recently Murder Inc.), the rap label that is home to Ja Rule and Ashanti. Federal authorities are investigating the label for alleged financial ties with an imprisoned drug kingpin.
Controversy and all, Cohen remains one of the few executives with a bankable track record in an industry that has all but derailed. And the jockeying surrounding his employment is emblematic of the anxious state of play at this moment in the business.
With its revenues a third below mid-1990s levels, the music industry is desperately attempting to recreate itself and adapt to the age of digital distribution. The tumultuous shift comes in the wake of rampant online piracy, plummeting sales and controversial CD-pricing practices.
On Tuesday, music companies filed yet another wave of lawsuits aimed at halting free online swapping of music-piracy, as the industry describes it-that is all the rage with the industry’s core youthful customers. “The industry needs a totally new model,” says Simmons. “It has to be totally restructured and refocused.”
Yet what the new successful model will be–and whether industry insiders like Cohen or outsiders like Apple’s Steve Jobs will fashion it–is anyone’s guess. For now, no common strategy has emerged among the industry’s top companies, beyond a coordinated legal assault on piracy, a belated entry by music companies into the online music business and relentless, demoralizing cost-cutting.
Two of the music business’s top five, Sony Music and Bertelsmann Music Group, have agreed to merge, and hundreds of employees or more are likely to be fired when or if the transaction wins regulatory approval and is concluded. A third company, Time Warner, is exiting the business with its agreement to sell Warner Music Group for $2.6 billion to an investor group led by Bronfman.
For an independent Warner Music to succeed, Bronfman is betting that he purchased at the bottom on the market. In the meantime, he reportedly plans at least $100 million in cost reductions. Meanwhile, Vivendi, whose Universal Music Group is the largest, is attempting to hold out in the music business until the first sign of a rebound. The upshot: an iron grip on the purse strings.
Not even the industry’s senior-most executives are immune to the hardship. The corporate parents of music companies are firing, recycling and recruiting top executives in a frantic attempt to retool. Last week, BMG fired one of the industry’s top talent pickers, Antonio Reid, as CEO of its Arista label (home to Outkast, Pink and Avril Lavigne), which posted losses of $100 million last year. But Reid, who was spotted at Universal Music Group headquarters the very day he departed Arista, may land at Universal Music-possibly in Cohen’s job if he should exit, executives familiar with the situation say.
Back at BMG, meanwhile, corporate bosses have elevated the legendary Clive Davis, who was toppled from the Arista’s top perch in 2000 to make way for Reid, as CEO of its RCA Group (Christina Aguilera, Dave Matthews Band and Rod Stewart). Davis reportedly is in line now to reclaim Arista, too. Within the past year, Sony fired Tommy Mottola as chief of Sony Music (Beyonce, Celine Dion and Jennifer Lopez), and recruited a television veteran, Andrew Lack, as his successor. Within a few months, however, Mottola had landed at Universal Music Group (50 Cent, Eminem, Jay-Z, No Doubt) as the head of a new label, Casablanca.
The spotlight has been on Cohen for months, though. Cohen first joined Russell Simmons’s upstart Def Jam label in the 1980s. Battling the vanguard of pop and rock, they established rap music as a bona fide new music genre and are as responsible as anyone for hip-hop’s rise to mainstream dominance. The label now is part of Universal Music Group, with Lyor as one of the overall company’s most successful top executives. Still, the timing of last year’s lawsuit against Cohen couldn’t have been more inopportune, with his contract ending early this year. The verdict has left Vivendi with potential financial exposure, and it may face additional uncertainties in the Murder Inc. probe. But few music executives can match Cohen’s track record. And his immediate boss-Universal Music Group chairman Doug Morris, a veteran of the rough and tumble music world-is more than willing to overlook his legal troubles given Cohen’s performance. Executives at parent company Vivendi are said to be more squeamish. And even if Cohen stays put, he will have to adjust to a new era of fiscal constraints under a Vivendi mandate to hold down costs. Senior executives tell NEWSWEEK that the company hasn’t extended the contracts for many within their ranks. The typical contract runs three years, including an option year. In the past, Universal has routinely renewed the contract after the first two years. But many executives have now entered the option year, and they fear the company is setting the stage to cut their pay or reduce the workforce further. Demoralized by cost cuts, the boss of Universal Music’s German division recently quit.
Enter Bronfman. Senior industry executives say Bronfman, who wouldn’t comment through a spokesman, can offer Cohen equity and thus a potentially huge upside if the management team of the independent Warner Music Group succeeds. Bronfman, who formerly owned Universal Music Group before selling it and other assets to Vivendi, is said to be a big fan of Cohen. So is Roger Ames, Warner Music’s top boss under its Time Warner ownership. One thing is certain: Cohen is one of the few music executives who isn’t singing the blues these days.
