Profitless BMG May Lay Off Hundreds

A year without profits, a revolving door on the top floor, and potentially massive layoffs all spell trouble for BMG Entertainment.

Closing its fiscal year June 30 $150 million in the hole, the music giant has been plagued by infighting among top executives, the death of one, departures by others, and recently, an announcement that hundreds of jobs could be slashed in an effort to regain profitability. A downturn in the global music business and various one-time expenses (some of them related to Internet music ventures) contributed to the loss, according to several reports.

A unit of German media conglomerate Bertelsmann AG, BMG has been under intense pressure from chief executive Thomas Middelhoff to improve its performance. Several executive positions turned over late last year, a period of instability that was capped by the sudden death last winter of Rudi Gassner, a music industry veteran who had been appointed chairman of BMG Entertainment in the hope that he could turn it around. Gassner was succeeded by Rolf Schmidt-Holtz, formerly a Bertelsmann television executive. The management merry-go-round continued in June, with the mid-month replacement of chief operating officer Konrad Hilbers by Michael Smellie. On June 28, BMG's European division president Richard Griffiths abruptly left his post after only six months on the job, apparently in insoluble conflict with Bertelsmann brass over how best to cure the company's ills. "By mutual agreement" is Bertelsmann's terse description of his departure.

Thomas Stein has been named as Griffiths' replacement. "Thomas is a first-rate music executive whose creativity, efficient management, and business savvy make him the ideal candidate for this role. With his global experience and proven track record, I have every confidence that under Thomas' leadership we will continue to thrive," Schmidt-Holtz was quoted in a Bertelsmann press release. "This appointment emphasizes BMG's reputation as an A&R-oriented company and reinforces our global strategy in creating and delivering the best music worldwide."

Bad debt is partially to blame for BMG's difficulties. The company's distribution arm was one of several representatives of the music industry's "Big Five" filing a petition to force National Record Mart, Inc. into involuntary bankruptcy. The June 19 legal action took place in the U.S. Bankruptcy Court for the Western District of Pennsylvania in Pittsburgh. National Record Mart operates stores under the names National Record Mart, NRM Music, Waves Music, Music Oasis, Vibes Music, and Music X, located primarily in malls and shopping centers.

Shortly after Griffiths left, BMG announced a summit meeting, to take place in Madrid in mid-July, to discuss strategies to relieve its prolonged problems. Among the suggestions: possibly slashing hundreds of jobs from the company's 5000+ global workforce. The British Griffiths was reportedly promoting the idea of dismissing as many as 200 people from BMG's German operation, including some top executives, a strategy not viewed favorably in the conglomerate's home country. The Madrid meeting will focus on "repertoire development, efficiency, and stepping up our investment in music," said a company spokesman.