News

Job cutbacks are one inevitable result of sustained sales declines. In late March, the ailing music industry began to shed excess workers in an effort to reach profitability, with Sony Music and Bertelsmann Music Group announcing significant reductions in their workforces.

On Friday, March 28, Sony Music Entertainment began laying off about 1000 employees, including workers in sales, manufacturing, and distribution. The cutbacks are part of a restructuring initiated by the company's new chairman and chief executive, Andrew Lack. The former president of NBC took the helm at Sony Music in January and almost immediately announced that the company was due for what he called "streamlining." Sony Music was ranked third largest among the music industry's "Big Five" in US market share last year, and reported operating losses of more than $140 million on revenue of approximately $4.4 billion.

The cutbacks will affect approximately 10% of the jobs in Sony Corporation's music division—two-thirds of them outside the US—and are projected to save the company more than $100 million annually. One-third of the cuts will be in disc manufacturing. Other streamlining efforts will include merging Epic Records and Columbia Records, two of Sony's oldest and most well-known labels, and centralizing the production of music videos. Reportedly, Columbia Records president Don Ienner will oversee the music departments at both labels.

Lack's analysis of the company's structure revealed "a lot of separate entities which had developed their own support structures." He told reporters that his goal is to create an efficient, unified organization with a shared vision about making and delivering music. He met recently with executives from other Sony entertainment divisions, seeking to work more closely with them.

Bertelsmann Music Group (BMG) is also reeling from the industry's most prolonged sales slump. On Thursday, March 27, company chairman Rolf Schmidt-Holtz announced massive cutbacks in the workforce at its Zomba Music Group. About 350 of Zomba's 2000 workers will be dismissed over the next few months. Zomba's 18 international offices will be integrated into BMG's existing operations, with the US and UK publishing units to remain semi-autonomous. Executives who survive the cuts will have larger responsibilities, according to entertainment industry reports.

BMG made the announcement just one day after parent company Bertelsmann AG released a report of a 25% decline in net profits for fiscal 2002. Schmidt-Holtz cited last year's acquisition of Zomba as a major reason for the decline. Like Andrew Lack, Schmidt-Holtz stressed the need to make his company more efficient by integrating many functions and eliminating operational redundancies. "Consolidation means some staff reductions to eliminate duplicated and overlapping jobs and services," he stated.

Bertelsmann AG's profit for the year was €928 million ($993 million) compared to €1.24 billion ($1.33 billion) in 2001, with total sales down 3.5% to €18.31 billion from €18.98 billion the previous year ($19.6 billion and $20.3 billion, respectively). Bertelsmann spent €5.3 billion ($5.7 billion) last year on purchases and other assets, including €2.3 billion ($2.47 billion) for Zomba. In 2002, BMG claimed 10% of the global recorded music market, with 22 albums that sold more than 1 million copies each.