Michael Fitzgerald: It's
great to be here with you.
I have a question for you
related to, you know, what
Marty was talking about in his
presentation, which is: Are you
a pessimist or an optimist?
Edgar Bronfman, Jr.:
Well, let's see.
I bought a music company
and chose to run it for
the last six years.
You figure it out.
[Laughter]
Michael Fitzgerald:
I could call you a
glutton for punishment.
I mean --
Edgar Bronfman, Jr.: Yeah.
Well, probably that, too.
Michael Fitzgerald: So --- and
indeed when you bought into
Warner Music Group, certainly I
don't think anyone would have
said you were purchasing a
company that was in an industry
that was flourishing, and
furthermore, was not
likely to flourish.
So this was more like, you
know, joining Eeyore in the
seventh circle of hell.
When you come into that
kind of environment --
Maybe it was the sixth circle.
Edgar Bronfman, Jr.: They
told me this wasn't going to
be a hostile environment.
Michael Fitzgerald: No.
When you come into a place like
this as a leader -- and this is
a session about leadership in
difficult times, and you came
into what was a very
difficult place.
What did you say, coming in?
"I have to take these steps to
try to rally people and let
them know that we have
a positive future"?
What was on your mind?
Edgar Bronfman, Jr.: Well,
I think that what Sanjay
said is important.
I think, first of all, the
most important thing that
you can deliver to an
organization is clarity.
They have to have a vision.
And additionally, what Sanjay
Jha is that, you know,
something helps you deliver
clarity like a crisis.
So, there is no question that
Warner Music and the entire
music industry was in crises
when we got there, which made
people more willing to focus on
what we thought the future was.
And the first thing we had to
do, unfortunately, was set an
economic structure that more
closely fit our opportunity,
and that was difficult
to go through.
But we went through
that on day two.
So, that was announced and done
so that people could look to
the future and not be paralyzed
by what was going to happen
next and who was going
to have their job.
And then what we said was, We
think there is a huge future
for content and for music.
And I'm still hoping we were
right because it has taken
longer than I think
it should have.
But I'm very hopeful that the
things that are now happening
very much as a result of the
innovations that Google has
created through Android and the
ability now of wireless
networks to deliver content and
information in more seamless
ways, I think, we'll see
content generally and music
specifically start
to grow again.
It is a more important product
in people's lives than
it ever has been.
Fewer people are paying for it,
but I think that's principally
because there isn't a form or a
forum that makes it easy
for them to do so.
And I think if we can get the
portable model right, which is
reasonable in terms of cost,
accessible and easy in terms
of usage, I think there
is an enormous future.
Michael Fitzgerald: And I
brought this up on stage as
a prop so we could talk
about some of that.
I know that's something that
even in 2003 when this was
probably not even a glimmer
of a figment of someone's
imagination, you
had this vision.
But you had to be
tactical first.
So you mentioned you came in
and in on day two you made
some economic adjustments.
Those were cutting 25% of the
workforce, just sort of
straight off, and killing one
of the labels that was a
major label within Warner.
I mean, those are
hard decisions.
You had probably then to deal
with some shell-shocked
employees.
And I'm curiously about,
tactically, what you decided
to do to kind of go out there
and say, "Okay, now we are
going to move forward."
Edgar Bronfman: First of all,
there is nothing more than
important, I think,
than a culture.
And I think -- I heard a CEO
once in a panel who was asked
the question, "If you can get
your organization to do one
thing better than it currently
does, what would that be?"
And remarkably, his answer,
which I certainly wasn't
expecting was, "listen."
And I thought that was a great
answer, but then it occurred to
me that there are certain
conditions that are requisite
to be able to listen.
So if you are fearful for
your job, you can't listen.
If you think there is no
future, you can't listen.
So you have to create a culture
where in order to get people to
change -- and, frankly, most
incumbent companies in
transforming industries
don't survive.
So if we're going to be any
different, it's because we're
going to have to listen and
learn how to do new things.
So the first thing really I did
was to go out and talk to
people in town halls and email
people directly and answer
their questions and, frankly,
ask and answer the questions
they were too afraid to ask,
like, "Now that my best friend
has been fired, am I next?"
And the answer to that was no.
It's done.
It's over.
We can look forward, and here's
what we're going to do and
here's how we're
going to do it.
And getting people to buy into
the fact that the person at the
top of the company actually
liked the product that they
were producing, believed in
people's ability to do their
jobs and would fund and support
them and then recognize and
reward them was the message
that needed to get out and it
needed to get out broadly and
quickly so we could
move forward.
Michael Fitzgerald: You also
had the situation of you were a
significant investor in the
group that purchased Warner,
but you had a series of
partners that put up more
money than you did.
And you had to, I think,
certainly in the wake of
purchasing them, I mean,
you returned your
money very quickly.
You returned their money
very quickly through a
very successful IPO.
But you also had to do a
lot of sort of managing
of their expectations.
Your company is a very
different kind of company
from the ones that they
had been dealing with.
Can you talk a little bit about
how that was -- how you had to
deal with sort of managing them
as well as this cultural
sort of shift --
Edgar Bronfman: Well, my
financial partners I think, had
never at that time really got
involved in a media company or
particularly a content company.
And I think their expectation,
their history was that most
of the companies they bought
were pretty much like other
companies that they bought.
And there are similarities
in all industries.
I mean, there is revenue and
there's the costs in between
and then there's profit.
And it is a question of
how you manage that.
But creative businesses, film
business, music business, they
really are different, frankly,
than many other businesses.
And I told my partners when I
signed the contract, I said,
"Congratulations, gentlemen.
You have just landed on
Mars."They said, "No, don't
worry, we have seen all this
before." And within a couple
months, they were like, "What
the hell is this?" Part of my
job was not only trying to make
the vision understandable and
compelling to the employees but
also to the investors as well.
Michael Fitzgerald: And I think
just for the folks who are in
the technology industry, one of
the things that I found when I
was writing about Warner Music
recently was that you have an
industry that, I think, as you
put it, it creates something
out of nothing, in effect.
You are sort of tapping into
human genius and figuring out
ways to capitalize that.
And it is a very subjective
kind of industry.
You had mentioned to me at one
point that you had a discussion
with the partners about -- your
fellow investors about what
people were getting paid in
your industry to
produce things.
How did you kind of manage them
through that, sort of make them
-- help them understand this is
the way this business operates?
Edgar Bronfman: It is difficult
in front of this audience
because generally this audience
thins that everybody in the
media business is
wildly overpaid.
(chuckles)
That's probably largely true.
Michael Fitzgerald: Except
me, I'm not wildly overpaid.
Edgar Bronfman: It is a little
bit like how much does
Lipton pay the tea taster?
If you are in a business like a
film business where you are
investing probably a billion
and half dollars a year, $2
billion a year in a film slate
and you have got an executive
who can improve your
profitability rate from 20% of
those pictures to 40% of those
pictures, the increase in your
profitability is enormous.
How much would you or your
competitors pay to have
that person work for you?
And so the people who can make
those editorial decisions and
make them well are enormously
valuable to Warner Music and
our competitors and other
content companies.
That's not to suggest that then
everybody else in the company
should be paid over the odds.
But those people are
very well paid.
And the levels of those pay
packages are simply things with
which private equity was
completely unfamiliar, which
made for many amusing and
otherwise colorful
conversations.
Michael Fitzgerald: These
people are still with you, yes?
Edgar Bronfman, Jr: Yes only
because they can't get out.
All the original partners are
still there 6 1/2 years later.
It helps that all of our
equity was returned in
the first 9 months.
So in a sense they've been
playing with the house's money.
But, nonetheless, they've been
incredibly successful partners.
Michael Fitzgerald: When you
went into these town halls that
you were doing in places, would
this kind of stuff
come up as well?
What were the kind of questions
people were asking you?
Edgar Bronfman, Jr.: People
were concerned about first
themselves, which is
do I have a future?
Will I be able to go
home and tell my family
I'm still employed?
That was the first
thing to get over.
And then it was, okay, is
there a future for this
business and what is it?
And, of course, it wasn't
following the old model.
So we had to introduce a bunch
of different business models.
And we were actually the first
in the industry to do that.
We'll probably get a lot of
pushback this afternoon for
what we call our 360 model
where, when we sign an artist
now, we sign an artist only if
that artist is going
to produce -- sorry.
We're going to share with the
artist not just in recorded
music revenues but in all
the revenues that that
artist brand creates.
And the -- and, fundamentally,
the way I look at the
music business is we're a
venture capital business.
But, instead of investing in 20
or 30 or 40 companies, we're
investing in some like
number, depends on the
country, of artists.
There's no particular reason,
if we're going to be the risk
capital, why we shouldn't
participate in the brand we're
building and in all the
aspects of that brand.
Quite frankly, if we
can't, we don't sign
that artist, full stop.
None of our competitors will
ever lose an artist to us
because we've gave up
on that principle.
And, when we introduced that
principle, all of our labels
said, "We'll never sign
another artist."
I'm like, "Well, that's
okay. because we're losing
money every time we do."
[Laughter]
And, if our competitors
want to commit economic
suicide, so be it.
That's been a difficult model.
It's been difficult for
the managers, agents,
and lawyers to accept.
But, frankly, you know,
we are the risk capital.
And, remarkably, in the 10, 12,
15 whatever years of the
Internet and the ability for
fans to discover artists on
their own, et cetera, there
really has not been one single
sustained commercial career of
an artist that came through the
Internet and not through
a recording company.
Michael Fitzgerald: But it's
only been 15 years, not
necessarily a lot of time.
Do you think that might start
to change 15 years out?
Edgar Bronfman, Jr.: I think
there will be exceptions.
But I think, fundamentally, the
notion that record companies
are irrelevant is basically
based on the principle that
record companies provide
a distribution.
And now that that distribution
is less necessary or -- it
is still actually
fairly necessary.
But that's a misconception.
The value of record companies
is really not in distribution.
In fact, if you think about
it, somebody like Madonna or
anybody else could have hired
any record company to simply
physically distribute
her records for a fee.
The value of content companies,
record companies, creative
content companies is, is really
in the editorial function,
which is trying to determine
the difference between those
people who are very good
musicians and people who can
become commercially viable
musicians and then in
the marketing and
promotion of those.
That's the value-add.
Distribution really is a
commodity, and it's really
always been a commodity.
And, therefore, I think that's
why people misunderstand the
value of a record company.
Michael Fitzgerald: In
fact, you mention Madonna.
She was probably the
most famous defector
from Warner Music.
I think it was 2007 she went
and did a 360 deal of her
own with Live Nation.
So there were other
companies trying to do
this 360 idea as well.
But you're still doing her
distribution, actually.
Edgar Bronfman, Jr.: Yeah.
But we don't pay retail.
We only do 360 deals with
artists we're signing.
Madonna or Green Day or U2,
not ours, but any of these
great artists, they know
what their value is.
Whoever wants them is going
to pay that or more, which
certainly Live Nation did
in the case of Madonna.
We only sign this with younger
acts so that we make the
investment in their career
and we can share as their
partner in the success,
if they're successful.
Michael Fitzgerald: We just
have a couple minutes left.
One of the things I wanted to
talk about was changing sort of
the mindshift culture, if you
will, to use our
Mindshift theme.
You pulled that off at Warner.
You brought people
back who were part of
their storied past.
Why did you do that?
Edgar Bronfman, Jr.: I've
been on both sides of being
acquired and acquiring.
Both roles are difficult.
But there is an
art to acquiring.
And, when you acquire a
business, you've got to -- just
like coming into a family, by
marriage, or whatever, you have
to respect the culture
of that unit.
And one of the ways that we can
tell the people at Warner that
we respected who they are and
why we purchased them was to
bring back some of the people
who were still incredibly
interested and incredibly
viable like Mo Ostin at Warner
Bros., Jac Holzman who is
celebrating this year the 60th
anniversary of Elektra Records.
And then he also founded
Nonesuch Records.
He founded Elektra when
I think he was 19.
And we brought these people
back to say you have a rich
and deep cultural history.
These people can
still add value.
We care a lot about that.
And, while we're going through
all this change, we still also
want to recognize what brought
us here and sort of create some
ballast for the people as we
went through and continue to go
through this enormous change.
And I think the last thing in
terms of mind change that I'd
say is, you know, there is this
issue about open or closed,
Apple and Android and others.
I think music, too, will go
through this issue of being
both a product industry, which
it is now -- you buy a song,
you buy an album -- to being a
service business as well where
what you're buying is not so
much songs or albums, but
access, the ability to share,
the ability to playlist, the
ability to shift content
from any device anywhere to
another device anywhere.
So the business is going to be
-- it will continue to be a
product business, but it will
also become a service business.
And we've got to build
different kinds of products and
have different kinds of people
who can deliver a completely
changed business model
as technology develops.
Michael Fitzgerald: And you're
sort of actually also bringing
up something that we're seeing
around a lot of talk around the
idea of the web, that there's a
lot of fragmentation going on
around the way we receive
information and how way
we choose to get it.
Within your own industry,
when we were talking back in
April, MP3 sales had really
slowed down at the time.
They haven't really kind of
bounced back from that.
We're seeing in the
meantime streaming.
We're seeing other kinds
of formats emerge.
We're seeing a variety of other
services on devices like
these and other things.
What does this sort of -- is
this sort of flattening
something you think
is permanent?
Are people actually paying for
things that they're downloading
and these streaming services
are really -- that are kind
of the beginnings of this
idea you're pointing to?
Those have not been very
profitable for anybody.
I mean, where are we, and
where do we go from here?
Edgar Bronfman, Jr.: I don't
think anyone's introduced
a viable model.
It has nothing to do with cost.
I don't think anyone's
created a user experience
as well as Apple.
And integrating hardware and
software into a user
experience, I wouldn't have
thought -- I'm not a
technologist -- that
it was that hard.
But obviously 7 or 8 years
later it's very hard, because
nobody really has done it.
We're now seeing the beginnings
of others to do that.
I think, as those services
mature, you're going to
see actually a renewed
growth for the industry.
Because making easy, intuitive
services will be critical.
And they're coming.
I think too often network
operators try to
do it themselves.
Technology companies try
to do it themselves.
But now we are seeing services
that really are robust and
intuitive and convenient
for consumers to access.
They're not profitable yet
partly because their business
model isn't mature enough,
which is -- you know, giving
away product to consumers is,
frankly, as Sanjay said,
it doesn't make sense.
There's capital investment.
We all need to recover that.
No one's going produce
the music if no one's
going to pay for it.
So we've made very clear that
we like all these services, but
we're not going to give our
music away to them for nothing.
But we will cooperate with them
so that consumers can access
music in new and different and
I think very different ways.
And I think the next year
or two we'll see a real
renaissance of growth in the
music industry, I hope.
Michael Fitzgerald: So it
almost sounds like you're
saying we have, in the industry
kind of on a broad scale for
consumers, what you had in a
limited way within Warner.
There's a lot of instability,
a lot of question marks.
Is that slowing
demand currently?
Is that why we're seeing
downloads not really --
Edgar Bronfman, Jr.: I think
you're seeing downloads
because there's no
model to replace them.
So, just like when CDs replaced
cassettes and vinyl, there was
a huge boom where people
replaced their catalogs.
And then CD growth slowed.
Obviously, with technology,
everything moves faster.
So you had a steeper
faster curve.
Now you're seeing a
more modern growth.
But there hasn't been a
service model introduced yet.
You only have Apple, and
they've done a great job.
You know, but I do think there
will be people who will compete
with them and that consumers
will be able to access music
in new and different ways.
Michael Fitzgerald:
You're positive we're
on the cusp of that.
Let's be optimistic in
our last question.
Edgar Bronfman,
Jr.: I'm learning.
I'm PERMA.
I'm PERMA.
Michael Fitzgerald:
Thanks, Edgar.
Thanks very much.
(Applause)
