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President/CEO L.A. Reid Leaves Arista Records submitted by: Lisa D., William, Leroy, Emanuel source: The Wall Street Journal, Reuters, Associated Press, The Financial Times, Music Week, Hits Daily Double Date: January 13, 2004 Arista Records Chief Is Expected to Resign By ETHAN SMITH Staff Reporter of THE WALL STREET JOURNAL Arista Records' president and chief executive, Antonio "L.A." Reid, is expected to step down Tuesday, according to a person familiar with the situation. Arista, a unit of Bertelsmann AG's BMG, posted an operating loss for the first half of 2003, and is said to have lost money for two years running. Mr. Reid couldn't be reached for comment. Mr. Reid's departure comes as Arista has been enjoying a big hit record with OutKast's "Speakerboxxx/The Love Below," which has yielded two big hit singles. BMG management, while happy with Mr. Reid's skills handling artists and music, is said to want an executive in the job "with more financial restraint and accountability," according to a person close to the situation. No successor will be immediately named. For now, Arista executives will report to BMG Chief Operating Officer Michael Smellie. In December, Bertelsmann reached a final agreement with Sony Corp. to merge the companies' recorded-music divisions and create the second-largest music group after Vivendi Universal SA's Universal Music Group. The deal is widely viewed as a test case for the music industry, which has been under pressure to consolidate as Internet piracy and weak retail sales eat away at returns. Write to Ethan Smith at ethan.smith@wsj.com Head of BMG's Arista Records Steps Down By Sue Zeidler LOS ANGELES - Antonio "L.A." Reid resigned on Tuesday as head of Arista Records, estimated to have lost more than $100 million in the past two years despite a roster of hit artists like Outkast and Avril Lavigne. Bertelsmann AG's BMG, the parent of Arista, said Reid resigned as president and chief executive officer effective immediately. BMG executives felt that a change was needed after losses mounted even though Reid, who took over at the helm of the label in 2000, still had about a year and a half remaining on his contract, people familiar with the situation said. All calls to Arista were directed to BMG. Reid was not immediately available for comment. In the interim, executive management at Arista will report to Michael Smellie, chief operating officer of Germany's BMG, the company said. Reid's departure comes as Arista is enjoying a commercial and critical hit with Outkast's "Speakerboxxx/The Love Below," which has sold 3.2 million units in the United States in the four months since its release, according to Nielsen Soundscan. The Outkast album has also garnered several Grammy nominations and was the fifth best-selling album of 2003. But Arista had several other less-than-stellar showings from TLC, Toni Braxton, Whitney Houston and, more recently, Pink, whose latest album has sold only 556,000 units since its November release. The executive shake-up also comes as Germany's Bertelsmann and Sony Corp (NYSE:SNE) await regulatory approval of the planned merger of their recording units. Both companies recently notified European Union competition authorities of their plans for the 50-50 joint venture, first announced in November, which would create the world's second-largest record label. The deal would combine the recorded music units of Bertelsmann's BMG and Sony Music, but exclude music publishing and CD production. A spokesman for BMG said Reid's exit had no connection to the Sony deal, but some industry sources suggested there might be more restructuring as the companies await approval. "This is not related to our planned merger with Sony," a spokesman said referring to the Reid announcement. The deal, which needs antitrust clearance in the United States and Europe, would form a combined company with a 25.2 percent share of global music sales, based on 2002 data. That would challenge market leader Vivendi Universal's Universal Music, which has a 25.9 percent share. Reid took over the top post at Arista in July 2000 after BMG management had asked music industry veteran Clive Davis, who founded the label in 1974, to step aside as CEO at age 67. A public relations debacle ensued and BMG wounded up giving Davis another label under the BMG banner. Prior to running Arista, Reid had co-founded LaFace with longtime friend and partner Kenneth (Babyface) Edmonds in 1989 and built the label into a music powerhouse. Arista President 'L.A.' Reid Exits By NEKESA MUMBI MOODY, AP Music Writer NEW YORK - Antonio "L.A." Reid, who took the helm at Arista Records nearly four years ago and oversaw platinum successes from acts including OutKast, Pink and Avril Lavigne, has left the label, it was announced Tuesday. Reid became president and CEO of Arista in May 2000 after the company's founder and CEO, Clive Davis, left because of parent company BMG's mandatory retirement policy. Reid was not available to comment, according to an Arista spokeswoman. Rolf Schmidt-Holtz, chairman and CEO of BMG, called Reid "one of the music industry's top record men." "His passion for working with and developing some of the world's best artists is unparalleled," Schmidt-Holtz said in a statement Tuesday. "I sincerely wish him the best of luck in all future endeavors." Reid's departure comes at a surprising time; OutKast has the top two songs on Billboard's Hot 100 chart, and "Milkshake" from Kelis, another Arista artist, is No. 3. It also has the top-selling album in the country with OutKast's "Speakerboxxx-The Love Below," which earned six Grammy nominations last month, including album of the year. The company has also had successes this year with albums from Sarah McLachlan and Dido. But the follow-up album from Pink, "Try This," has sold poorly since its release in the fall; her last album, "M!ssundaztood," sold more than 5 million copies. Reid also re-signed Whitney Houston to a $100 million contract in 2001, despite rumors of drug use and erratic behavior about the singer, who's the label's best-selling artist. Houston's subsequent album, "Just Whitney," was the poorest-selling disc of her career. Michael Smellie, BMG's chief operating officer, will be in charge of Arista for now. A spokesman for BMG, Nathaniel Brown, said the company's recent announcement of a planned merger with Sony's music division had nothing to do with Reid's departure. Reid first gained prominence in the early '80s as a founding member of the R&B group The Deele, which featured then unknown Kenneth "Babyface" Edmonds. Edmonds and Reid went on to build a successful production and songwriting partnership with hits for artists such as Houston, and later for the group's own label, LaFace Records, whose artists included Toni Braxton, TLC and Usher. Davis, whom Reid replaced, later founded J Records with backing from BMG and is now head of RCA Music Group. BMG axes Arista head in wake of big losses By Peter Thal Larsen The Bertelsmann music executive credited discovering new stars such as Pink and Avril Lavigne has been forced out after his superiors at the German media group lost patience after several years of heavy losses. Antonio "L.A." Reid, head of the Arista label, left Bertelsmann's music group with immediate effect on Tuesday, the company said. His departure reflects the harsh new reality of the music business, where the slump in sales means creative ability and chart success can no longer cover up for poor cost control. It comes almost exactly a year after Tommy Mottola was ousted as head of Sony Music. Mr Reid fit firmly into the bracket of the creative but free-spending record executive. He helped nurture a string of successful acts whom he promoted heavily. Indeed, he is mentioned by name on one of the tracks on Pink's hit album, Misundaztood. But Mr Reid was also responsible for negotiating lucrative contracts with singers such as Whitney Houston and Toni Braxton which the company was forced to write off after their initial albums flopped. One person familiar with the matter said Arista had lost more than $100m last year, largely as a result of the writedowns. Even so, the timing of Mr Reid's departure came as a surprise to industry observers, who said the losses had been expected for some time. What's more, some of Arista's most successful acts, including the hip-hop group Outkast and the singer Dido, are expected to feature heavily at the industry Grammy awards early next month. BMG is currently seeking regulatory approval for its merger with Sony Music, a deal that would create the world's second-largest music company, and some insiders said it would have been more logical for Mr Reid to leave later this year when the deal is expected to be completed. Whether or not the merger is approved, Mr Reid's departure seems certain to condemn Arista to a merger with another label. BMG on Tuesday said Arista's management would report directly to chief operating officer Michael Smellie. But insiders expect the label will ultimately be combined with one of BMG's other labels or with one of Sony's subsidiaries. Mr Reid's plans are unclear. Given the retrenchment in the music industry, it seems unlikely that another similar position will open up. However, he may try to set up his own label as part of a joint venture with one of the larger music groups, similar to a deal Mr Mottola struck with Universal Music Group. He is thought to be independently wealthy, largely as a result of selling his LaFace label to BMG. Two of Universal's leading executives, Jimmy Iovine and Lyor Cohen, are currently understood to be renegotiating their contracts with the company, which is controlled by Vivendi, the French conglomerate. LA Reid out at Arista Arista Records president and CEO LA Reid has left the BMG unit in a sudden move. Reid's high profile tenure at the label has been marked by some huge international breakthroughs such as Avril Lavigne, Pink, Usher and Outkast - currently number one in the US this week - as well as hefty expenditure on A&R and marketing to achieve that success. BMG insiders in the US have suggested for some time that Arista's financial situation has raised concerns with senior Bertelsmann executives, especially as the company prepares to merge with Sony. News of Reid's departure comes just a day after BMG and Sony moved to the next stage of their planned merger with the lodging of a formal application to merge at the European Commission. Arista executive VP and general manager Larry Mestel is expected to oversee the label in the short term, although for a "brief period" its senior executives will report directly to BMG chief Michael Smellie. US industry speculation has suggested that Arista, RCA/J and Jive could all be merged together, possibly prior to the merger with Sony gaining regulatory approval. BMG COO Michael Smellie in Charge, as Longtime Hitmaker Becomes Hot Free Agent The Antonio "L.A." Reid era at Arista Records officially came to an end today, with the flamboyant executive exiting the label. And while it lasted less than four years, Reid more than put his imprint on the company he took control of amid much industry skepticism after the 25-year reign under the legendary Clive Davis. Among the acts whose careers he launched are OutKast, Avril Lavigne, Pink, Usher, Toni Braxton and TLC. Anticipating regulatory approval of the Sony BMG merger, BMG began the process of downsizing, with Arista expected to be folded into Bertelsmann's other two record labels, RCA/J (ironically, under Davis) and/or Jive Records. The merger has just gone to Mario Monti's European Union, which can take up to four months in making its decision, before going to the U.S. regulatory commission. Executive management at Arista will report to BMG COO Michael Smellie, with Exec. VP/GM Larry Mestel reportedly in charge of the day-to-day operations. "L.A. is one of the music industry's top record men. His passion for working with and developing some of the world's best artists is unparalleled," said BMG Chairman/CEO Rolf Schmidt-Holtz. "I sincerely wish him the best of luck in all future endeavors." In May, 2000, Reid was officially named to the post of President/Chief Executive Officer at Arista Records, replacing the only leader the label has known since its inception in 1975, Clive Davis. Reid was originally tapped as Clive's successor by then-BMG Entertainment President/CEO Strauss Zelnick, whose desire to establish an orderly succession at the label caused a firestorm of media attention. The company even sent Reid to Harvard Business School to learn the ropes of running a company. At the time, Reid, a Cincinnati native who starred as a performer in the R&B group The Deele, was Co-President of LaFace Records, the label he co-founded in 1989 with bandmate/partner Kenneth "Babyface" Edmonds as a joint venture with Arista. The LaFace roster included OutKast, TLC, Toni Braxton, Usher, Pink and Tony Rich. Reid took over for Davis in July, 2000, and steered the label through one of its most successful periods, topped off by this year's pop breakthrough for six-time Grammy nominees OutKast. The Atlanta rap duo have dominated the albums and singles charts into the new year, selling a total of 3.3 million OTC to date. Other hit Arista acts currently out and selling include Sarah McLachlan, Dido and fast-breaking Kelis. Reid now becomes a hot free agent who will undoubtedly be pursued by such admirers of executive talent as WMG's Edgar Bronfman Jr. and UMG's Doug Morris. 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