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THE LEFSETZ LETTER: What We Learned From Lack

Everyone's focusing on the departure of Donnie Ienner. But the real story here is how a smiling, inept Howard Stringer hired an inexperienced, self-satisfied TV executive to run Sony Music and ended up in a joint venture wherein control of the music division was lost. What have we learned from the Lack debacle?

1. Music is a skilled position.

You can't study how to be a record company president in college. Actually, you can't learn how the business runs in any school. A law degree and/or an MBA won't hurt you, but they won't help either. Rather you've got to listen to a million records, all of which the erudite cognoscenti running the traditional media

Bob Lefsetz, Santa Monica-based industry legend, is the author of the e-mail newsletter, "The Lefsetz Letter". Famous for being beholden to no one, and speaking the truth, Lefsetz addresses the issues that are at the core of the music business: downloading, copy protection, pricing and the music itself.

His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to music business honchos like Michael Rapino, Randy Phillips, Don Ienner, Cliff Burnstein, Irving Azoff and Tom Freston.

Never boring, always entertaining, Mr. Lefsetz's insights are fueled by his stint as an entertainment business attorney, majordomo of Sanctuary Music's American division and consultancies to major labels.

Bob has been a weekly contributor to CelebrityAccess and Encore since 2001, and we plan many more years of partnership with him. While we here at CelebrityAccess and Encore do not necessarily agree with all of Bob's opinions, we are proud to help share them with you.

business think are worthless, and you've got to learn social skills, the lessons taking place on the playground or street corner as opposed to the classroom. It may look like record company executives are idiots, but why is it that NOBODY other than Ted Field has come from outside the business and had success? If it's so damn easy, why didn't all these fat cats who entered the business make millions? Because it's anything but easy. And harder than movies or television. Where distribution is much more limited, giving those in power a leg up, not having to worry about newcomers trying to steal their jobs. And, as for Mr. Field, his brilliance was in hiring Jimmy Iovine, an experienced street smart record producer. Can you imagine a street fight between Jimmy and Andy? Andy'd be on his cell phone, calling for reinforcements, trying to reason with Jimmy, telling him to fight fair, and just when Andy looked away, believing the siren in the distance was the belated arrival of the police to save his ass, one of Jimmy's henchmen would cold-cock him, and not only would Andy have no idea who did it, he'd be too afraid to press charges.

2. You can't be arrogant unless you can back it up.

Clive Davis is the paragon here. I puke every time I hear him say
how he invented music. But his endless string of hit records, now with CREDIBLE acts like Pearl Jam, make it so if he's criticized, it doesn't stick. When Andy Lack started talking about the RECORDS, that's when he was done. Because throughout the business, never mind the halls of Sony Music, people were pissed, saying WHO THE HELL IS THIS GUY? The lowliest A&R man, who had to intern and beg for the job he will get fired from soon, knows more about music than Andy Lack EVER will.

3. Leaders function best in the background.

Doug Morris and Jimmy Iovine, the two most successful executives of the day, do very little press. Doug Morris essentially none, and he RUNS the group. Jimmy stepped out a bit during the Carly Fiorina years, but realizing the cost of being in the public eye when you release such family-friendly records as "I Smell Pussy" was just too much, he retreated into the background. Doug learned his lesson by doing the opposite, by getting so much publicity at Warner that he lost his job. But, unfortunately, Andy Lack didn't live through the Morgado years. For if he had, he would know that if non-music people flex their muscles, they destroy businesses and when the press is looking, trouble is not far behind. Andy Lack ran headlong into the press trap and it ultimately ate him.

4. Trust no one.

The BMG executives killed Andy. Why Mr. Lack thought he could merge his company with another and there would be harmony thereafter flummoxes me. Students of the business know that MCA bought Polygram and blew everybody out. That Alain Levy was not able to remain in power. By not blowing out all the BMG execs, Lack was cooked. By trying to look like a hero, merging the two companies, he forgot that even Mercedes-Benz blew out all the Chrysler execs. Andy Lack was signing his own death warrant. And, he was so eager to do the deal, so unschooled on what was at stake, that he got into bed with the devil. Weren't these the same people who blew a merger with Warner Music over $50 million? Essentially chump change? When BMG became disenchanted it used all the tools at its disposal to dethrone Andy. Isn't it stunning that Andy used to run a network news division and he was killed by BMG leaks to the press. Then again, someone like Andy, coming from TV, believes news is natural disasters and soft family stories. But it's the news that investors read in the "Wall Street Journal", and casual business watchers see in the "New York
Times" and "Los Angeles Times", that matters, never mind the trades. Power plays are made in print, and Andy Lack believed if it didn't happen on TV, it didn't take place. But Clive Davis' mercurial campaign ultimately killed Andy, and Sony.

5. Don't have contempt for the product.

Andy would always say business was going to turn around…sometime in the indefinite future. A leader has to be a CHEERLEADER! Has to love the business and records, it must be palpable. Whereas Andy seemed to hate the business and the records Sony put out. Stunning when the vapidity of what's on television makes the music of today look classic. If you don't demonstrate love for what you're doing, you're not long for a business that's built on passion.

6. Admit your mistakes.

The reason Andy was buried so easily was the rootkit debacle. Which many trace to BMG as opposed to Sony. Study crisis management from Tylenol to Perrier. The first thing you do is ADMIT THE MISTAKE! And, as the number one guy, this was Andy's responsibility. But Andy didn't even seem to know what the rootkit was, or the depth of its invasion of a computer's inner-workings. And there was the ridiculous ever-growing number of titles involved. Andy should have said that the customer is first, that a mistake was made, he was convinced this was a way to solve eroding sales, but he was wrong and from now on no disc would ever be made with copy protection, which is what the ultimate result was anyway. Heard about any copy-protected discs recently? Nobody can sell them, because the public won't have anything to do with them.

7. Don't try and save the day when you don't know what day it is.

It's not 1975, Andy Lack would have looked much better if he'd let Bruce Springsteen walk. Sure, on the inside the fact that the deal was made unilaterally pissed off BMG. But for the other pros in the business, it was unfathomable that Andy would give an aging superstar who hadn't sold tonnage in eons such big money, such a great deal. It showed that Andy knew nothing about the modern music business. One dominated by beatmakers as opposed to fiftysomething wordsmiths. Sure, the baby boomer press was all over Springsteen's Seeger album, but sales like this put you out of business. Print doesn't sell records, airplay does. And the odds of getting Bruce Springsteen on Top Forty radio were about equal with Mel Tillis hosting the evening news. Springsteen wasn't going to go anywhere else anyway. And, in a protracted press battle, Andy could have leaked Bruce's sales numbers…OOPS, they're essentially public, having been counted by SoundScan. The catalog was all that was important, and Sony already had it!

8. Don't promote worker bees to supervision queens.

Donnie Ienner was not meant to sit behind a desk. He's the guy you want roaming the halls with a baseball hat. Sure, he came from within, but was he fit for the job? The top player should be someone essentially hands-off, someone who steers instead of raises the sails and motivates the grinders. Donnie was built for the trenches. He was the wrong guy for the job. Clive is still making hits, historically Donnie made even more, that were more profitable. If Donnie Ienner had been left in charge of columbia, BMG would not have taken over this company, at least not without a protracted fight. Because it's all about hits. And once Donnie was removed from the day to day creation of those, his managerial responsibilities spreading him too thin, they dried up.

9. The solution must fit the era.

Sony discounted its catalog, the only asset that really means anything in the Net era, to merge on an equal basis with BMG's evanescent hits. And then, when BMG continued to have hits, they took over the company. This is like a carpetbagger coming in and taking over a hundred year old town. To address the future Andy should have leaned the company down in its conventional operating style, not just cut costs. Newfangled record deals, distributing new Net acts for a reasonable fee with no advances, should have been made. Budgets and marketing expenses should have been restructured. Andy should have given up more for less. In other words, less up front but more on the back end. Cutting costs in accounting and other back office areas temporarily
pleases Wall Street, but when the hits dry up, what are you going to pull out of your hat?

In the wrenching throes of a misguided business, the Andy Lack saga has already been forgotten. As the major labels fight for their piece of the future. But Andy Lack was the wrong man for the wrong time and his disastrous reign should be studied by all those with the power to hire and fire in this industry. If you look askance at the music business, if you don't trust the players, if you can't see a way out, GET OUT! That's what Time Warner did. Howard Stringer would have been better off selling Sony Music than installing Andy Lack. As for how the rest of his restructuring/reign at Sony will play out… The company is not based on management decisions, but INNOVATION! Just like in the record business, ONE HIT can cover up a ton of mistakes. Sony has no culture of hits anymore. Sure, the Bravia TVs are successes, but they're not revolutionary, most people don't know what they are, they don't dazzle, they're far from being a Top Ten record. Apple hires engineers, Sony hires suits. It's no contest.