Christopher Goodman
Career Opportunities I
New York University Summer
June 24, 1998
PolyGram N.V. is a global entertainment company, based in the Netherlands, that has offices in over forty countries and employs approximately 12,000 people. PolyGram is active in music recording, music publishing, television, and film, with music accounting for 84% of total turnover. It is the world's largest music company and has numerous subsidiary labels including such well known names as Motown, Mercury, Def Jam, Verve, and Deutsche Grammophon. Currently owned by Philips N.V., which holds approximately 75% of the shares, plans have been made and are currently in progress to sell PolyGram to Seagrams Company Ltd., owner of Universal Studios (which includes the Universal Music Group). The merger between Universal and PolyGram will produce a huge company that will likely control a very large portion of the market in recordings and film. According to Billboard, a combination of PolyGram and Universal would have claimed first place in total U.S. album shares with 22.4% of the market, January to March 1998. PolyGram alone claimed 11.9% for this time period.
PolyGram was founded in 1962 as a joint venture of Philips Electronics N.V. and Siemans AG. However, PolyGram's roots can be traced back to the 1898 founding of Deutsche Grammophon Gesellschaft, which is one of the world's pre-eminent classical labels and is still one of the company's most important. Over the years, PolyGram acquired more labels and expanded into different genres and countries. Between 1985 and 1987, Philips bought Seiman's portion of the company, and then made two public offerings in 1989 and 1993, selling about 25% of the company. (S&P 1861D)
The last ten years have seen particular advancement in market share and in number of labels, countries, and genres. Recently added countries include Thailand, Chile, and the Czech Republic. In 1994 it was the first western record company to establish a subsidiary in Russia. Expansion into other genres and strengthening of genres the company was already in have been accomplished through the purchase of catalogs and the addition of other new and old labels. Some recently acquired catalogs include the catalogs of Jerry Lynn Williams, Desmond Child, Jeff Barry, and Roy Orbison. Labels added within the last ten years include some of its more important labels, like Motown (1993), Def Jam (1994), and A&M (1989). (PolyGram Website)
Another important expansion has been into film through its PolyGram Film Entertainment division, started in 1992. Though it still contributes only a small percentage of the company's overall revenues (16% in 1997 according to S&P), the film division has achieve a compound annual growth rate of about 27% in revenues. (PolyGram Annual Report) With its acquisition of the CDR film library, the company's total film catalog has over 1,500 titles. Production labels include Propaganda Films, Working Title Films, and Interscope Communications. (S&P) PolyGram Film Entertainment also has close ties with Jodie Foster's Egg Pictures, Tim Robbin's Havoc Inc., Tony and Ridley Scott's Scott Free Productions, and Castle Rock Entertainment. Recent hit films by PolyGram include The Game, Four Weddings and a Funeral, and Fargo. (PolyGram Website) This expansion is very important considering the importance of film and the development of new digital technologies like DVD; we might see a similar re-release boom in films as there was in music with the introduction of the CD. Of more immediate benefit is the increasing importance of soundtracks in the market. Having film and music within the same company should make distribution and sale of soundtracks more efficient and profitable. The importance of soundtracks seems to be a growing trend.
PolyGram has been in the news a lot lately as a result of its merger with Universal. Universal Studios, Inc., a subsidiary of Seagram Company Ltd. (the beverage company), will purchase Philips N.V.'s shares of the company in a transaction valued at approximately $10.4 billion. The details of the agreement are as follows:
Universal will acquire Philips' 75 percent ownership position in PolyGram as part of a tender offer for all issued shares, including publicly-held shares, for NLG 115 approximately US $57 per share in cash or, at the shareholders' election, for a mixture of cash and Seagram common shares, based on an exchange ratio of 1.3772 Seagram shares for each PolyGram share. These agreements call for Seagram to issue a maximum of approximately 47.9 million common shares (12 percent of the outstanding shares after the transaction), or approximately $2 billion in value. Philips will tender all its PolyGram shares into the Seagram tender offer, acquire as many Seagram shares as may be available to it in the tender offer (taking into account the election by the public shareholders), and hold its Seagram shares for no less than two years. (PolyGram Press Release, June 22, 1998)
PolyGram's Labels include:
These labels show the wide range of genres the company works in. PolyGram is strong in Pop and Rock, with artists like Sheryl Crow at A&M Records, and Hanson (the band everyone loves to hate) at Mercury. Fastball, signed with Hollywood Records, currently sits in the number 5 position of Billboard's "Hot 100 Airplay" chart. Mercury Nashville currently has a top ten album with Shania Twain's "Come on Over" - a country album that has had remarkable crossover success, with the single "You're Still the One" staying at number two in Billboard's "Hot 100 Singles" chart for the second week and being in the chart for 20 weeks. (Billboard 92, 94) Polydor/A&M's Grease Soundtrack is currently number one on Billboard's "Top Pop Catalog Albums" chart. (Billboard 72) PolyGram dominates the classical field, holding six of the top ten album places, the top two spots being held by Andrea Bocelli (with Philips Classics) for his "Aria - the Opera Album" and "Viaggio Italiano" albums. Lucianno Pavarotti, signed with London, is at seven with "Notte D'Amore." Def Jam has several popular artists who are charting in Rap and R&B, and Verve continually has several artists in the charts. (Billboard)
In 1997, PolyGram had 38 albums selling more than a million copies each. These albums also show PolyGrams strength in a variety of markets and locations. Andrea Bocelli sold 6.8 million copies of the classical album "Romanza." US pop group Hanson's debut album "Middle of Nowhere" sold 8.4 million copies. Japanese band Glay sold 4.5 million albums, and Shania Twain's sold 4 million copies, even before European release. Elton John's "Candle in the Wind 1997" became the world's best-selling single ever.
PolyGram has been a profitable and financially secure company, as is demonstrated by its 1997 annual results:
NEW YORK, FEBRUARY 11, 1998 - PolyGram, the global entertainment group, today announced a 17 percent rise in net sales and 11 percent growth in operating profit for the full year 1997. In the fourth quarter, sales grew by 23 percent while operating profit was up by 18 percent and net income by 14 percent.
The company's music division reported a 17 percent rise in both sales and operating profit - with local currency sales up 8 percent - an outstanding performance in a year when music markets were difficult. The film division increased sales by 16 percent and was profitable in the fourth quarter.
Overall net income and earnings per share grew by 9 percent, slightly less than operating profit due mainly to a higher tax rate. PolyGram is proposing a 1997 dividend of NLG 1.00 per share.
I expect that PolyGram's future will be a bright one, particularly with the merger with Universal. Many of the people who now work at Universal used to work at PolyGram. The two companies compliment each other, particularly when one considers that PolyGram's strengths are in Europe and genres like classical and jazz, while Universal's strength is primarily in popular music (in general) and is limited mostly to the United States. Universal adds the vigor of a young company to PolyGram's years of experience. The involvement of the two in film and video is sure to help them in the years ahead. There is strength in size and diversity, and PolyGram (and the future PolyGram/Universal) posses both.
Works Cited:
1. White, Adam and others; Billboard pp.1, 89, 91; June 27, 1998
2. BillBoard: various charts; June 27, 1998
3. Standard & Poors Stock Reports; May 1998 pp.1861D
4. PolyGram Website; http://www.polygram.com/ ; 1998
5. PolyGram Press Releases; PolyGram Website; 1998
6. PolyGram Annual Report for 1997; PolyGram Website; February, 1998