Reorganization, 1980-1999
Before 1978, with the acquisition of UDC, the distribution organization was too large and PolyGram was losing money. When US operations were running at full capacity, PolyGram expanded aggressively, and would press large quantities of records without knowing the demand. In late 1979, PolyGram was caught offguard by the sudden end of the popularity of disco music, leaving it with an underutilized distribution network, profligate labels, and overoptimistic product orders. PolyGram's Casablanca label was infamous for management spending on luxury cars and cocaine. After 1980, PolyGram's losses had spiraled upwards of US$220 million.
Another contributing factor to PolyGram's financial woes was the massive failure of the big budget 1978 musical Sgt. Pepper's Lonely Heart's Club Band. The film starred the Bee Gees and Peter Frampton at the height of popularity, and featured Beatle covers by them as well as Aerosmith, Billy Preston, and Earth, Wind, and Fire. The film was highly anticipated to surpass the box office success of both the Saturday Night Fever and Grease, mostly due to the film's popular music stars. The soundtrack LP, based on only advance orders, was released triple platinum. However, the movie was released to poor reviews and died a quick death at the box office. Despite its triple platinum start, the soundtrack LP's sales bombed after the film's release. In turn, record dealers flooded PolyGram with returned LPs. The resulting losses nearly wiped out the profits the company had made on both the Saturday Night Fever and Grease soundtracks. When the disco craze ended in 1979 and record sales for both The Bee Gees and Casablanca's Village People plummeted, the company's fate was sealed. PolyGram also experienced losses with the defection of Casablanca's Donna Summer to newly formed Geffen as well as the dropping of Andy Gibb (from RSO), whose personal problems with cocaine and alcohol began to affect his recording career. Summer and The Bee Gees also had legal disputes with their labels, which further complicated matters.
In 1983, Philips manager Jan Timmer was appointed CEO. He cut the workforce from 13,000 to 7,000, reduced PolyGram's LP and cassette plants from eighteen to five and decreased the company's dependence on superstars by spreading the repertoire across different genres and nurturing national and regional talent. By 1985, PolyGram was profitable once more. Its roster of labels by this time included: Polydor, Mercury, London, London/FFRR, Casablanca (until 1986, later to be reincarnated in 1994), RSO, De-Lite, Riva, Threshold (owned by The Moody Blues), Tin Pan Alley (under Polydor), and Atlanta Artists (founded by Cameo lead singer Larry Blackmon) all consolidated into PolyGram Records, Inc.
Total Experience Records (founded by Lonnie Simmons) was taken to RCA for distribution in 1984. Wing Records was reincarnated in 1987 and became a very popular label over the following years, spawning the careers of Tony! Toni! Tone! and former Miss America, Vanessa Williams; the label was discontinued in the mid-1990s. Fontana was revived in the U.S. in 1989, but only for a short while. Today, Fontana Distribution is an independent label distribution unit of Universal Music Group. Vertigo Records still remained a rare U.S. PolyGram label, as most of the music on Vertigo Records were from Europe.
In 1982, PolyGram purchased 20th Century Fox Records from 20th Century Fox, which was just recently brought out by oil magnate Marvin Davis, who was not interested in keeping the record company. The assets of the former 20th Century Fox Records were consolidated with the company's Casablanca label.
After an attempted 1983 merger with Warner Music failed, Philips bought 40% of PolyGram from Siemens, acquiring the remaining 10% in 1987.
The compact disc, invented by Philips and Sony, helped greatly in boosting the company's sales and market share. PolyGram's strength in classical music helped greatly, as many of the CD's early adopters were classical music lovers. Total US sales of CDs were 1 million in 1983, 334 million in 1990 and 943 million in 2000. Total UK sales were 300,000 in 1983, 51 million in 1990 and 202 million in 2000. The CD increased PolyGram's profit margin from 4-6% in the mid-1980s to 7-9% by the early 1990s. As well, videos were distributed by PolyGram Video.
In 1989, Philips floated 16% of PolyGram on the Amsterdam stock exchange, valuing the whole company at $5.6 billion. PolyGram embarked on a new program of acquisitions, including A&M and Island Records in 1989, Swedish company Polar Music which held the rights to the ABBA catalogue, Motown in 1993, Def Jam in 1994 and Rodven (Venezuela) in 1995.
In 1999, Philips sold PolyGram to Seagram and it was merged into Universal Music Group. The name survives via reissue of music under the Polydor Records label.
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