lAGGING l.a. LABELS MAY BE CASUALTIES OF pending merger

The planned merger of Time Warner's Warner Music Group and British record company EMI Group could land hundreds of local music-industry employees on the unemployment line, because lagging labels and other operations targeted for downsizing are based here.

Executives who will head the proposed Warner EMI Music said last week that the combined company's various labels would remain intact, but noted that about 3,000 of the company's 22,500 jobs would be cut as part of an effort to save $400 million.

Most cuts will come from manufacturing, distribution and management, but other employees also will be reviewed, executives said. And the roster of artists who aren't selling a lot of records may well be trimmed.

The news spells trouble for EMI Distribution and Warner's WEA Distribution, both based in L.A.

"The distributors have been targeted. That's going to be the first thing to be cut," said Michael Nathanson, an analyst at Sanford C. Bernstein.

Music publishing companies EMI Music Publishing in New York and the L.A. based Warner/Chappell also are likely targets. As for labels, EMI's Capitol Records and Virgin Records, as well as Warner's Warner Bros. Music, all based in L.A., have been lagging and are considered the most likely candidates for streamlining or downsizing.

While artists & repertoire executives, marketers and artists aren't the most likely to be cut, there's still the possibility of significant turnover.

"Often when there's a consolidation of two big companies, the creative people leave," said Richard McDonald, an analyst at J.P. Morgan Securities.

But not all the news is bad for the local music industry. In fact, the Warner EMI consolidation is expected to help L.A's small and mid-sized labels attract talent and experienced executives.

Smaller labels already have been capitalizing on another music merger: In 1998, Seagram Co. acquired PolyGram for $10.4 billion and integrated the company with Seagram's Universal Music Group. Last year, hundreds of local jobs were cut in an effort to save about $300 million in operating costs though insiders say most of those people were able to find new jobs with smaller companies relatively easily.

"You've combined labels in the previous merger, you're presumably combining a whole bunch in this merger that's a lot of artists in the street," said Jay Cooper, entertainment lawyer at Manatt Phelps & Phillips. "It may open an opportunity to pick up a number of these artists and for these (laid-off) executives to build a new structure. It could allow new players to enter the picture."

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