Last updated: February 10, 2010 9:11 pm

Universal’s Morris to hand over reins

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Doug Morris, chairman and chief executive of Universal Music since 1995 and the most powerful man in the music business, is preparing a staggered handover to Lucian Grainge, head of the Vivendi-owned label’s operations outside north America.

Mr Grainge will become co-chief executive of the company behind Lady Gaga, U2 and Mariah Carey on July 1 this year, Universal confirmed on Wednesday. He will become sole chief executive in January 2011, taking control of day-to-day operations when Mr Morris steps back to be chairman.

Under the terms of his 2008 contract, Mr Morris, who built the company from the former MCA and Polygram recorded music businesses into the largest of the “big four” labels, is expected to remain as chairman for another two years.

Mr Grainge, who is relocating to New York, will sit on the Vivendi management board from July 1 and will report to Jean-Bernard Lévy, chief executive of Vivendi. “I love having hits, I started in A&R, I am a hit maker. I will encourage people to find talent and invest and take risks and be prepared to fail in terms of signing and developing artists,” said Mr Grainge.

The music industry has been preparing for Mr Morris’s handover for months. Last month, he was granted a star on Hollywood’s walk of fame, and he was honoured at this month’s annual “salute to industry icons” party hosted by Clive Davis of Sony Music before the Grammy Awards.

Mr Morris said: “The time has come for Lucian to step up to the chief executive role. I am very happy with the new organisation as I have been grooming him to succeed me for quite a while now. I know he is ready, willing and able to attack the challenges of the new decade.”

Mr Grainge, a London-born former song-plugger, earned a reputation as a shrewd businessman with an ear for a hit in any genre from pop to rap while running Universal’s UK operations, where he helped launch the careers of Amy Winehouse, Duffy and the Scissor Sisters, and oversaw Take That’s comeback.

His move to the US comes as Universal starts to look slightly less dominant than in recent years. The company laid off about 50 people last month and reported sales for the first nine months of the year down 8.4 per cent before currency swings, and earnings down 34 per cent because of a light release schedule and the industry’s continued battle with piracy and declining CD sales.

When Mr Grainge takes up his new role he is widely expected to make further cost-cuts. “Every business in the sector is looking at its cost base and we are constantly looking at ours, it is an ongoing process,” he said.

“I want to bring forward a new generation of leaders within our company and I personally want to bring in a new generation of talent into the industry.”

Mr Grainge said Vivendi had been an “incredible shareholder” to Universal Music and that there would be a “strong relationship going forward”.

The label claims a US market share of 31.7 per cent for the year to date, compared with Sony Music’s 27.6 per cent, Warner Music’s 17.9 per cent and EMI’s 12.1 per cent.

Mr Levy said: “Lucian’s track record speaks for itself, finding stars, growing revenues and building new business models. He has the right combination of experience and innovation to take UMG forward as the migration into the digital era accelerates.”

Music companies have struggled to offset the sharp decline in CD sales over the past 10 years. Digital growth is slowing in spite of new legal online music services such as Spotify. Digital piracy also remains a serious barrier to growth.

Global sales in the music industry - both physical and digital - have fallen 30 per cent over the past five years, according to the International Federation of the Phonographic Industry, the trade body.

Speaking about the music industry’s future business model, Mr Grainge said: “We are looking at more music being delivered to different markets and new emerging markets in different ways. I believe the physical product will always exist.”

“But we are now talking about the exploitation of rights and content, different relationships with consumers and artists. We are looking at subscription and at the whole relationship with technology companies.”

Mr Grainge said he didn’t know what the future held in terms of Warner Music’s expected bid for EMI Music. “All I know is that would be strong competition which I don’t like because I would rather us being the best.”

Mr Morris, a former songwriter who wrote “Sweet Talkin’ Guy” for the Chiffons in 1966, has used Universal’s market lead to drive the industry’s digital negotiations, becoming the first label to sign up with Apple’s iTunes store and then persuading Apple to accept variable pricing rather than a fixed 99 cent price per track.

In December, he joined forces with Google’s YouTube site to launch Vevo, intended as a premium destination to restore value to music videos.

Mr Grainge said Universal’s digital team had been at the forefront of new deals with companies such as BSkyB and Virgin. “We are a pioneering partner with companies like Spotify. Moving the business forward technologically is one of the great opportunities in this next cycle,” he said.

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