PolyGram

Hollandsche Decca Distributie (HDD), 1929-1950

In 1929, Decca Records (London) licensed record shop owner H.W. van Zoelen as a distributor in the Netherlands. By 1931, the company,
Hollandsche Decca Distributie (HDD) had become exclusive Decca
distributor for all of the Netherlands and its colonies. Over the course of
the 1930s, HDD put together its own facilities for A&R, recording and
manufacture.

HDD was doing good business during World War II, because of the absence
of American and British competition. Van Zoelen wanted to sell to Philips
so that HDD would have suitable backing when the competition returned, and
so Philips took the opportunity to buy HDD in 1942.

At this time, most large recording companies manufactured both gramophones
and records; Philips CEO Anton Philips had noticed that it was risky to make
gramophones without an interest in music recording and record manufacture,
and that Radio Corporation of America (RCA) had merged with the Victor Talking Machine Company in 1929 for this reason. Research was already
going on in Philips' labs on magnetic tape and long-playing records, and a
record company could support eventual new formats, particularly as other
record companies were notably unenthusiastic about new formats.

After the war, Philips built a large factory in Doetinchem to produce
78rpm records.

Philips Phonografische Industrie (PPI), 1950-1962

In the 1940s, the record business was spread out within Philips — research
in the Eindhoven labs, development elsewhere in Eindhoven, recording in
Hilversum, manufacturing in Doetinchem, distribution from Amsterdam
and exports from Eindhoven. During the late 1940s, Philips combined its
various music businesses into Philips Phonografische Industrie (PPI), a
wholly-owned subsidiary.

PPI's early growth was based on alliances. A merger was first proposed with
Decca of London in late 1945, but was rejected by Edward Lewis, Decca's owner. (PolyGram finally acquired Decca in 1979.)

In the early 1950s, Philips set itself the goal of making PPI the
largest record company in Europe.

PPI's second attempt at a merger was with Deutsche Grammophon
Gesellschaft (DGG). DGG, owned by Siemens and well-known for its
classical repertoire, had been the German licensee for Decca from 1935.
Shortly after PPI was founded it had made a formal alliance with DGG to
manufacture each others' records, coordinate releases and not to poach each
others' artists or bid against each other for new talent. PPI and DGG
finally merged in 1962.

The alliance with DGG still left PPI without repertoire in Britain or the
US. But in 1951, after Columbia had failed to renew its
international distribution agreement with EMI, PPI agreed to distribute
Columbia recordings outside the US and have Columbia distribute its recordings
inside the US. This agreement ran until 1961, when Columbia set up its own
European network and PPI set out to make acquisitions in the US.

PPI built or bought factories in smaller countries. In 1962, PPI had a large factory
in Baarn and factories in France, Britain, Denmark, Norway, Spain,
Italy, Egypt, Nigeria and Brazil.

PPI played an important role in the introduction of the long-playing vinyl
record to Europe. Columbia introduced their LP record in 1948 and Philips
presented its first LP at a record retailers' convention in 1949. Philips'
commitment to LP technology was an important factor in its 1951-1961 deal
with Columbia.

GPG and PolyGram, 1962-1980

In 1962, PPI and DGG formed the Gramophon-Philips Group (GPG), with
Philips taking a 50% share in DGG and Siemens a 50% share in PPI. In 1972
the companies formally merged to form PolyGram, of which Philips and
Siemens each owned 50%. In 1977 both organisations merged operationally,
integrating the recording, manufacturing, distribution and marketing into a
single organisation.

The various record labels within PolyGram continued to operate separately. PolyGram gave its labels, as A&R
organisations, great autonomy.

GPG needed to move into the US and UK markets, and did so by a process of
acquisition: Mercury (US) in 1962, RSO (UK) in 1967, MGM Records and Verve (US) in 1972, Casablanca (US) in 1977 and Decca
(UK) in 1980. PolyGram acquired United Distribution Corporation (UDC)
in 1973 and signed distribution deals with MCA and 20th Century Records in 1976.

In the late 1950s and early 1960s, Philips had been at work on a new
consumer magnetic tape format for music. The Philips compact cassette came out in 1963. It was small, played longer than an LP and was
robust. In 1965 the cassette accounted for 3% of revenues, growing in 1968
to 8% and in 1970 to 10.6%.

In the late 1960s and through the 1970s, GPG/PolyGram diversified into film
and television production and home video. RSO's successes included
Saturday Night Fever and Grease. PolyGram's highly successful
marketing during the disco craze included the Casablanca film Thank God It's Friday and its associated soundtrack. During the boom in disco, PolyGram's US market share had gone from 5% to
20%. For a short while, it was the world's largest record company.

Reorganisation, 1980-1998

However, a crisis was looming. Before 1978, with the acquisition of UDC, the distribution organisation was too large and PolyGram was making losses. 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, the disco boom busted, leaving the company not only with an underutilised distribution network but with overoptimistic product orders and profligate labels. For example, Casablanca was notable for management spending on luxury cars and cocaine. From 1980 onwards, PolyGram was running up tremendous losses. Legal documents put the company's total losses at not less than US$220 million.

In 1983, Philips manager Jan Timmer was appointed CEO. He cut the workforce from 13,000 to 7000, 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.

After an attempted 1983 merger with Warner Music failed, Philips bought 40% of PolyGram from Siemens, and in 1987 the remaining 10%.

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.

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, Motown in 1993, Def Jam in 1994 and Rodven (Venezuela) in 1995.

In 1998, Philips sold PolyGram to Seagram and it was merged into Universal Music Group.

See also

• List of record labels
• PolyGram Filmed Entertainment

  External links

• The Making Of A Music Multinational: The International Strategy of PolyGram, 1945-1988 (PDF) by Dr Gerben Bakker, Dept. of Accounting, Finance and Management, University of Essex.