Jacobs Media - In the Press: Wall Street Journal

Thursday December 5, 12:04 PM

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Sony's Newest Boy Band, AC/DC, Took Stage In 1970s

By Jennifer Ordonez

WITH THE SAGGING music industry searching for hot new acts to get back in the black, Sony Music Entertainment is making its latest multimillion-dollar investment in a classic-rock act that got its start before Britney Spears was born: AC/DC.

The Sony Corp. unit plans to announce today that it has signed the Australian hard-rock band best known for hits like "Back in Black" and "Highway to Hell." The company didn't disclose terms of the deal.

And while AC/DC will record new music for Sony, the crux of the deal is the rights to a valuable catalog of 16 of the band's 18 albums that have been released since the mid-1970s by AOL Time Warner Inc.'s Warner Music Group. That is somewhat different from many previous megastar deals -- such as Sony's 1991 deal with Aerosmith -- which are much more geared toward profiting from new music and don't include an act's prior music.

Signing AC/DC demonstrates again that, in today's music industry, the past is just as important as the future. Big music catalogs don't often come up for sale. And when they do, record labels eager for market share and revenue growth are willing to pay a high price for proven hits. So far this year, catalog albums make up 37% of all album sales.

Just in time for the band's induction to the Rock and Roll Hall of Fame next year in Cleveland, Sony will release a flurry of remastered and repackaged AC/DC materials including 16 albums, a host of DVDs featuring footage of the band and, for the band's most ardent fans, a line of classic albums on vinyl.

The rest of the music industry is also flooding the market with recycled products, including rereleases, "special editions" and other gimmicks. The list includes everything from a recent reissue of nearly two dozen old Rolling Stones albums to EMI Group PLC's upcoming "Roxette: The Ballad Hits," by a Swedish band that most people know as a short-lived 1980s act. In the holiday season alone, EMI is releasing catalog material including a "best of" David Bowie DVD and several Jethro Tull releases. And in the past year Sony has applied the same strategy with another hard rocker, Ozzy Osbourne by releasing remastered and rerecorded versions of his albums around the same time that his family's television show hit the airwaves.

Nonetheless, signing with AC/DC is a high-stakes bet for Sony, which is investing in the classic band at a time when industrywide catalog sales have begun to level off as most people have completed replacing their record and tape collections with compact discs. A person familiar with the matter says Sony is projecting as much as $40 million to $50 million per year in revenue from the deal, and thinks the band's material could generate $50 million in profit in the coming five years. AC/DC has sold more than 140 million albums world-wide in its lifetime, and Sony hopes that DVD and the introduction of the band to new fans will help expand the pot.

"We look at this as something brand new," says Thomas D. Mottola, chairman and chief executive of Sony Music. "For us, it becomes a real coup to associate with a band that has long been associated with the Warner Group." A spokesman for Warner Music Group said "They are one of the world's great rock bands and we wish them the best." A person familiar with the matter said that Warner had concerns about the band because its catalog sales have been decreasing for the last few years. Over the years, Warner has already released remastered versions of AC/DC's most popular albums, and there is some concern in the industry that fans are tired of paying to buy a favorite album for a third or fourth time.

But some industry watchers still see great potential in the AC/DC catalog. The band is one of the few that gets airplay on classic-rock stations catering to boomers and hard-rock stations that mix in newer music and draw a younger audience, says Fred Jacobs, president of Jacobs Media, a radio consultancy specializing in rock and roll formats.

And AC/DC continues to sell better than many of their generational peers. Since 1991, the band has sold 18.4 million albums, according to Nielsen SoundScan, and has sold 3.3 million in the U.S. since 2000. The band's most recent tour -- which famously featured aging lead guitarist Angus Young dressed in his signature English schoolboy outfit of tie and short pants -- sold out in arenas around the world.

Plus, in an industry that has seen radio playlists shrink and promotional costs soar in recent years, Mr. Jacobs says record companies would be wise to pitch more of their marketing dollars at established acts popular with an older crowd with more money to spend on music. "The timing on this is very good," Mr. Jacobs says. "AC/DC has an audience you don't have to nurture and is the type of band where if you are a fan, you just can't get enough."

Sony seized on an unusual opportunity. Record companies typically own catalogs of their biggest-selling classic rock acts. But in a renegotiation of its contract with Warner Music more than a decade ago, AC/DC got back ownership of their master recordings and has licensed them to Warner Music ever since. For most of the music, that deal expires at the end of this year. Two executives at Sony's Epic Records who had worked with AC/DC were aware that the band's contract was coming up and Sony began quietly negotiating with the band nearly a year ago.

While the band will record one more album of new music for Warner's Elektra label, the deal with Sony underscores the potential the company sees in emerging technology and aggressive repackaging of older hits. Mr. Mottola says his company promised AC/DC the band's catalog would be marketed heavily in fresh ways, including to new fans through the Internet and through extensive repackaging of its albums, including 20-page CD inserts detailing the music's history. "The band felt like coming here would be a fresh new approach," Mr. Mottola says.