Alliance Entertainment Corp.

views updated

Alliance Entertainment Corp.

110 East 59th Street
New York, New York 10022
U.S.A.
(212) 935-6662
Fax: (212) 644-6493

Public Company
Incorporated: 1990
Employees: 1,426
Sales: $720.3 million (1995)
Stock Exchanges: New York
SICs: 5099 Durable Goods, Not Elsewhere Classified; 6719 Holding Companies, Not Elsewhere Classified

The largest full-service distributor of music and music-related products in the United States, Alliance Entertainment Corp. is engaged in the distribution of audio cassettes and compact discs, as well as the exploitation of entertainment properties through acquisition, licensee, and management agreements. Established in 1990, Alliance Entertainment grew quickly under the guiding hand of its founder, Joseph J. Bianco. From its inception through the mid-1990s, the company assumed an aggressive acquisitive stance, purchasing regional music distributors and record labels, both in the United States and abroad. The company distributes its music recordings to small, independent record stores and to large, retail music chains.

Origins

Nearly a decade before he formed Alliance Entertainment, Joseph J. Bianco could be seen cruising through New York City traffic in his $65,000 Lotus Turbo Esprit. On the steering wheel of Bianco’s Lotus, “The Wizard” was engraved, a moniker Bianco had earned after leaving a teaching post at Yeshiva University’s Cardozo School of Law and throwing himself into the world of high finance. Bianco, in his early 30s at the time, channeled his energies into syndicating venture capital tax shelters in New York, achieving sufficient success to earn the nickname “The Wizard” and to adopt a lifestyle that included the high-priced Lotus, part of the recompense for financing the U.S. distributor of Lotus sports cars.

When federal legislation in 1986 wiped away the profits to be made in setting up tax shelters, Bianco was forced to find a new vocation, and he moved into the business of distributing recorded music. Specifically, Bianco’s career change thrust him into a particular segment of the recorded music distribution industry that supplied small independent record stores with music recordings and served as a stopgap source for selections of which the warehouses of large record-store chains had been depleted. Historically, this segment of the recorded music industry was the domain of legions of small regional distributors, but when overnight delivery rates plunged during the mid-1980s the industry began to consolidate. Increasingly, distributors grew larger and larger, swallowing up the smaller regional distributors to form large corporations with national distribution networks. In this rapidly consolidating industry, Bianco embarked on his new venture, intent on creating a national distributor of audio cassettes and compact discs.

1990 Incorporation of Alliance Entertainment

Bianco incorporated Alliance Entertainment in October 1990 and completed his first acquisition the following month when he acquired Jerry Bassin Inc., operator of $60-million-in-sales Bassin Distributors, a Miami, Florida-based distributor of record labels. Established in 1981, Bassin distributed more than 125 lines of recordings through sales offices in New York, Dallas, and Miami, including such labels as Concord Jazz (which Alliance would later acquire), Cheetah, Disney, Syndrome, Select, and Newtown Music. To finance the acquisition of Bassin and the next several acquisitions to follow, Bianco relied on venture capitalists and borrowed money from Cigna, Bankers Trust, and Chase Manhattan Bank, giving his fledgling company the financial backing to begin its march toward becoming a national distributor.

Bianco’s next acquisitive move was completed in late 1992 when Alliance purchased Denver, Colorado-based Encore Distributors Inc. With sales offices in Denver, Dallas, Atlanta, and on the West Coast, Encore Distributors operated as an independent distributor that was also involved in selling merchandise to alternative markets such as lifestyle shops and independent bookstores. Distributing roughly 250 labels and accessories, including Alligator, Fantasy, Higher Octave, Grateful Dead, and Oh Boy, Encore Distributors carried Alliance into new geographic markets and together with Bassin provided Bianco’s New York-based Alliance Entertainment with a distribution network whose scope was widening to cover the country. Though Bassin and Encore Distributors were operated as separate entities, industry pundits were beginning to speculate that together the two companies represented the foundation for one national distribution network. Within the next two years, Bianco’s strategic moves would create a national distribution network, one that would rank as the largest in the United States.

Following the acquisition of Encore Distributors, Alliance Entertainment picked up the pace of its acquisition program. The company spent $20.2 million in September 1993 to purchase Titus Oaks Distributors, Inc. and in November 1993 merged with Trinity Capital Opportunity Corp. Trinity Capital had been formed two years earlier as a shell company without any assets until a public offering in May 1992 yielded the company its sole asset: cash. When Alliance Entertainment and Trinity Capital merged, Alliance became a publicly-traded company, a conversion from private to public ownership that strengthened Alliance Entertainment’s financial stature by reducing debt and making it easier to raise funds for potential acquisitions. Bianco wasted little time in putting Alliance Entertainment’s newly-realized purchasing strength to use, completing a series of acquisitions that bolstered the company’s distribution network and diversified its interests.

Sales by the end of 1993 amounted to $200.5 million, a total that would more than double by the end of the next year after an acquisition spree orchestrated by Bianco left his company standing alone as the country’s largest wholesaler and distributor of music recordings. On the acquisition front, in February 1994 Alliance Entertainment purchased Abbey Road Distributors, a one-stop music wholesaler. Next, the company acquired a clutch of companies that diversified its business domestically and extended Alliance Entertainment’s presence overseas. For $3.8 million, Alliance Entertainment picked up Premier Artists Services, Inc., a talent agency that handled the careers of Frank Sinatra, Liza Minnelli, and other acts; Disquemusic, a Brazilian wholesaler of budget and independent labels in Latin America; and Fiebra Latina, a Latin-American distributor.

1994: First Music Label Acquired

Midway through 1994 the company announced its next acquisition, a deal that signaled Alliance Entertainment’s move into the music software catalog business where profit margins were higher than in the company’s core business area of independent distribution. In late July, Alliance Entertainment submitted a bid to acquire London-based Castle Communications plc, an owner and licenser of pre-recorded audio and video products whose recordings included albums by the Kinks, Motorhead, Black Sabbath, and Uriah Heep. Although a majority of Castle’s $51 million in revenues were derived from catalog sales, the company also had some artists under contract, including Ireland’s Energy Orchard, Stiff Little Fingers, and the Buzzcocks.

The acquisition of Castle, which was completed in September for $38.5 million, marked the beginning of Alliance Entertainment’s strategy to acquire recording labels, a move that added another facet to the company’s mainstay distribution business. Another recording label was added before 1994 was through when Alliance Entertainment acquired the Concord Jazz Label, an independent label founded by Carl Jefferson, who established the label after staging the first Concord Jazz Festival in the Northern California town of Concord in 1969. When Alliance Entertainment acquired the label in December 1994, Concord Jazz had more than 500 titles in its catalog, another 130 master recordings yet to be marketed as albums, and a roster of recording artists under contract that included Mel Torme, Rosemary Clooney, Hank Jones, and Pancho Sanchez.

By the end of 1994, Alliance Entertainment was supported by two recording labels—Castle and Concord Jazz—the distribution of music-related merchandise, including T-shirts, baseball caps, videocassettes, and laser discs, and a strong international business, particularly in Brazil. The heart of the company, however, was its distribution business. Alliance Entertainment operated three massive warehouses in California, Florida, and Connecticut through which the company served its two distinct types of customers. One group included the scores of independent record stores scattered across the country that lacked the financial resources to purchase their merchandise in bulk. The other group of Alliance Entertainment’s customers looked to the New York-based distributor in times of emergency. When the customers patronizing large record-store chains such as Musicland Stores Corp. and Trans World Music Corp. exhausted the supply of particular recordings, the large chains turned to Alliance Entertainment for the quick delivery of replacements and Alliance Entertainment, in turn, charged a markup of 10 percent of wholesale for its services.

Company Perspectives:

The company is actively engaged in the acquisition and development of proprietary entertainment products in order to enhance its profitability, diversify its operations and capitalize on its leaading position in the distribution of prerecorded music.

With its distribution business contributing the bulk of its sales and its label and music-related merchandising businesses adding promising avenues of growth, Alliance ended its fourth year of existence on solid footing. When the financial figures for 1994 were announced in early 1995, their magnitude under-scored the ambitious achievements of 1994. In 1994, the company eclipsed the $500-million-sales mark, racking up $535.2 million in sales compared to the $200 million generated in 1993. Following a net loss of $895,000 in 1993, which was chiefly due to a one-time charge related to the early prepayment of debt, Alliance Entertainment recorded a heartening $12.8 million in net income in 1994, providing tangible proof that the acquisitions completed during the year had genuinely strengthened the company’s position.

The company’s fifth year of business was not spent celebrating the financial results achieved in 1994, however. Alliance Entertainment’s acquisition spree continued, with the company picking up INDI Holdings Inc., an independent distributor of music, and One Way Records Inc., a distributor of budget label recordings during the year. On the heels of these acquisitions, Alliance Entertainment entered into merger negotiations with Multimedia International Group, but the proposed deal was called off in May 1996 when flagging sales in the music recording industry adversely affected the financial position of Alliance Entertainment.

Despite the suggestion that the company was in a somewhat precarious financial position because of the failed Multimedia International merger, Alliance Entertainment displayed strong signs of financial vitality as it entered 1996, a vitality that instilled the company’s management with effusive confidence. During the first six years of its existence, Alliance Entertainment had evolved from a small, regional, and privately-owned music distributor into a large, international, publicly-owned distributor of music with two recording labels added to its business scope. Buoyed by more than 75,000 music master copyrights, sales in 1995 reached $720 million, up exponentially from the $60 million generated by Bassin Distributors, the original component of the company, in 1990.

1996 Acquisition of Red Ant Entertainment

Alliance Entertainment ranked as the largest full-service distributor of music and music-related products in the United States as it charted its course for the late 1990s. Following the failed Multimedia International merger, Alliance Entertainment barely missed a beat and once again resumed its strategy of aggressively seeking acquisitions. Three months after the Multimedia International merger was halted, the company completed an acquisition that not only increased the size of its label business and greatly accelerated the strategy of building both the proprietary content and international components of its business, but also dramatically altered the management of the company.

In August 1996, Alliance Entertainment acquired Red Ant Entertainment, a Los Angeles-based record label whose principal owners included former MCA Music Entertainment Group chairman and chief executive officer Al Teller and the merchant banking firm of Wasserstein Perella. A recently-formed music enterprise when Alliance Entertainment acquired it, Red Ant was in the process of contracting a list of alternative, urban contemporary, and country artists in late 1996, but perhaps its greatest asset was its management. Under the terms of the agreement that ceded ownership of Red Ant to Alliance Entertainment, Teller was to become co-chairman, president, and chief executive officer of Alliance Entertainment.

Upon assuming his three leadership posts at Alliance Entertainment, Teller’s assessment was entirely positive and hinted at the course the company would pursue during the late 1990s. In an official announcement marking his arrival at Alliance Entertainment, Teller noted: “Alliance has in place the components upon which to build an important international record company. We intend to accelerate the growth of Alliance’s content business through Red Ant, while building an international distribution system that complements Alliance’s existing operation. We will also speed up the ongoing consolidation and integration of Alliance’s existing distribution operations.” Bianco, who became co-chairman of the company he had founded six years earlier, embraced the arrival of Teller, giving his own blueprint of Alliance Entertainment’s future: “Al [Teller] is one of the great leaders in the music industry. With his background as chief executive officer of MCA Music and president of CBS Records ... he is the ideal person to guide Alliance’s future. He has the ability and insight to grow Alliance into a major music powerhouse and to guide it into new frontiers of technology.” With these two leaders directing the fortunes of Alliance Entertainment, the company embarked on the path toward the robust growth it expected to achieve.