Born in the U.S.A., Sold to Japan

By Stephen Koepp

As a treasure-house of vital American music, no company is more valuable than CBS Records. Its labels, among them Columbia and Epic, have borne titles ranging from Bruce Springsteen's Born in the U.S.A. to Michael Jackson's Thriller, from Frank Sinatra's Stormy Weather to Benny Goodman's Night and Day. But now this repository of Americana is passing into foreign stewardship. In the largest-ever Japanese purchase of a U.S. company, CBS agreed last week to sell its record business to Sony for $2 billion.

When Sony made its first bid for the division, offering $1.25 billion last year, the CBS board balked. Reason: besides its cultural value, the records division is a money machine that produced $162 million in profits last year, some 37% of CBS's total earnings. However, when Sony came back with a $2 billion bid, the CBS directors could not refuse. President Laurence Tisch, who pushed the sale as part of his back-to-broadcasting program for CBS, apparently contended that now was the right time for CBS to get out of the recording industry, since its profits might wither in an economic downturn. Sony seemed to be the ideal buyer, as the two companies have been partners for 20 years in a Japanese label, CBS/Sony.

Even CBS Chairman William Paley went along with the deal, thus giving up an enterprise he spent decades building. Paley started the division in 1938, when he bought a small record company for $700,000. He hired Artists Duke Ellington and Bing Crosby, among others, and introduced the first LP record in 1948. CBS took chances on new artists, signing both Bob Dylan and Springsteen when they were unknowns.

+ The sale of CBS's labels leaves the U.S. recording industry dominated by overseas owners. (Polygram is controlled by the Dutch, RCA by the West Germans and Capitol by the British.) Yet in a sense, CBS Records is only passing from one revered entrepreneur, Paley, to another, Akio Morita, who is responsible for the Walkman and other breakthroughs. Morita, who favors classical music, seems determined not to mess up the good beat at CBS. His company has offered a package of some $20 million in compensation to persuade CBS Records' bearded, brassy chief, Walter Yetnikoff, 54, to stay in his job for several more years. The sale no doubt contains some irony for Springsteen, whose songs have identified strongly with U.S. workers caught up in economic changes beyond their control. But the Springsteen camp seems pleased that Sony will not change the management. "If Yetnikoff is there, then our confidence is there," says Jon Landau, Springsteen's manager.

Perhaps the biggest question is what position Sony will take in the controversy over a new technology called digital audio tape, which can record music with the clarity of a compact disc. CBS Records had been a leading advocate of limiting the technology, contending that it would prompt more home taping and pirating, while Sony has pushed DAT as the next wave in home audio. Now the company will have an interest in both arguments. Experts believe Sony may support a compromise, in which DAT recorders would be permitted in the U.S., but would be equipped with devices designed to frustrate copycats.

With reporting by Barry Hillenbrand/Tokyo and Theodore P. Roth/New York