Puff Granddaddy

By David E. Thigpen

In the grunge-struck '90s, when record-industry sages were trumpeting Nirvana and the flannel-clad hordes from Seattle as the next big thing, Arista Records president Clive Davis made a huge gamble: he invested millions in hip-hop, a genre many viewed as too troubled to be worth the risk. But the grunge bubble went bust, of course, as did a few of the labels betting on it. Today, hip-hop rolls along as comfortably as Puff Daddy does in his Bentley.

Youth culture may rule music, but Davis, 65, always seems to have the right spin on the future. The year that ended in June was Arista's best ever--$425 million in sales and 69 gold or platinum disks by artists from diva Whitney Houston to country star Alan Jackson. Davis has shown a few sharp moves on the business side too, making use of low-cost joint ventures to manage the financial risks, which allows him to take the musical risks needed to develop and sustain new talent.

Or old talent. Take guitar god Carlos Santana, 52, whose relevance has dwindled since his 1970 hit Abraxas. Last year the Woodstock veteran signed with Arista. Davis refocused Santana's songs toward radio and teamed him with new stars like Lauryn Hill, enticing a new generation of fans to discover his flamboyant guitar playing. Santana is now enjoying a view he hasn't seen in two decades: his new album Supernatural sits in the Top 5 and has sold more than 2 million copies. "I only look for headliners," Davis says. "An artist has to be able to fulfill in person the magic on a record."

And then there is Sarah McLachlan's Surfacing, a beautiful album of light folk-pop--which could be a euphemism for "slow death." Davis divined a vast pool of potential buyers awakened by the Lilith Fair Tour, so Arista flogged the album at MTV and radio for months until the dam finally broke. At 7 million sold, Surfacing has become a Jewel-and Alanis-style blockbuster. No wonder the stymied Artist most of us still know as Prince beat a path to his door. His new Arista album debuts next month.

Music is a game of averages, and Davis certainly doesn't bat .1000; Puff Daddy's solo album Forever is off to a slow start. But Arista has created enough hits to help lift the market share of its corporate parent BMG from 14% to 18%, second only to the Universal Music Group's 27%.

For such a hip guy, Davis has a style that is distinctly Old World. He prefers handwritten notes to e-mail. And he usually dresses in the pin-striped, cuff-linked style of a diplomat. That can make him easy to spot at nightclubs checking out new acts or perhaps talking shop with his protege, Puff Daddy. "When I go to see Clive, I'm going to school," says Puffy.

Not everyone has believed in Davis' ears. He launched Arista only after being canned by Columbia Records in 1973. By the 1980s, the former lawyer was tasting major success with a diverse group of performers, including Barry Manilow and the Grateful Dead. BMG purchased Arista in 1979, but Davis still operates virtually independently, unusual in an era when big corporations rule music. That might be because he has served the bean counters well too, finding efficient ways to achieve growth. Instead of shelling out millions for outright acquisitions of artists or their production companies, Davis puts money into joint ventures in which the producer-artist makes records under Arista's banner, while the label foots most of the studio and marketing costs. Profits are shared.

Davis didn't invent the JV, but he was one of the first to show how lucrative it can be. Arista's 1989 investment in hip-hop-heavy Bad Boy Records, run by Puff Daddy, and its 1994 investment in R.-and-B. powerhouse LaFace Records, run by L.A. Reid and the producer Babyface, were mere chicken feed: about $3 million apiece. Last year LaFace chalked up sales of more than $75 million and Bad Boy of about $35 million. "Rather than buy companies and pay multiples," says Davis, "we started from scratch and made a relatively modest investment. We split profits immediately as opposed to paying off hundreds of millions in acquisition costs." Says industry analyst Michael Nathanson: "The low-debt producer-artist model works well, provided you have an ear for talent."

Which is after all what drives music. "He's still the best talent finder in the business," adds Nathanson. "He's one of the last of the old-fashioned music men, and he's adapted to the times." And for music's sake, kept the bean counters at bay.