Chrysalis Group Plc Business Information, Profile, and History

Company Perspectives:

Chrysalis's aim is to create an integrated, predominantly rights-based independent media group that is acclaimed as a leader in each of its fields.

History of Chrysalis Group Plc

Chrysalis Group plc is a U.K.-based media and entertainment company that owns radio stations, produces television programs, sells books, releases music recordings, and controls a large catalog of music copyrights. Originally formed as a record company to issue recordings by such rock groups as Jethro Tull and Procol Harum, Chrysalis sold that operation in the late 1980s to focus on other media endeavors. During the 1990s the company reentered the record business with the newly formed Echo and Pavilion labels. Cofounder Chris Wright still owns more than 25 percent of the publicly traded company.

Beginnings

The Chrysalis Group's origins date to the late 1960s and the rock music business of that era. Chris Wright, 22, and Terry Ellis, 23, were young managers and bookers of music groups who decided to found a talent agency in 1967, which they called Ellis Wright. The pair found success booking bands to play at British colleges, and soon moved their growing business into an office in the West End of London. Two of the bands represented by Ellis Wright were blues-rockers Ten Years After, who would later gain renown for their appearance at the Woodstock rock festival, and the more eccentric Jethro Tull, led by flautist and composer Ian Anderson. Seeking recording opportunities for the groups, Ellis and Wright hit on the idea of forming their own label. They arranged to license the initial discs by the bands to leading independent Island Records, which agreed to give Wright and Ellis their own label if the early releases were hits.

The idea worked, and Chrysalis Records was formed within a year. The company's name was derived from a phonetic amalgam of its founders' names. Other acts, including Procol Harum and Blodwyn Pig, were soon signed, and the label began to take off. The 1970s were a fertile period for Chrysalis, with major success in both Britain and the United States for Tull, and other hits by new artists including Scottish rocker Frankie Miller, electrified folk group Steeleye Span, former Procol Harum guitarist Robin Trower, Leo Sayer, and UFO.

The late 1970s saw the musical landscape change dramatically as a new generation of rockers sporting spiky hair and short, poppy songs emerged to steal the spotlight from the established stars of the day. Chrysalis signed several key members of the so-called punk and new wave movements including Ultravox, Generation X (featuring Billy Idol), and Blondie, and had hits with each. In England, where Jamaican ska and reggae music had been popular for years, homegrown ska bands such as the Specials and Madness were also now gaining fame, and Chrysalis launched a sub-label called 2-Tone to release these acts.

English musical trends came and went swiftly, and punk and new wave were soon followed by the more mannered New Romantic movement. Chrysalis duly signed one of its leading exponents, Spandau Ballet, to the new Reformation imprint. The company also purchased another label, Ensign, which brought in new artists including Sinead O'Connor. By now Chrysalis's U.S. operations were being run in Los Angeles by Terry Ellis, and hits were achieved by Pat Benatar, Huey Lewis & the News, and Billy Idol, among others. It was getting progressively more difficult for independent labels to make an impact, however, and the music industry soon found itself in a period of consolidation. To stay in the game, the label made a deal to distribute its recordings in the United States through Columbia Records, one of the industry's leaders.

In early 1985 Terry Ellis sold his stake in the company to partner Wright, and later that same year Chrysalis went public following a reverse takeover of Management Agency and Music plc (MAM), which was a joint venture of singers Tom Jones and Englebert Humperdinck. An acquisition was also made of music goods wholesaler Lasgo Exports, which became Chrysalis's Media Products division.

The company had also launched a Visual Programming division, and in 1986 this unit landed in the spotlight for its creation of Max Headroom, a computer-animated hipster who briefly had a TV show in America after appearing in a $25 million Coca-Cola ad campaign. Chrysalis's record business was in a slump, however, and the injury of Billy Idol in a motorcycle accident and the controversial, unpopular behavior of Sinead O'Connor further hurt the label's revenues. Diversification was on the horizon, and in 1988 the FIRST Information Group, a producer of software, was acquired. The following year the company got its feet wet in radio, purchasing a 20 percent stake in station chain Metro Radio.

Sale of Record Label, Corporate Rebirth: 1989-94

In 1989 Chris Wright sold 50 percent of the Chrysalis Records label to industry giant Thorn EMI for $73 million plus the assumption of a portion of the company's debt. Thorn EMI received an option to buy the rest at a later date, and did so in 1991, this time paying only $30 million plus $25 million in debt. The last year of joint operation had seen the label's mounting losses cost the Chrysalis Group $8.7 million. The company as a whole was $14.3 million in the red on revenues of $170 million. Chrysalis had lost other money on a television equipment rental company it was operating, which it later shut down. The one bright spot was the music publishing arm, which reported profits of nearly $2 million.

The Chrysalis Group now consisted of only the music publishing business and a coin-operated amusement and vending operation left over from the MAM merger. Wright, who retained ties with Chrysalis Records by serving as non-executive chairman, was required to avoid reentering the record business for two years after the sale, and he now focused on pursuing new business ventures. These included the construction of a London recording studio in partnership with Pioneer Group of Japan, and offering news and entertainment on airliners, including showing the Olympic games aboard planes.

Looking for additional video production and television opportunities, Wright sought a franchise from cable company ITV, though he failed to win one. A music division was created, which would encompass music publishing, recording, and interests in the Hit record label, The Speaking Book Company, and Air/Edel Associates. The company also formed a new branch, Chrysalis Sport, to produce Italian Football games for television.

In August 1993 the company launched a new record label, Echo. Music division head Steve Lewis declared that the new imprint would seek to position itself as a major independent company, much like the original Chrysalis had done. An investment of $17.5 million was made by Pony Canyon, Japan's third largest record company, giving it a 25 percent stake. The year 1993 also saw the sale of FIRST Information Group to that firm's management.

On other fronts, Chrysalis purchased Red Rooster Film and Television Entertainment, bought a stake in the Sheffield Sharks basketball team, and formed a Radio division, run by Richard Huntingford. After winning a license bid, the first station was launched in Birmingham in September 1994 with the company's new adult-oriented rock and pop Heart format. That same year Chrysalis sold its struggling jukebox and vending business MAM Holdings, and released the first records on the Echo label, which had signed a number of performers including Julian Cope and Shaquille O'Neal. Half of a Dutch television production company, IDTV, was also purchased, as was a 49 percent stake in Scala, an independent British film company. The costs of these activities were affecting the bottom line, however, with losses of more than $25 million reported for the year.

Building the Radio Business: 1995-99

Seeking to expand its radio operations in 1995, the company sold its stake in Metro Radio to facilitate bidding on a license to broadcast in Yorkshire, England, and launched a Heart format station in London. Chrysalis also purchased a Welsh company, Bristol Channel Broadcasting, which ran a station that employed the Galaxy format, a dance music mix that was targeted at a younger audience. Chrysalis's television arm grew during the year with 50 percent investments in television production companies Watchmaker, Bentley, Cactus, and Lucky Dog.

The company was still operating in the red, and in 1996 Wright decided to abandon two money-losing operations. The move to close Chrysalis's film production and international film sales divisions was so sudden that two company directors quit in protest. Despite added losses from the record label and radio stations, the company remained committed to seeing them through. During the year Chrysalis also traded its 49.9 percent stake in the Dutch IDTV concern for 50.1 percent of CVI Media, a new television production company formed in conjunction with VNU of the Netherlands.

In 1997 Chrysalis acquired two more radio licenses in Yorkshire and Manchester, England, from Faze FM for approximately £20 million. The Yorkshire station was the same one it had unsuccessfully bid on several years prior. The two stations would be relaunched with the Galaxy music mix. The next year Choice FM in Birmingham was acquired, and was rebranded as a Galaxy station as well. One third of a New Zealand television venture, South Pacific Pictures Investments, Ltd., and a stake in a joint digital radio venture with Border Television were also bought in 1998.

At the end of the 1990s Chrysalis undertook the assessment and evaluation of its full music catalog, a process that took 18 months. A master list of some 50,000 works was generated, and each was checked for the validity of copyright and ownership. A value of some £150 million was placed on the holdings. Following the lead of rocker David Bowie, who had sold stock in his music copyright company, Chrysalis used part of the catalog as collateral in obtaining a £60 million loan. This was used to pay off existing debt and to finance new ventures in the Internet and other new media categories. During the decade Chrysalis Music had continued to acquire copyrights, including some from its own staff writers, and had opened offices in Paris, Stockholm, Los Angeles, and Nashville. Further copyrights were obtained with the winter 1999 purchase of Global Music of Germany for $8 million. Global owned some 15,000 titles, and controlled the publishing rights for numerous blues and rock classics in Germany, Switzerland, and Austria.

Book Publishing, Recording, and Other Activities: 1999-2001

At the same time, Chrysalis's Media Products division was undergoing a transformation, investing in numerous book publishers including 'remainder' distributor Ramboro Books, Brasseys, B.T. Batsford, Salamander, Greenwich Editions, Conway, Putnam, Zig-Zag, and C & B Publishing. Division anchor Lasgo Exports, still run by founder Peter Lassman, was now one of the top three music and video exporters in the United Kingdom.

Despite having occasional hits, the company's record business continued to struggle financially. Wright was determined to persevere, however, and in the summer of 1999 he announced the formation of a new imprint, Papillon, which would handle older artists that were being ignored by mainstream labels. The first signing brought one of the company's earliest successes back into the fold. Rejoining Wright after nearly a decade away was Jethro Tull, who had been hitless for some time but continued to tour and record. Papillon also signed Sir Cliff Richard, the perennial British pop singer whose career stretched back to the late 1950s.

Chrysalis also began exploring the possibility of using the Internet as a method of transmitting music content, forming a New Media Division and buying 65 percent of Internet radio startup Ride The Tiger and 30 percent of web site host Citipages, among others. The company also helped form the MXR consortium with a host of other companies, and this group won digital radio licenses for large portions of the United Kingdom. A Latin music publishing joint venture, ChrysalisClip Music S.L., was launched in Spain with Ediciones Musicales Clipper's to acquire new material and license Chrysalis works in Spanish-speaking markets. Chrysalis was also operating a Retail Entertainment division, which distributed music videos and set up listening kiosks in stores, among other endeavors.

In the fall of 2000, Richard Huntingford was named Chrysalis Group CEO, reflecting Chris Wright's less direct involvement with the company he had founded. Though he still maintained a strong presence, he was also increasingly involved in his own ventures, which included several athletic teams. At this time Chrysalis was enjoying a 35 percent growth in radio advertising revenues, compared with the 15 percent industry average. The radio group's market capitalization had also doubled during 1999 and 2000. On top of this good news, Chrysalis had an advantage over its three chief competitors in seeking additional radio licenses. Government rules limited acquisitions based on a chain's total audience share, and all but Chrysalis had reached the limit of 15 percent. A new classic rock format, The Arrow, was being prepared as well. On other fronts the stake in the Sheffield Sharks was sold, while the company's television production arm continued to prosper, churning out popular programs such as Midsomer Murders and Formula One for ITV, The Clarkson Show for the BBC, and Channel 4's music series Top Ten. Results for fiscal 2000 were the best ever, with pretax profits of £1 million on revenues of £168.2 million.

After years of building up steam, the Chrysalis Group was finally reaching cruising altitude. With its radio broadcasting, music publishing, and television production divisions leading the way, and new ventures in book publishing and digital radio broadcasting in the works, the company's future appeared bright.

Principal Subsidiaries: The Chrysalis Group has more than 75 subsidiaries and joint ventures in the United Kingdom and abroad, including: Chrysalis Holdings Ltd.; Chrysalis Books Ltd.; Chrysalis Music Ltd.; Global Chrysalis Music Group GmbH (Germany); Chrysalis Copyrights Ltd.; The Echo Label Ltd. (75%); The Hit Label Ltd.; Lasgo Exports Ltd.; Ramboro Books plc; Salamander Books Ltd.; BT Batsford Ltd.; Quadrillion Publishing Ltd.; Assembly Film and Television Ltd.; Bentley Productions Ltd.; Cactus TV Ltd.; Chrysalis Television Ltd.; CVI Media Group BV (Netherlands; 50.1%); ID & D Film and Video Productions BV (Netherlands; 50.1%); Red Rooster Television Ltd.; Tandem Television Ltd.; Watchmaker Productions Ltd.; Chrysalis Radio Ltd.; Galaxy Radio Northeast Ltd.; Puremix Ltd. (65%); Chrysalis Retail Entertainment Ltd.

Principal Divisions: Radio; Music; Visual Entertainment; Media Products; New Media.

Principal Competitors: AOL Time Warner, Inc.; British Broadcasting Corporation; Bertelsmann AG; Capital Radio plc; Carlton Communications plc; Emap plc; EMI Group plc; Forever Broadcasting plc; Granada plc; GWR Group plc; The McGraw-Hill Companies, Inc.; Pearson plc; Random House; Scottish Radio Holdings plc; SMG plc; Sony Music Entertainment, Inc.

Chronology

• Key Dates:

• 1967: Chris Wright and Terry Ellis form Ellis Wright Agency to book rock bands.
• 1968: Chrysalis Records is formed to release recordings of Jethro Tull and other groups.
• 1970s-80s:Company experiences success with Tull, Blondie, Billy Idol, and other recording artists.
• 1985: Terry Ellis sells stake to Wright; company goes public through reverse merger.
• 1985: Lasgo Exports is acquired.
• 1989: Fifty percent of record company is sold to Thorn EMI.
• 1991: Remainder of record business is acquired by Thorn EMI; Chrysalis Group, now consisting of only a music publishing business and a coin-operated amusement and vending operation, starts over by moving into TV production and other ventures.
• 1993: Company launches Commercial Radio Division and new Echo record label.
• 1994: First radio station, Birmingham-based Heart 100.7 FM, debuts.
• 1998: Firm expands into book publishing via acquisitions and investments.
• 2000: Capitalization of music publishing assets raises £60 million.