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BMG Sharpens The Ax

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NEW YORK -- BMG Entertainment, under intense pressure from parent Bertelsmann AG to improve profitability, is preparing to lay off hundreds of employees as part of a big cost-cutting program, insiders told The Wall Street Journal.

Senior executives are scheduled to meet in Madrid late next week, and cost-cutting plans are expected to be on the agenda. A spokesman for BMG said the company's executive committee will focus on "repertoire development, efficiency and stepping up our investment in music." BMG employs more than 5,000 people world-wide.

BMG, which owns such record labels as Arista and RCA, is expected to lose more than $150 million in the year that ended Saturday, the insiders said. The expected loss reflects difficulties in significant markets such as Germany and the U.S., and several one-time events. These include write-downs on Internet investments and management changes at Arista. Bertelsmann, which is closely held, doesn't disclose detailed financial information.

The downturn coincides with increasing pressure from Bertelsmann for BMG to improve its financial performance. Bertelsmann Chief Executive Thomas Middelhoff has publicly complained about BMG's relatively low profitability. Much of BMG's senior management resigned late last year,and a new management team is overseeing the cost-cutting.

Differences over how to reduce expenses played a role in BMG's decision to replace its head of Europe late last week, insiders said. Last Thursday, Richard Griffiths, the 46-year-old president of BMG U.K. and Europe, left "by mutual agreement," according to a statement issued by BMG. He was succeeded by Thomas Stein, the 52-year-old executive vice president for worldwide marketing and artists-and-repertoire, who was named president of BMG Europe.

Mr. Griffiths was the second high-level BMG executive to quit in just a few weeks. Konrad Hilbers, BMG's chief administrative officer, resigned in mid-June.

Mr. Griffiths, on the job less than six months, was confronted with a sharp downturn in the German music market, long a stronghold for BMG,insiders said. Mr. Griffiths wanted to eliminate one-third of the work force of BMG's German operation, or between 150 and 200 people,including some senior executives. He also intended to bring in at least one new top manager. However, BMG insiders said there were disagreements over how to run the German operation.

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