PolyGram: Philips Electronics, Disco Overreach and the Compact Disc

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PolyGram's story begins in 1929, when Dutch retailer H.W. van Zuylen became the regional distributor for Decca Records under the name HDD. He built recording and pressing plants in the 1930s, and when World War II cut off imports, HDD became a regional monopoly. In 1942 Philips bought it, as CEO Anton Philips sought a music supply for new formats such as magnetic tape and the LP. A 1962 joint venture with Siemens added Deutsche Grammophon and Polydor, and the combined Gramophone Philips Group became PolyGram.

Philips introduced the compact cassette in 1963, and by 1970 cassettes made up over 10 percent of revenue. In the 1970s RSO and Casablanca delivered Saturday Night Fever, Grease, Donna Summer and the Village People, lifting PolyGram's US share from about 5 to 20 percent, before returns and the disco backlash produced losses of over $220 million by 1980. Jan Timmer cut staff and plants, and classical catalog on compact disc rebuilt profits. After buying Island, A&M, Motown, Def Jam and Polar Music, PolyGram was sold by Philips to Seagram in 1998 for $10 billion and folded into Universal Music Group.

The Sgt. Pepper's Lonely Hearts Club Band soundtrack shipped triple platinum, and millions of unsold LPs came back as returns.
Timmer cut the workforce from 13,000 to 7,000 and closed 13 of 18 plants.
Profit margins rose from 4 to 6 percent in the vinyl era to 7 to 9 percent with CDs.
Philips bought Siemens' half in 1988 and floated PolyGram in Amsterdam at over $5.6 billion.
After shedding the music, Philips became a major maker of blank CD-R discs.

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