Warner Music Group Former CEO & Co-Founder of Waverley Capital: Edgar Bronfman Jr – Conviction, Family Business, & Knowing What You Already Have

30:24So I've got to figure out how to manage that in a way that allows us to grow profit, which just meant I kept having to cut, and that wasn't great. In the meantime, my father had made a brilliant decision to sell a small oil business that my grandfather had bought at a great time in the market. And so you can receive$2 billion for that oil company, 1980 or 81. and then tried to buy a company. That didn't work out, thank goodness. And then tried to buy a company called Conoco, another oil business. He said, look, I've sold our oil business at$12 a barrel in the ground and the price of oil has now gone to$3 a barrel in the ground.

31:17Might as well get back in. And it ended up that DuPont bought Conoco instead. but we ended up in all of that with about 23 % of DuPont. And it was a very successful investment for a time. And eventually I went on the board and it was a good company but you could tell I was worried about two things. I didn't see that it's a commodity business. I didn't see the real opportunity for growth in the commodity business. and in the late 80s, I believe, there had been this explosion in Bhopal, India. It was Dow chemical, but it killed thousands of people. And I was very worried that something like that could happen to DuPont.

32:06And of course, they took great precautions and thank God nothing has happened, but they're transporting very dangerous chemicals all over the world. And you never know. So I was worried that there was no real growth left. It was dangerous. There could be a really negative event. And then the thing that really tripped up or made me move was our lawyers came to us and said, there's a loophole in the tax code. And they said, one person is going to walk through that loophole and then Congress is going to close it. And that loophole effectively allowed us to sell our stake in DuPont for a 7 % dividend received tax rather than a 34 % capital gains tax.

33:00And we had a capital gain of about$6 billion. So that differential of 25-ish percent was about$1.6 billion. And I'm like, okay, we got to do this.

33:20And we did. The only buyer was DuPont. It took about 18 months of negotiations with DuPont. And in the same week, we'd been separately negotiating only for about two or three months with Matsusha Electric that had bought MCA before it wasn't called Universal at the time. And unfortunately, we announced the sale of DuPont and the acquisition of MCA in the same week, which was entirely coincidental, but nobody thought it was coincidental, and I can understand that. And so the market really hated that trade at the time, particularly the markets in Canada, because Canada had a rule that, I don't know if it may still, that 80 % of a Canadian investor's portfolio had to be in Canadian companies.

34:15So they loved investing in Seagram because that way they could invest in DuPont. But because we were a Canadian company, they could still meet their 80 % requirement. So when we sold DuPont and went into the entertainment business, nobody in Canada liked that. Canada held a lot of our stock. Our stock was down 15 % or 20%. And we were just getting hammered. But, you know, and I got a lot, a lot of bad press for a number of years. And I do remember Charles saying to me at one point, I don't know how you can take it. and I said well because I think I'm right and you have to have that you have to believe that to sort of get through any adversity This podcast is brought to you by

35:06The Gstaad Guy:bringing you interchangeable charm jewelry hand painted with enamel on styling silver allowing you to celebrate all the things you love and all the things you might question through interchangeable styling silver bracelets bangles, whoop charms mini charm bracelets rings cufflings and much more and all customizable through our 3d builder on poubelle.com that is poubelle p-o-u-b-e-l dot com thank you so much for watching and now back to the podcast i mean that conviction and and yourself is what pushed your abilities to run these businesses simultaneously at one point and build something that had never really been done before, the resources you had in play to do all these things in music while also doing the work in Spirits?

36:05The Gstaad Guy:What did it look like to run these businesses for a period of time simultaneously? Well, first of all, it's not as crazy as it sounds. first of all we were family business we were used to having in the spirits business all of our assets in north america and the uk effectively a little bit in france so we had our assets in very quote-unquote safe places we didn't have a lot of assets in latin america at the time or other places but we sold around the world so looking for another investment i wanted those same characteristics i wanted the assets to be in safe place, but I wanted to be a global business.

36:47And entertainment met that criteria. It obviously was close to my heart as well, I admit, but it met that criteria. The other thing that I've always believed about consumer products companies is that there are only two kinds. Food is a little bit in the middle, but there are really only two kinds of consumer products companies, those that sell what I would call productive or useful end benefits, and those that sell emotional end benefits. So if you're selling a toothpaste, that's a useful end benefit. It makes your teeth whiter. If you're selling a product like Chivas Regal, you're selling it because it makes you feel better about yourself to order that scotch.

37:29And the entertainment business had that in common with the spirit business, you're selling dreams. And so I didn't think it was that far afield. And we were very, very fortunate when we were at Universal. First, we created the Universal Music Company group. We also created the Universal theme park in Florida. And we had a small day park, which we still do. We expanded it in Los Angeles. I shouldn't say they do. And we had a day park, a not very good one to be honest with you, in Orlando. And I thought we had the infrastructure to compete with Disney, and I thought Disney could be competed with.

38:16But it had to be a theme park that didn't appeal to a five - and a six-year-old because they're going to Disney no matter what. And so you had to be realistic about that. And so we built out Universal Orlando, and it was basically made for kids, sort of probably nine, ten and above, and their parents. Where did the desire to expand the theme parks

38:41The Gstaad Guy:and where does that come from? So one of the things that I needed to do at Universal was build a good relationship with Steven Spielberg because he had just, quote unquote, left for DreamWorks, but his offices were on the lot at Universal. He owned a piece of the theme parks and we wanted to make a deal with DreamWorks. So I spent a fair amount of time with Stephen, who's brilliant. It was not hard to build a good relationship with him. He's an incredibly gifted, intelligent, thoughtful human. and he said do you know anything about the plans that have been made for the theme park i'm like no i know nothing about it he said i'm going to show that to you so a week later he made a whole presentation to me about the work that he had done with the universal uh creative team and i thought it was fantastic obviously we changed a lot and we had to change it in order to to deliver our strategy of a sort of older kids.

39:52But almost all the IP that we had in the theme parks at that time was Stevens. It was ET. It was Jaws. It was Close Encounters, even though that was made for Columbia. It was Jurassic Park also. Jurassic Park, he had done, but we hadn't integrated it into the theme parks yet. But it became part of the Islands of Adventure when we built it. when we built it, we had a Jurassic Park world. So he was incredibly important to our current theme park business, would be, I believe, to our future theme park business. And what better creative partner could you possibly have? And so, yes, we did take a very, very big bet for Seagram, meaning just from a balance sheet standpoint, on Universal Orlando.

40:45but it fortunately turned out well.

40:49The Gstaad Guy:What did the music side of things look like back then? Was it all about signing on new artists? The music business back then was actually in good shape. It was pre-Nabster and pre-MP3s and all that stuff. So the music business was very good. It's always been a very strong cash flow of business because it doesn't take a lot of money to make an album. and frankly, artists get paid every six months, nine months, or 12 months, but retailers would pay us every 30 days. So we kind of had a negative float, which was nice, and that made it, I thought, a very compelling business to invest in because it was so strong in cash flow, which the film business is the opposite.

41:37But when we bought MCA, there were six major music companies. MCA was the smallest. It was actually referred to as the Music Cemetery of America as opposed to the Music Company of America. And I was fortunate enough to change out management. That's a story in and of itself. And we then, Time Warner started getting rid of its executives and assets. they sold Interscope to us because Interscope distributed Death Row and at the time that was very controversial. And then in 98 we bought Polygram and put together this juggernaut of a music company. And then the music industry went through a very tough time.

42:22But Universal Music Group alone today is, I don't know, worth$40 or$50 billion.

42:28The Gstaad Guy:So what was the sentiment when actually eventually letting go of those businesses?

42:38Well, I didn't want to let go, to be honest with you, but the situation was becoming pretty intolerable between my father and my uncle. But as my father once said to me in a Jewish family, if you're mad at the son, you yell at the daughter-in-law. So I was getting a tremendous amount of heat from Charles Charles and my father, they hardly ever confronted each other. But it was just getting pretty dysfunctional. Charles made it very clear to the board that he did not like my leadership. He did not like the direction the company was going. Actually, the day we bought, the day we agreed by Polygram, he asked me to resign.

43:26So it was just getting difficult. and the markets were very strong in 2000. And my dad said, what do you think about just selling the company? I said, well, honestly, I'd rather not, but I also can't continue like this. And if the markets are strong, I think we can get a very good price. And honestly, I'd rather sell one on 46 than one on 56 because I want to do more. so we did end up selling the company we sold it for a very high price but of course in those businesses you have to sell for stock because the cash flow just doesn't make up for all cash purchase and we were fortunate to sell some of Vivendi's stock but Vivendi which had been an incredibly successful company had a guy who basically ran it into the ground.

44:28And so it turned out in retrospect not to have been the best buyer. I mean, I'm not sure that if we had sold it to somebody else that we all would have been perfectly happy with the outcome. I think we would have. But selling the family business and then having the consequent company collapse two years later was horrible to live through.

44:52The Gstaad Guy:I'm sorry about that hey into every life I mean your kids have independently achieved tremendous success without actually stepping back into the family businesses as you did would you say that that is something you wanted to protect your kids from or is that a choice of their own well first of all I think my the younger set of kids really grew up with entertainment being more of their family business than the spirits business. But funnily enough, Aaron has gone back into the original family spirits business and started a rum called Pin Drop Rum, which is a phenomenal, phenomenal product, an incredible package, and it was conceived and produced in the Bahamas.

45:48and for anybody out there who likes rum, try Pindrop Rum. It's an amazing, amazing product. I love that.

45:57The Gstaad Guy:And he also took a very similar path to you, started off, I mean, he went to college. He went to college. To Harvard. He went to Harvard, which then and now I couldn't ever dream of getting into. He then went on to do a master's at Oxford, which then and now I could never dream of getting into. He wrote songs as well. And then he was, and maybe still is, I hear fewer of them, a songwriter. And he wrote amazing songs. I mean, amazing songs, which I told him at the time, and I haven't changed my view. Just really, really a gifted writer. And I would say, full stop. But his lyrics, which I can, because I wrote lyrics or write lyrics, His lyrics are so good, and by the way, so much better than anything I've ever written, that it's a joy to listen to what he wrote.

46:54The Gstaad Guy:While growing up spending a lot of time in your home in London, I watched you encourage your kids to be independent thinkers and entrepreneurs in their own rights. So it makes absolute sense that Aaron and your kids have gone down those paths. my question to you is backtracking to the family business side of things what does it take in the household to maintain a healthy relationship with kids or parents when there may be existing tensions at the office that you don't want to bring back into the house what i realized fairly early on in my executive career someone said to me so it must be like 98, 99.

47:40They said to me, how do you manage running a company, being married, having at the time six children? And when I answered him, I hadn't thought about it, but it just came out. And I said, well, I gave up friends. And it really was true. And it's not something that I meant to do, but there's only so much time in the day. And particularly when you're the CEO, you're expected, you may not be busy 24 hours of every day, but you have to be ready 24 hours a day. And you have to be knowledgeable 24 hours a day so that when you have to make a decision, you know everything there is to know so that you can make the best possible decision.

48:26Oftentimes things happen. You don't have the time to get up to speed. You just have to be ready. and so it's a very demanding job. I loved it, but it's very demanding. So that time has its demands. I think the best thing you can do for your children is to have a healthy marriage. So I didn't do that for my first set of children and I always regret that that happened And I feel I've done that for my second set of children. We've been married 31 years, and I'm still very much in love with my wife. She's a little more, you know, she's not sure that she's so much in love with me, but I'm still very much in love with her.

49:18I doubt that. And, you know, I think that's so investing time in that and then, you know, being there for your kids. and there's not a lot of time left in the day. I used to play golf. I used to love to play golf. I used to have a pretty low handicap. As I started having kids, I play now three or four times a year. It takes a whole day, basically, and I don't want to take that away from the family.

49:45The Gstaad Guy:I'd love to talk more about choosing the right partner. There's, of course, the famous quote behind every strong operator is a strong partner in the household. What do you look for and what does it take? Well, look, I think it's just good fortune, honestly. I mean, I think you can make a lot of intellectual choices and have certain boxes ticked, which are important. I think having a similar view of the world, I think having the same sense of core values, not so much core religion, but just core human values, um all of that's critical uh but you know i always like to say when they invented marriage people died at 30 so if people were going to die at 80 or 90 they would have come up with a different system okay it's very hard to to be married and see the same person every day I feel like for 40, 50 years.

50:56I mean, it's hard. And so the number of marriages that not only are still together, but are happy is relatively few. And I always just say to people, look, it's worth it. I mean, I'm so glad where I am in my life and with my wife. but I always say to people, if when that, if I say to a guy, but I say the same thing to a girl, if either you're watching someone walk down the aisle to you or you're walking down the aisle to someone else, if at that moment you're not 100 ,000 % sure this is the right thing for your life, don't do it because just the smallest doubt at that point means that to survive over decades it's just not going to happen so you know whatever gets you to that point of absolute certainty and that this is just someone with whom i must must spend the rest of my life if you can't get there don't make that commitment

52:09The Gstaad Guy:I have had the pleasure of becoming close friends with both Hannah and her husband Brendan over the past couple of years because of my work and I heard your speech at their wedding was exceptional but also included some great life lessons for relationships do you remember some of those life lessons that you shared today? The one thing I do remember talking about is that it is important to maintain intimacy with each other. However that happens, it's important to remember why you got married in the first place. And oftentimes, children require so much time and attention that it's impossible to spend time and attention on each other.

52:58And ultimately, that's not good, right? I always say people, children will, they may or may not remember whether you showed up at every soccer game, but they'll sure remember if you got divorced. So, you know, you've got to take care of the marriage at the same time as you're taking care of the children. But I don't remember the specific lessons.

53:21The Gstaad Guy:Thinking about the way times have changed, in particular for the businesses that you run, do you think that the way the industries of spirits, music, entertainment, and everything in between have developed would have worked in your favor as an owner and operator? Definitely on entertainment because the benefit of content is that distribution went from, you know, however many hundreds or tens of thousands of cinemas around the world to an infinite number of iPads and other devices. Same with music. And it costs nothing to move the content from where it was made to any of those devices. So your addressable market increased by, it's incalculable.

54:17I always remind people that a million seconds is 12 days and a billion seconds is 32 years. So there's a huge difference, right? So when you go to addressing a couple of million people or even 20 or 30 million people who could afford albums at the time to billions and billions and billions of people, it's extraordinary. So I think on that side, I think to the extent that distribution was important to those businesses, which it was, um that's a been a there's there's a they've been disintermediated with the platforms like netflix um but uh i think you know those entertainment businesses are still doing tremendously well um spirits i think it's a little bit uh more of a mixed bag because with the with the internet and everything, the arguments for and against the consumption of alcohol now resonate across billions of people every day as opposed to a relatively small group.

55:34And so I think while I grew up in the family business and I do have a cocktail or two at night and I really enjoy wine, I think there probably are more people choosing today to to stay away from alcohol or to reduce their alcohol intake, and that's fine. I think it just makes it a little more challenging for that business. And I think COVID had a lot to do with that as well because I think when people were trapped for up to a year or more, drinking was on the rise, and I think people realized that was probably not, you know, they don't want to continue like that. so I think that would have made that business a little bit a little bit harder but it's um it's still some a business I was and remain very proud of I mean I'm incredibly grateful to be born

56:27The Gstaad Guy:in this digital era where I can do what I do and I wouldn't be able to do it five ten years ago for sure and definitely not before that but one thing I'm a part of and something I've noticed is that lots of people particularly people with audiences and followers are now founders of alcohol businesses. And until about 15 years ago, very few spirits and alcohol businesses had known founders or founders that were ever even communicated. It was brand first or product first. Whereas now many of the success stories are founder first with a lot of actors like George Clooney starting spirits of their own or even something as small as my own rosé.

57:12and creatives bridging the world of music and alcohol

57:18The Gstaad Guy:with niche brands like Aaron's with Pindrop and things as big as Snoop Dogg starting his own line as well. What do you think happened in the past 10 years where it's become such a reoccurring story of these singers, actors, and social media people starting alcohol businesses in particular? Well, first of all, I guess it shows that the two businesses I was invested in weren't as far apart as it may have appeared. Exactly. Again, speaking to emotional end benefits. Yeah. I think it obviously started in a big way once George Clooney sold Casamigos. And I believe he started that business with his friend Randy Gerber.

58:05and, you know, the brand really took off. I think, though, there's been too much celebrity branding now, particularly in the tequila area, but sort of extending everywhere. And my experience is the real brands, and I would say Casamigos is a real brand, But the real brands are usually built slowly and they disappear slowly too. And they're built in bars with people tasting the product. It's not easy to build a global spirits brand. And I think those that do get a lot of distribution because some famous celebrity is associated with them, it's fine. But I haven't seen many that actually stick because at the end of the day, people who do drink at the premium end of the market tend to know what they're drinking, why they're drinking it.

59:16And if they try it and they don't think it measures up, they move on. So a celebrity can maybe get somebody to try something, but it doesn't mean they'll keep trying it. One thing that I've seen through, and I would use music perhaps as the best example, when Napster came along and the MP3 came along and then LimeWire came along and Kazaa and all these businesses to effectively take music from artists and labels and give it to consumers for no cost. And that was obviously fundamentally unfair. And thank goodness the situation's been more or less righted, not to suggest that there isn't still piracy and all that stuff.

1:00:07But I think one lesson was what I said before, which is if a consumer wants it, they'll find a way to go. And people will always enable that. And so don't try to swim upstream. It just doesn't work. And I think the other thing, which is much easier to discover today than it was when I started out, is do people want what it is you're selling? Whether it's a service or a product, whether it's B2B or B2C, don't fool yourself into pretending that they want it when they're showing you that they don't. And don't take the time or the money to teach them they're wrong. because they're not wrong. The customer knows.

1:00:54They know what they want. They know why they want it. And there's some reason why they don't want what you have.

1:01:03And you just have to accept that because I've seen so many people push against that for years and come to the same unfortunate conclusion. So if you have a great idea, test it. make sure that you think you can sell it. If you can't sell it, understand there's something fundamentally wrong with it and you either need to fix that or move on.

1:01:28The Gstaad Guy:Well, in a very start-guy fashion, something we always do on these podcasts is we talk about something that is à la poubelle, which in French is to the trash, and we want to change about the industry or the world we find ourselves in, or something that is fantastique that we want to celebrate and be grateful for? Are there one or two things on either side that you could share? It could be as broad or specific as you'd like, but something you'd like to change, something you celebrate and like. Well, on the things I'd like to change, I would like to see the world much more focused and governments much more focused on trying to solve climate.

1:02:12I'm terrified about what's going to happen with climate and the hundreds of millions, if not billions, of people who are going to be adversely affected. And, of course, it's always the poor that are most affected. And there are potential solutions. Technology will have to get us out of it. but it won't come from changing from oil and gas to renewable energy. That is not feasible. If you could click your fingers and do it, it would be great. It still wouldn't be enough, but it's simply not feasible. So zealotry about oil and gas makes no sense. You have to accept that even renewables cannot function without natural gas.

1:03:06So let's stop having that nonsensical argument and figure out the things based on the reality of what we have and how to solve them. And there are things to do. I wish I saw a much greater energy. Well, the United States, I don't even want to talk about, but even around the world, there are pockets of it in Scandinavia, et cetera, but there just isn't enough focus. And once we do focus, it's likely to be too late, at least for hundreds, if not billions of people. In terms of things that I celebrate, the most important thing to me beyond my family is, since I was lucky enough to have a lot of opportunity, to see if I could create a situation where more people could have opportunity.

1:03:52And I happen to be the luckiest person in the world to be chairman of an organization called Endeavor.org. And Endeavor is a group that encourages entrepreneurs who've built a business but who need to scale that business. So it's not startups, but we call it scale-ups. And to create entrepreneurial ecosystems all around the world. And it's grown from when I joined. We were in four countries. We're now in 45 countries. Our entrepreneurs got jobs, created jobs for 10 ,000 people. There are now 4 million people working directly for our entrepreneurs. And we are the strongest, most extraordinary network of what I would call high-impact entrepreneurs in the world.

1:04:42And that organization is just magic. Well, thank you so much for being here on the Schnellgate podcast. It was a pleasure. And I wish you good luck with this podcast and continued good luck as the Stadman and whatever else you do. Thank you. Love it.

1:04:58The Gstaad Guy:Thank you so much. Thank you. Bye now. Thank you for listening to this episode of the Stardguy podcast. If you're keen to learn more, please follow along by engaging with our social channels on Instagram, TikTok, Spotify, YouTube, and Apple podcasts. And we look forward to seeing you next week. Merci beaucoup. A la prochaine. And a big hug from the Stardguy.