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Pressed Suit

How did Strauss Zelnick go from hit man to corporate hit?

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Last week, when Strauss Zelnick resigned as CEO of Bertelsmann Music Group, many in the business saw him as the first inevitable casualty of the war between the record guys and the Internet geeks. Others saw him as the last inevitable casualty of the war between the record guys and the media moguls.

"The vogue twelve or fifteen years ago -- with Bob Morgado at Warner Brothers, Alain Levy at Polygram, and Mickey Schulhof at Sony -- was to have these business guys running record labels," says an executive at another company. "Strauss is the last of the business guys."

A preppy Harvard M.B.A., Zelnick ran movie and TV studios, a video company, and a software enterprise before joining BMG in January 1995. "I'm not Jimmy Iovine or Doug Morris or Clive Davis and I don't aspire to be them," Zelnick says. "I'm a manager of creative talent. What I don't do is engage in bullshit. I don't substitute schmoozing with the stars for knowing how the business works."

The immediate reason Zelnick resigned, along with his boss, BMG chairman Michael Dornemann, was that he and Bertelsmann chief Thomas Middelhoff couldn't come to terms on his role in a company Middelhoff had radically restructured to incorporate a stand-alone e-commerce division. By the time Middelhoff offered to make Zelnick chairman of the recast music division this summer, it had been stripped of its Internet component. Bertelsmann's surprise announcement of a $50 million partnership with Napster only added to the turmoil. Last week, the CEO job went to Rudi Gassner, whom Zelnick claims he fired in January. (Gassner says he left the company voluntarily.)

For the past five and a half years, Zelnick and Kevin Conroy, BMG's marketing head, had been creating a network of music Web sites, including Peeps (hip-hop) and TwangThis! (country). Middelhoff apparently grew impatient with their progress. A vocal Napster opponent, Zelnick has acknowledged his online strategy was more conservative than Middelhoff's but denies resigning over the Napster deal, calling himself "a good corporate soldier."

Some think he may have been too good. Zelnick expanded BMG's market share from 13.4 percent to 19.4 percent, but many of the company's hits came from BMG's Arista label and from its distribution deal with Zomba, parent company of Jive Records, home to Britney Spears and the Backstreet Boys. When 'N Sync left BMG-owned RCA for Zomba, Zelnick got involved in a legal battle that soured his relationship with Zomba CEO Clive Calder. Months later, he asked Arista president Clive Davis to step down. Both Calder and Davis have better relationships with Gassner. "I come from the music business," says Gassner. "My relationship with Clive Davis goes back fifteen years."

Perhaps the New Economy -- like the record business -- demands a dressed-down risk-taker rather than a buttoned-up M.B.A., but Zelnick says he learned another lesson. "If you don't own the candy store," he says, "don't complain about how they arrange the candy."


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