What Makes Clive Davis Worth $175 Million?
By Dimitry Elias Leger

(FORTUNE Magazine) – The day before Clive Davis is to launch his new record label at a glitzy party in mid-October, he's holed up in temporary offices in the penthouse suites at the Waldorf Astoria in Manhattan. The phones are ringing, and his desk is strewn with demo tapes. "[So many stars] have been calling. They all want to be with us," Davis says.

BMG Entertainment is counting on Davis' cachet. The Bertels- mann-owned company has sunk $175 million into Davis' new venture, J records (the name is his middle initial), making it the best-funded new record label in music industry history. The ambitious business plan calls for J to generate $550 million in revenues in just five years. Arista, the label Davis headed from its inception 25 years ago, didn't reach that mark until this year.

This is a lofty goal, to say the least, but if anyone can pull this off, it's Davis. Known as the godfather of the music business, the 67-year-old impresario has bolstered the careers of some of music's biggest talents: the Grateful Dead, Bruce Springsteen, and Puff Daddy. He capped off his career at Arista with a Carlos Santana comeback album that brought in $270 million.

Nonetheless, last winter, executives at BMG (which owns Arista) tapped a successor, L.A. Reid, head of the fast-growing LaFace label, and wanted Davis to leave to make way for him. Davis wouldn't go quietly and pitched an alternative: He wanted BMG to back an "instant major" label that would give him equity and financing to compete with Sony, Universal, and...Arista. The solution "was consistent with addressing management issues at a flagship label," says Strauss Zelnick, president and CEO of BMG Entertainment. "We achieved our goals: staying in business with Clive Davis and transitioning to a new management team at Arista."

Already, Davis is giving his competition a lot to worry about; he is assembling that elusive mix of management and talent that makes a label fly. He brought over most of his senior team from Arista and has raided Columbia and Bad Boy records for executives. He has also wooed some top talent: Wyclef Jean (formerly of the Fugees); Alicia Keys, a pretty and powerful torch singer in the Whitney Houston mold; O-Town, the boy band from ABC's reality show Making the Band; and the velvet-voiced Luther Vandross. "I'd like Clive to help me get my first hit records in places like Singapore and Australia," says Vandross. "The great thing about it is that's what Clive is also looking for." Davis will also receive up-front fees and back-end royalties for producing new albums by Arista's cash cows, Santana and Whitney Houston.

To reach his lofty goals, Davis will need blockbusters from these stars as well as quick hits from his new talent. He faces stiff competition from the major labels and powerful independents like Jive records, home to the Backstreet Boys and Britney Spears. But in the $38 billion music business, one breakout performer can make a label. "There's always room for new independent labels in the music business," says Jim Penhune, an analyst at the Yankee Group. J's artists are equally enthusiastic about the prospects. Says Wyclef Jean: "Other executives in the business are office guys. Clive is the only guy who comes to the studio to hear your new records." With all the new talent he's after, Davis has some serious studio time ahead of him.