NEW YORK, October 21, 1998: PolyGram, the world’s leading music company, today announced record third quarter growth with a 44% rise in music operating income to Netherlands guilders (NLG) 248 million for the three months ended September 30, 1998. Group operating income was up 32% to NLG 171 million. Net income for the third quarter rose 95% to NLG 166 million, or NLG 0.92 per share compared to NLG 85 million and NLG 0.47 per share, last year.

Excluding 1997’s sales of charity recordings in memory of Diana, Princess of Wales, group sales rose 7% to NLG 2,668 million during the quarter, with music sales up 4% to NLG 2,170 million. Including those sales, on which all profits were donated to the Princess’s Memorial Fund, group sales were level with last year, while music sales experienced a modest decline. For comparison purposes, further references to 1997 sales in this press release will be excluding the charity sales.

Despite the extraordinary challenges of operating during the transition before the Seagram acquisition closes, compounded by the weakening of global economies, PolyGram’s third quarter firmly demonstrated the inherent strength of its artist roster, management and operations. The impressive rise in music operating income was due to stronger international and local releases, lower marketing costs and the continued benefits of the restructuring program implemented in 1997.

Best selling international albums came from Sheryl Crow, whose September release The Globe Sessions is achieving chart success around the world with sales of 1.5 million units in the quarter, as well as, Jay-Z, Kelly Price, Kiss and the Bee Gees. Strong selling local releases included Japan’s Glay, whose album Pure Soul sold over 3 million units, Terra Samba and É o Tchan of Brazil, Manau from France and Marco Borsato of The Netherlands. Solid carryover sales came from Shania Twain’s Come on Over which sold a further 1.3 million units in the quarter to reach cumulative sales of 7.2 million. Shania Twain is the first female country artist to top the five million unit mark with two albums. Carryover success was also achieved by the Grease Original Soundtrack, All Saints’ All Saints and Andrea Bocelli’s Romanza, which reached cumulative sales of 6.9, 3.6 and 9.5 million units respectively as well as DMX, Boyzone, Era and Lighthouse Family. The classical division experienced double digit growth in the quarter – its best selling album being August release, The Three Tenors – Paris 1998, which sold over one million units outside the US. Music Publishing posted strong double digit sales growth in the quarter, aided by best sellers such as André Rieu, Lighthouse Family, Era and the Cardigans.

Commenting on the results, Jan Cook, chief executive officer of PolyGram, said: “”As expected, PolyGram’s music performance in the third quarter has shown encouraging improvement despite challenging operating conditions. At the beginning of 1998, we announced that our music release schedule was weighted towards the second half of the year. With a 49% rise in music operating income compared to the second quarter 1998, our results demonstrate that we remain focused.””

Reinforcing this statement is PolyGram’s current chart position. As well as seizing the number 1 slot in both the US and UK album charts this week with Jay-Z and The Beautiful South, PolyGram has four albums in the US Billboard top eight. Along with Jay-Z, Sheryl Crow, Shania Twain and breakthrough act, Kurupt, occupy the number 6, 7 and 8 slots respectively. This chart success illustrates the strength and diversity of PolyGram’s artist roster and underscores the company’s optimism for the balance of the year. According to Soundscan, the company’s current US market share is 13.1%. Further music highlights for the rest of 1998 include expected albums from international artists U2 and Dire Straits, who will release greatest hits albums, Bryan Adams, Jonny Lang and Metallica. Local releases are expected from André Rieu, Limité, Zucchero and Daniel Chan.

Regional performance during the third quarter 1998 was highlighted by North America, where sales increased by 33% compared to last year, led by the US which experienced double digit growth in music sales and a dramatic improvement in music operating income. The strength of releases, tight cost control and ongoing benefits of restructuring led to a significant improvement in operating efficiency. European sales grew by 5% aided by a solid music release schedule. The region’s increased music operating income also reflected the quality of releases and the benefits of restructuring. Notable markets included France, the UK, The Netherlands, Spain, Portugal, Austria, Switzerland, Ireland and Sweden. Due to the harsh trading environment in Asia, regional sales declined 21% in the quarter, while operating profits also declined compared to last year. However, on a year to date basis, the region has remained profitable, mainly due to sustained profitability in Japan and Taiwan. In the rest of the world, sales were down 5% compared to last year while operating profits showed a slight increase. In Brazil, the region’s largest market, PolyGram increased market share due to strong local releases, despite the weaker trading environment.

Filmed entertainment revenues increased 23% to NLG 498 million in the quarter, mainly due to the strong video sales, particularly Barney’s Great Adventure and The Borrowers which sold 2.9 million and 2.1 million units respectively. On the theatrical side, Lock Stock and Two Smoking Barrels is performing strongly in the UK with a box office gross of $16 million to date. The movie will be rolled out internationally over the coming months. Due to higher provisions for non-performing films, PFE reported an operating loss of NLG 77 million for the third quarter compared to a loss of NLG 42 million in 1997’s third quarter.

Jan Cook said, “”Despite the pressures of being under offer for sale, PFE successfully launched two major films, What Dreams May Come and Elizabeth which both opened strongly earlier this month.”” Scheduled film releases for the remainder of 1998 include the international release of What Dreams May Come and Elizabeth, as well as Very Bad Things starring Christian Slater and Cameron Diaz. Cook added, “”Importantly, during the third quarter, PFE remained focused on the production of a number of major films for next year when the company will present what could prove to be its strongest slate yet.”” 1999 releases in production during the quarter included Notting Hill starring Julia Roberts and Hugh Grant, The Green Mile starring Tom Hanks, Arlington Road with Tim Robbins and Jeff Bridges and Angela’s Ashes starring Emily Watson and Robert Carlyle.

Cook said, “”Now that Seagram has received approval from the US regulatory authorities and the European Commission, we expect completion of the acquisition during the fourth quarter. Finally, I would like to take this opportunity to thank my colleagues in PolyGram management, and our over 12,000 employees around the world, whose continued commitment and dedication has allowed us to maintain our position as a leading entertainment company, particularly during this on-going period of transition.””