Citigroup Takes Over EMI, Buh-Bye Guy
February 4, 2011
"It's like rearranging deck chairs on the Titanic. There's a much larger problem in that the economic and distribution model for major labels today is fundamentally broken."-- Aram Sinnreich, who commented on the executive changes at the EMI Group back in January 2007, in the L.A. Times.
"The music business shows exciting growth potential, but the environment remains extremely challenging. In order to thrive and meet the demands of a rapidly evolving and dynamic music market, we must rethink our operations..."-- Former EMI Chief Executive Eric Nicoli, February 2007
"It has given us one of the most robust balance sheets in the industry with a modest level of debt and substantial liquidity. With that solid footing, we are confident in our ability to drive our business forward."-- Current EMI CEO Roger Faxon, talking about EMI's major creditor, U.S. Citigroup, taking over the company
"When the music's over, turn out the lights."-- Jim Morrison
Well, if you didn't hear the news yet, this week EMI was sold to its major creditor, U.S. bank Citigroup. Of course, that means the rumors have been flying about a possible sell-off of parts or the whole of the company since the moment the news broke.
The acquisition "means that the U.K. no longer has a major music label, came as a surprise; most experts were predicting an announcement in June when EMI-owners Terra Firma were expected to default on a debt covenant agreed in March." (Source: http://tiny.cc/jd50f ) It also means Guy Hands no longer has his hands in anything to do with EMI, and his hands are now dirty with the deal he made when Terra Firma (bad name now for the company) took over EMI.
From the same article: "Citi said the new capital structure meant EMI now had the financial strength and flexibility to deliver on its stated strategic goal of maximizing value for its artists and songwriters. EMI already had £300m in cash." But "a Citigroup insider told Music Week the bank had little interest in keeping hold of EMI as a going concern. He said, "[Citi] has already been in talks with all the relevant majors about selling off the various parts of the company."
So, who do we believe?
Well, for a look ahead at what might happen to EMI, I thought it would be interesting to take a look back at what happened as I started commenting on the unraveling EMI story starting back in 2007, and predicted exactly what would happen. (As did many others)
From 'EMI SOLD...GEE, WHAT A SURPRISE...NOT!'
DISC & DigitalAudioTechnology, May 25, 2007:
Well, after a couple of years of speculation it finally happened. EMI accepted a bid from a private equity group, Terra Firma Capital Partners, this week. (See the story below 'Britain's EMI Accepts Private Equity Bid' )
The initial "sound bytes" in the press and elsewhere all talk about rejuvenating EMI and making it a great music company again, moving forward in the digital age, exploiting online music sales, and blah-blah. Well, sorry if I'm a bit cynical from reading all those nice quotes, but any private investment company that talks such talk is usually as genuine in their meaning as those wonderful politicians in our nation's capitol.
Maybe Terra Firma Capital Partners is really sincere. (Maybe pigs will fly someday also.) But, do you really believe any capital investment company buying a music company today is going to wait long for any return on their investment? And how many investment firms, that buy any company in any industry, have plans to actually grow the companies they buy? How many truly buy companies with thorough understanding of that company's core competencies? If you read any money/financial pages in any media, you'll find that in almost all cases that capital investment firms buy companies for one reason primarily: to break them up, and in turn generate big returns on the initial investment.
There's nothing wrong with all that. It's just business. But the music business is one rooted in a foundation of creativity. And any business in the creative arts arena operates completely differently from companies that sell widgets. If you've had the privilege of working in the industry, you already know this. Step outside the industry and try applying the same marketing applications and budget planning elsewhere and you are in for a rude awakening.
No matter who ends up owning EMI, let's be realistic. Music sales are down globally. CD sales are still in free fall. Online sales of digital music are still increasing at respectable rates, but the revenues don't offset the losses of revenues generated by physical CD sales. So, what would you do if you owned the company?
From DISC & DigitalAudioTechnology, January 18, 2008:
This week, only seven months after the purchase, Terra Firma's Guy Hands said the following: "We have spent a long time looking intensely at EMI and the problems faced by its recorded music division which, like the rest of the music industry, has been struggling to respond to the challenges posed by a digital environment. The changes we are announcing today will ensure that this iconic company will be creating wonderful music in a way that is profitable and sustainable."
The changes? Mr. Hands plans to cut 2,000 jobs at EMI.
From DISC & DigitalAudioTechnology, August 21, 2009
This past week, a new article appeared in The Wall Street Journal 'EMI Deal Hits Sour Note' by Aaron Patrick.
From that article, "the storied record company is now facing a problem it hasn't yet been able to shake: the heavy debt from a leveraged buyout gone bad."
Whatever EMI's debt problems are, one thing is for sure: financial people and investment companies aren't going to solve them. The only thing that will solve EMI's (and any other music conglomerate's) problems, is the commitment to MUSIC and making sure MUSIC people who have the talent and the vision are running it on the creative end everyday.
Guy Hand's hiring of Elio Leoni-Sceti as EMI Music's chief executive officer wasn't a move in the right direction, for starters. I have nothing against Mr. Leoni-Sceti, but: a) he never worked in the music industry before, and: b) he came from a "consumer goods company Reckitt Benckiser, whose products include Dettol, Nurofen and Finish dishwasher powder." (Source: http://tinyurl.com/m5dp5d )
Basically, what Mr. Hands did would be like Proctor & Gamble buying Dreamworks Pictures and making their chief marketing executive the head over Steven Spielberg. Wouldn't make much sense, would it?
Okay, maybe I'm over-simplifying. But you get the picture, don't you? And if you do, you can see it's clearly out of focus.
From DISC & DigitalAudioTechnology, November 19, 2009:
This week comes news that "Terra Firma has sharply reduced its managerial involvement at its EMI Group following failure to reach agreement with its lending bank Citigroup on restructuring the music publisher's debt. The U.K.-based private equity firm is withdrawing about 10 Terra Firma executives who run EMI on a day-to-day basis after concluding that it has little chance of making back most of its money on the investment without the restructuring, and that they may be able to generate more value at other portfolio companies, a source close to the buyout firm said. "
It was also reported as this: "Terra Firma's really been brought down to earth in more ways than one: After failing to restructure EMI's debt, it has written down about 90% of its investment in the struggling music label, reports FT. This comes after its lending bank Citigroup rejected the PE group's efforts to get EMI's debt reduced by 40%. Terra Firma had offered to inject about GBP1 billion of equity into the company in exchange for Citigroup forgiving a similar proportion of the GBP2.6 billion of debt it held, reports WSJ, but the bank said the offer was weighted too much towards the PE group keeping control. The size of this writedown does point out the great big obvious: that's EMI has little more than option value, as FT puts it. EMI, with Citgroup's help, bought EMI at the height of the credit bubble for about 4 billion pounds." (Source: http://tinyurl.com/ykq2s2t )
No matter what spin is put on this by Guy Hands (if, indeed, any spin could be out on this), the news isn't good for Terra Firma. The fact that Terra Firma is reducing its managerial involvement could mean either they will let EMI be managed more by MUSIC people who know more about their business than any investment executives, or that they are reducing management involvement so when the company craters, they can reduce the blame they will surely share. Or it could be for other financial reasons. I'm not an insider, so I can only look at the picture from the outside and draw my own conclusions. You draw yours.
From DISC & DigitalAudioTechnology, March 5, 2010
Someone once said "Nothing travels faster than light, with the possible exception of bad news, which follows its own rules."
The news about EMI's Elio Leoni-Sceti leaving the company after only 18 months certainly followed that rule. In mere minutes, the news was all over the Internet.
Back when Terra Firma's Guy Hands hired Leoni-Sceti I had this to say: "Guy Hand's hiring of Elio Leoni-Sceti as EMI Music's chief executive officer wasn't a move in the right direction, for starters. I have nothing against Mr. Leoni-Sceti, but: a) he never worked in the music industry before, and: b) he came from a "consumer goods company Reckitt Benckiser, whose products include Dettol, Nurofen and Finish dishwasher powder." (Source: http://tinyurl.com/m5dp5d ) Basically, what Mr. Hands did would be like Proctor & Gamble buying Dreamworks Pictures and making their chief marketing executive the head over Steven Spielberg. Wouldn't make much sense would it? Okay, maybe I'm over simplifying. But you get the picture don't you? And if you do, you can see it's clearly out of focus."
With all the problems going on at EMI, is anyone surprised? Of course not.
The EMI news keeps getting worse each week, and the company shouldn't expect that removing Leoni-Sceti will help then turn the ship around.
EMI hit the iceberg awhile ago when Terra Firma came aboard.
Obviously, like the Titanic, EMI could not stay afloat once it hit that iceberg. For all intents and purposes, the once-great music company was headed for its last voyage as it headed into the icy waters in the digital age.
For a long time, as things got tougher in the music industry, many labels hired more accountants and financial people than MUSIC people.
If there is any lesson to be learned from what has happened at EMI, it should be what I said back in August 2009, "The only thing that will solve EMI's (and any other music conglomerate's) problems, is the commitment to MUSIC and making sure MUSIC people who have the talent and the vision are running it on the creative end everyday."
THE 'A-SIDE' - TRACK 2
THE TV AND YOUR COMPUTER ARE MORPHING INTO ONE
According to SideReel, an independent Web TV destination with a base of more than 10 million monthly unique users, 40% of respondents had connected their computer to their TV in the past month, a three-fold increase over last year's results. 60% of people connecting a device to a TV connect their computer, and 5% use a box like Roku, Boxee or Google TV.
The survey was conducted to identify usage patterns in the areas of social media, Web TV, and the use of connected devices. The average user age in 2009 was 26, and in the 2010 results, 29, but the report notes that there is no correlation between age and time spent watching online. Check it out here: http://tiny.cc/7j8ac
THE 'A-SIDE' - TRACK 3
WATCH OUT NETFLIX, AMAZON'S COMING
Netflix's streaming service, which has helped make the company the second largest U.S. media subscription service and boosted the firm's market value, may finally get competition from Amazon.com.
Amazon, led by CEO Jeff Bezos, has been rumored to work on a streaming video service offer bundled with its Amazon Prime service, which for an annual subscription fee of $79 a year gives users unlimited free two-day shipping, for a while. Read what the Hollywood Reporter says about it here: http://tiny.cc/gqsik
THE 'A-SIDE' - TRACK 4
WRITERS FEAR NOT, E-BOOK SALES TO EXPLODE TO $2.7 BILLION BY 2013
Falling prices and new business models will help U.S. e-book unit sales to grow from an estimated $313 million in 2009 to $2.7 billion in 2013, according to a new Yankee Group forecast. The research firm predicts e-book revenue will even outpace mobile app sales, expected to rise from $834 million to $1.6 billion over the same period in the U.S. Read about it here: http://tiny.cc/99cnc
THE 'A-SIDE' - TRACK 5
THE APP, THE WHOLE APP, AND NOTHING BUT THE APP
What's a downloaded app worth? Not as much as their publishers would have you believe. Indeed, 1-in-4 downloaded apps are used just once, according to a new study from analytics firm Localytics. "The big takeaway from the news for mobile app developers is that first impressions of your app matter greatly," says Venture Beat "and you should also pay more attention to the number of people who keep using your apps, instead of just looking at download statistics."
Read more here: http://tiny.cc/npchl
THE 'A-SIDE' - TRACK 6
YOU MIGHT WANT TO CHECK OUT 'DEAD AIR: THE RISE AND DEMISE OF MUSIC RADIO'
Anybody wanting a great read about what happened to the glory days of rock'n'roll radio will want to read this book.
This reader's comment on the amazon.com page for the book ( http://tiny.cc/r7p1k ) sums it up: "This is the one book that totally captures the lives and times of Top 40 radio and the millions of people it influenced. Every thing the author has writhed in true to the style and fun of DJs, 4's and Record Hops. Bill Young remains one of the most important people in the rise of independent radio. If you ever listened to 'stacks of wax,' you will enjoy each and every minute of Dead Air: the Demise of Music Radio."
And Now For Some News ...
Google Sez Free Music Can Generate Revenues Like Those Charging For ItEVOLVER FM
"As record labels, digital music stores, and music subscription services continue their struggle to convince music fans to pay for music, Google's YouTube - itself a major repository of recorded music - claims that giving away music for free generates as much money for copyright holders as charging for it, with profound implications for freemium digital music services such as Spotify and the much-rumored Google music service. YouTube can make as much money for labels as paid services, following a massive, 200-to-300% increase in the revenue it generates for copyright holders over the past year."
""If you were to look at the numbers for Lady Gaga, the number of views she gets on YouTube versus downloads that she gets on iTunes, obviously, a single download on iTunes will pay her more than a single view on YouTube," said Farhi. "But when you look at the traffic - the number of people that are coming back and watching her videos over and over again, watching her videos before they download the song, or discovering them on YouTube - you can see how that scale can compete with a paid service."
Whether or not you agree, read what Chris Maxcy, YouTube's Director of Content Partnerships, has to say about it all and decide what side of the fence you're on.
Read more about it by clicking here.
No Shock Here: Older Music Acts Are Driving Tour RevenuesMARKETING CHARTS.COM
When record labels had a focus on signing long-term talent and coupled that with great A&R, strong rosters were built and artists developed that produced great album after great album, and great albums loaded with great songs not just one or two good tracks.
Is the news that musical artists and singers who will be in their 50s and 60s in 2011 produced a combined 59% of U.S. touring revenue from the top 20 live acts between 2000 and 2009, according to a new white paper from Deloitte, any surprise then?
"Technology, Media & Telecommunications' Predictions 2011 finds that 40% of touring revenue from the top 20 live acts in the past decade, or about $2.5 billion, was generated by artists who are or will be in their 60s this year.
Read more about it by clicking here.
Despite The Best Efforts Of Legislators Globally, 23.8% Of Web Traffic Involves "Digital Theft"MARKETING CHARTS.COM
Some 23.8% of global Internet traffic involves "digital theft," with the BitTorrent file-sharing protocol accounting for 11.4% of this figure, according to a study commissioned by NBC Universal and conducted by brand and trademark monitoring firm Envisional.
Music was only a small piece of the pie globally (although the small piece represents a whole lot of theft), as Hollywood film studios and adult websites have the biggest theft numbers.
Read more about it by clicking here.
Android Beats SymbianREUTERS
Ending a near 10-year reign, Google's Android has unseated Nokia's Symbian as the world's leading smartphone software. But what does the rapid rise mean for Google and the industry at large?
Read more about it by clicking here.
LAMBERT LEADS ACM NOMS:
Miranda Lambert leads all nominees in the 46th Academy of Country Music Assn. Awards with seven, including Entertainer of the Year, in which she's up against Taylor Swift, Toby Keith, Brad Paisley, Keith Urban and Jason Aldean.
THE STONES SAY NAY:
Because of rumors flying all over the Internet about a new tour possibly in the works, The Rolling Stones have sent out a statement insisting they are "free from any contractual arrangements or agreements with (Michael) Cohl as of the end of the 2007 A Bigger Bang world tour ... He is neither our representative nor tour promoter. " The Stones also confirmed they have no firm plans to tour at this time. (Editor's comment: Yes, but "at this time" just means the big check hasn't been written yet)
REGARDLESS OF THE HOOPLA, THEY WOULD HAVE HIM BACK:
Although Ricky Gervais caused a bit of controversy this year during his Golden Globes hosting gig and many have speculated that he would not be invited back for a third time, he said they actually asked him to come back. He has declined thus far.
GAGA TWEETS LYRICS:
Lady Gaga had been teasing lines from her upcoming single "Born This Way" on Twitter since announcing the song's release date on New Year's Eve, but last Friday she finally shared the song's full lyrics with her nearly 8 million followers. The single is scheduled to explode at radio on February 13th. (If it doesn't leak earlier)
MORE BEATLES ON iTUNES:
In another Beatles exclusive, Apple's iTunes Store has added the Beatles "LOVE" album and a feature-length documentary about the making of "The Beatles LOVE by Cirque du Soleil."
In a surprise news posting on Jack White's Third Man Records website, The White Stripes officially announced that they have broken up.
ROD & STEVIE HIT THE ROAD:
Rod Stewart and Stevie Nicks are gearing up for a 16-date co-headlining tour.
SUPER BOWL COMMERCIAL MATCH-UP:
Ozzy Osbourne and Justin Bieber have joined forces for a Best Buy commercial scheduled to run during Super Bowl.
JAGGERMEISTER AT GRAMMY SHOW:
Mick Jagger will make his first-ever live appearance at the Grammy Awards on February 13 taking part in the ceremony's annual "In Memoriam" segment, paying tribute to the late gospel soul great Solomon Burke, who died last October.
A NEW STREAM:
Music streaming service Rdio announced on Thursday that it has raised $17.5 million in new financing.
The Music Industry Past, Present & Future, And The Internet I answer questions on EconTalk
I did an interview about the industry and the Internet at EconTalk with host Russ Roberts. Russ is also a professor of economics at George Mason University, blogs at Cafe Hayek, and has written three novels that teach economics. He's also the co-creator of the Keynes-Hayek rap video. (And if your understanding of the economic meltdown that occurred needs to be enlightened, this video will do it)
In the interview we talk about the evolution of the music industry, the impact of the digital revolution, and I give my reasons for believing in the virtues and potential of the Internet in enhancing the music industry. I point out, as I have many times here in the newsletter, that the internet allows numerous artists to make money from their music and it can enhance revenues from live performances by expanding an artist's base. We also discuss the challenges facing record companies and I suggest that the full potential of the Internet as a distribution channel has yet to be fully exploited. There's a lot of ground covered, but based on the comments already posted of those who have tuned in, they've enjoyed it.
Read more about it by clicking here.
Quotes of the week
"I never smoked one joint during that whole shoot!"
-- Academy Award nominee Jeff Bridges, denying he toked up while filming '90s stoner classic, The Big Lebowski, to PEOPLE. Well, if you didn't Jeff, that makes the acting job you did that much better!
"Bruce Springsteen live. It's life affirming. When I signed him, he wasn't a dazzling performer yet, but I was totally knocked out by what he was writing. In that era, though, "another Bob Dylan" was the kiss of death for an artist, so I needed to distinguish him. I remember I put on a show in L.A. on this huge stage, and Bruce sang from one spot. I said, "Bruce, when you are playing this kind of place, you have to move." A year later, in 1975, he calls and says I have to come to the Bottom Line in New York. I went in and saw him just vibrating, hopping on tables. Afterward, he asked me, "Was I moving enough for ya this time?"
-- Clive Davis, answering the question "What one thing should every man experience?" in Men's Journal.
"I've heard her new album. It's amazing. The first single, 'Born This Way,' is the anthem that's going to obliterate 'I Will Survive.' I can't think of how huge it's going to be."
-- Elton John in Rolling Stone, commenting on Lady GaGa's new album.
"I've worked with Elton for such a long time and I've enjoyed our relationship too much to let something as random as these comments change my affection for him. Elton is just being Elton."
-- Billy Joel has responded to Elton John's allegations in the new Rolling Stone that he's never seriously attempted to curb his drinking habits.
The B-Side - 'Blips'
THE ONION (www.theonion.com) STORY OF THE WEEK:
Nuclear Bomb Detonates During Rehearsal For 'Spider-Man' Musical
NEW YORK - In yet another setback for the $65 million dollar Broadway musical Spider-Man: Turn Off The Dark -- a production plagued by multiple delays, poor early reviews, and severe injuries to its cast and crew -- a thermonuclear device detonated during the first act of Tuesday night's preview performance.
"The bomb should not have gone off at all," said lead producer Michael Cohl, adding that the explosion that vaporized most of Manhattan was "not that unusual" for a major Broadway show still in development.
Read the rest here and laugh: Click Here.
The BlogsCheck out Jerry Del Colliano's (the founder of INSIDE RADIO) daily blog, by clicking here: http://www.insidemusicmedia.blogspot.com
Check out attorney Ray Beckerman's website at: http://recordingindustryvspeople.blogspot.com where he prints news about the RIAA's ongoing activities
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"And the beat goes on, the beat goes on ... drums keep poundin' rhythm to the brain."
"Work is life, you know, and without it, there's nothing but fear and insecurity." -- John Lennon