Tuesday, December 11, 2007

Hands tries a different tune with EMI

Is Guy Hands right about EMI? That is the debate raging in the music industry as Hands' private equity lieutenants from Terra Firma crawl over the company that signed the Beatles in an effort to make his bumper £3.2bn acquisition stack up.
Hands attempts to reassure EMI stars
The former investment banker is seeking deep cost savings from an industry notorious for its rock and roll profligacy.

About time, say some executives fighting sliding CD sales and rampant web piracy. But creatives at the company behind Kylie and Coldplay fear that Hands is playing a dangerous game.He has criticised some artists for simply negotiating the best advance rather than "working with their label to promote, perfect and endorse their music", as others do.He has since written to EMI artists seeking to reassure them that they are "at the epicentre" of his plans to turn the struggling business around.
But some artists' managers question the ability of a financial wizard, whose previous investments have included pubs, landfill sites and service stations, to appreciate the subtleties of an industry famous for its stadium-sized egos.
"He's not dealing with motorway cafes in Germany or pubs," says Jazz Summers, manager of EMI indie stalwarts The Verve. "I have found him bright and willing, but since reading his statements, Terra Firma need a lesson in artist management."
Summers is a founder member of the self-styled Black Hand Gang, a clutch of EMI artist managers that look after acts such as Robbie Williams, Pink Floyd and Phil Collins, who clubbed together in recent years to deal collectively with the company on particular issues.

The gang met recently but have decided to reserve judgement on Terra Firma's radically new approach to the music industry until a review is complete.
Spearheading the artist relations part of that review is former BBC director general Lord (John) Birt, a notorious cost-cutter. Summers, however, says he thinks Birt has a better understanding of the record business than Hands.
That will be critical, say insiders, because EMI, perhaps more than any of the other three music majors - Universal, Sony-BMG and Warner - has built a reputation for taking care of its artists.
Terra Firma is believed to be turning down over half of EMI's proposed new artist signings and Hands is expected to seek fewer, more focused and better-organised investments in talent.
These will cover not just recording deals but also merchandise, live performances and media appearances, backed up by a longer-term strategy to make a return.
As part of its review Terra Firma has asked EMI to analyse a dozen artists, from international stars like Norah Jones to break-through bands like The Bees and local acts, to evaluate what type of artists will generate the best returns across those categories over time.
"It's exactly the sort of stuff they should be doing," says one industry executive. "The industry is full of executives who have been around for years who know a lot about music but are not financially or commercially literate."
But while EMI's commercial and financial departments are said to be relatively encouraged by Hands' approach, the creative and marketing types are fretting about the new financial rulebook.
Hands has declared war on waste at EMI. Parties, candles, flowers, the £5.6m Mayfair flat, they are all being consigned to annals of rock history.
"He is absolutely correct," says Jeremy Lascelles, chief executive of smaller rival Chrysalis Music. "There is a criminal amount of waste in every major record company, and that is one of many reasons why the economics of the record business have gone so awry."
Meanwhile, any EMI execs that expected an end to short-termism after the company de-listed have been disappointed.
Under previous management, many divisions in the recorded music business were being run on a three month view as the bosses strived, and all too often failed, to hit the City's six monthly forecasts.
While they await Hands' long-term strategy announcement, executives have been told they will receive no bonuses unless the company hits a £150m underlying earnings target by June of next year - again, a mere six month time horizon.
Terra Firma, which owes Citigroup £2.5bn on its purchase, is confident it can beat that profit figure, however, thanks largely to cost cutting - starting with a clampdown on CD returns.
It is understood that EMI had 65m CDs returned by retailers last year, at a cost of almost £100m. Mr Hands' team have issued instructions for the company to stop overshipping, a practice it has been accused of in the past, along with most of its rivals.
"The music industry is an extraordinary industry with which to do businesses," says Richard Corbett who founded music database company Ricall in 1998 after a career in management consultancy working for companies in many different sectors.
"Rather than people focusing on 'why should they do a deal', it's 'why shouldn't we do a deal'. It doesn't surprise me at all that someone from outside wants to come in and rip up the rule book."
But beyond the short-term savings, EMI will have a bleak future unless it uncovers new talent and gets the best out of its existing roster, say experts. Last week's pre-Christmas chart positions - just six EMI acts in the top 75 - revealed the company to be woefully lacking in both departments.
''They don't seem to having any hits at the moment, which is always a pretty good measure," says Paul McGuinness, who manages Universal Music giants U2.
''I wish them luck at EMI - it's a good business going through a bad patch. I believed [Terra Firma] when they acquired company when they said they are holding for the long term and intending to invest."
But Marc Marot, the former head of Island Records who now manages DJ Paul Oakenfold and Yusuf Islam (formerly Cat Stevens), says the key problem at EMI is common to every major label in the world.
"Capitalism and artistry are often very strange bedfellows. You can't force an artist to come up with the goods. To a large degree Hands is probably right, but to an even larger degree... no pontification from senior management anywhere will change the way artists work and think, and the more you whip them the worse things will become."
EMI's finances may be ripe for a private equity-style shake up, but this is almost certainly Guy Hands' bravest bet to date. The real unanswered question is, can he make it pay off?


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