Say Goodbye To EMI
Moses Avalon
I know, I know. I’m usually the guy who’s very Bullish on the condition of the music business, but this is one story even I cannot spin upward.
To save the beleaguered major label, EMI, its owner, Guy Hands has about a month to come up with about $150 Million to satisfy payroll and debts.In real estate terms, Hands is upside down on his house. He now owes more than he can sell the company for and his bank, Citigroup, is forcing him to foreclose rather than give him the chance to save the label that controls such classic catalogs as the Beatles.
Knowing he can not find a buyer or come up with the money, Citigroup’s unofficial but rather obvious plan is to foreclose, at which point they get their hands on the super valuable catalogs for dimes on the dollar.
Normally, when companies this size are in trouble their creditors help out by restructuring the loans.But not here.In this case Citigroup, has bitch-slapped Hands and all but said, let it burn. When your own investors want you to fail, there is little hope of survival.
Historic music in the hands of bankers.
Hands, a former bnaker himself, experienced in bond trading, wants to chop up the company now, but, under the terms of his loan, Citigroup has final say and they say “no,” unless Hands can write the $150 Million check himself.
This is what happens when bankers try to screw other bankers. Lawsuits of “bad faith” are pending.
Some inside sources leaked to me that Hands has a fail-safe plan; that all the money he needs has already been raised through his private phone book.So far, however, there is no sign of hope. In the past several months EMI has played shuffle the cards with key executive positions, hoping to revitalize the morale at the world’s smallest “major label.”
How did this happen to such a giant?Well, let’s head over the “I told you so” department of Moses Supposes.
LISTEN TO PAPA
In March of 2007, EMI quit the music business.Giving in to tech-biased rhetoric, they yielded to the ridiculous suggestion of a computer inventor named Steve Jobs.
Steve thought it would be a great idea to remove the copy protection from songs sold on his digital store, iTunes, which was responsible for less than 5% of music sales (then). As major labels laughed, EMI would blaze a trail into the internet environment.They thought, hey, we’ll be the cool label that let’s you give away the music after you buy it.Then fans will respect us.
I wrote then that this move would be the first nail in the EMI coffin. It was.“Fans” bit-torented and ripped through EMI’s catalog like an eight-ball in a Drew Barrymore cocaine binge.
From my 2007 article, “The DRM Manifesto”:
“If EMI’s DRM-free move catches on, the other Major’s will eventually be forced to do the same. If Jobs turns out to be right and sales go up, up, up—great, I’ll personally issue a mea culpa. But if he’s wrong, the Majors will not be able to re-cork the Genie. Their catalogs will be permanently devalued and they will eventually be forced to sell out on the cheap.”
I threw out my apology card to Steve months ago.
Is this DRM-free decision in 07 the totality of why EMI will be holding memorial services before the year is out?No, there are a bevy of reasons, but the DRM-free decision was the turning point for the company.It showed that management had its head somewhere else besides making money the way a label is supposed to– selling music, not giving it away or giving in to pressure from ISPs.
ISP propaganda has been coaxing labels to remove all copy protection for years, claiming that it would lead to more “long tail” sales.EMI’s failure proves them wrong once and for all.
CDs continue to dominate music sales despite an 11% drop from 2008 to 2009 and a 30% drop over the past ten years.All rhetoric aside, it seems, even ten years into the iTunes revolution, that the scales have not yet tipped in their favor; according to all sales reports, music buyers still prefer disk-shaped albums to virtual ones and would rather own a hard copy than license metadata that contains no tangible liner notes.
EMI’s executives may have even realized that the DRM-free move was foolish within six months, as revenue dropped through the floor, staff was let go and then the artists cut from the release schedule.But it was too late.The genie had left the building.
If only EMI had listened to its heart instead of its suits.
WHAT WILL THE END LOOK LIKE
It will happen fast.It may be six to twelve months before the only remaining vestige of the once mighty label is the famous Capitol Records “tower” on Vine Street and Hollywood Blvd, where EMI executives work. This is probably the crown jewel of their non-music related portfolio and if history has its way, it will go Condo in a few years.Who wouldn’t buy an apartment where the Beatles used the toilet?
I’m guessing the publishing division will be a bidding-war bloodfest.My money is on Warner. UNI will drive the price up, but ultimately lose out.The only winner here—Citigroup who gets to eat their young with a side of relish.
Abbey Road Studios will sell to some rich dot-com ex-hippy turned Republican, and the record division… Ah yes, the record division.Well, now that’s going to be interesting.
So far there has never been a label in all of the history of the music business that survived well without a publishing arm.How will one with a massive catalog that includes Radiohead, the Beatles and others fare in this game?Will they defy history?Will history defy them?
Again, UNI and Warner will probably divvy it up like a couple of 12 year boys trading baseball cards.
Predicted survivors:EMI’s Latin division.Small. Low overhead. Good sales considering the market. They might be working out of the restaurant near the parking structure, but their jobs are safe for the time being.
I for one will miss Capitol/EMI.Their contracts were by far fairer to the artist than most labels and they once had the best A&R on the planet.But the lesson to be learned is the same the banking industry learned recently…
You’re never too big to fail.
RIP EMI.
Long live the Big Three.
Moses Avalon
30 responses to “Say Goodbye To EMI”
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Of course we could have predicted it. When the equation “music business” leans to far to the business side, then it gets treated like one.
We could have predicted the current EMI debacle from the days when Seven Arts bought Warner, became a public company and issued stock circa 1967. Their debt also became unsustainable, and they were bought out by a parking lot and funeral home consortium called Kinney. Fortunately, Kinney’s leader, Steve Ross, was “Artist Friendly. Good thing, because he controlled the Atlantic Catalog. Yet he heralded the likes of Hands, an era when business acumen meant more in the music business that musical acumen.
Perhaps as we pioneer the post-digital music business, it will start to lean heavier on the “music” part of the equation again!
Good story Moses on EMI’s dilemma, and here’s some more back story, and some other goings on that might illuminate a bit more about EMI:
It’ true that begging Hand’s creditors and angry investors for more money to bail out the (business improving, but) beleaguered EMI is one obvious angle on viewing EMI’s demise or redemption, but it may not be the most critical one. There is the case of the “lawsuit”.
I have an occasional contact at the senior partner level at Skadden Arps in NYC, the largest and baddest law firm extant in the US some would say. From my attorney friend I hear confidential and unconfirmed scuttlebutt that Hand’s/Terra Firma’s law suit against Citigroup, his and EMI’s lender, and now adversary, and, specifically their “City” (British jargon for their Wall Street equivalent) financier, wryly called “The Worm”, will be probably and finally held, to Hand’s benefit, in the US, where the laws regarding shady and unshady business deals are more forceful prosecuted, and some would say, easier to win. The “shady” deal he claims and its lawsuit to correct, involves the assertion by Hands that “The Worm”, head of Citigroup in the UK, served as both Hand’s advisor, lender and friend, and that in that trusted banker’s position, conned young Guy as he was considering buying EMI in 2007 into believing that there were other bidders hot on coming to Citigroup to get that label. Apparently, the Worm bit the Hand, and their were no other offers but this bad advice compelled Hands to way, way (to the tune of 2 Billion quid) overbid on the property, which he won. But, the price was too high due to this bad, some would say crooked advice if Hand’s facts about this “auction” are true, and Hands/EMI is now underwater as you say. So, revisiting this deal in court may be an even more powerful “hand” out (sorry) to saving Guy’s EMI than getting more short term investment money to satisfy the Citigroup deal. Because, if the court venue does turn out the be in the US for the Hands/Terra Firma – Citigroup lawsuit, Hand’s could win and the deal could be undone, or more likely, on the “courtroom steps” a frightened- of-losing-in-front-of-the-US judge Citigroup could make a last minute compromise and then back off at least 1 billion of the debt Hands/EMI owes, thus saving the day.
We’ll know about where the lawsuit venue will be, the US or UK, any week now, that will tell a lot about the future of EMI.
So yes, appealing for more investor support is critical, but winning this lawsuit, or, vastly more practically, the appearance of having enough evidence to win it, could easily be the all saviour of the EMI we know, EMI publishing, included. As for Abbey Road? I don’t believe the great Beatles loving world really cares if EMI owns it or not, it will always exist as that place behind that pedestrian crosswalk and the four mop tops walking on it in History’s record, no matter who in Japan (probably) makes the highest bid for it. Now, if Guy were to shut that sanctuary of sound down… but he won’t.
George Daly
CEO
About Records
moses,
this is scary! to think that the most important music in the history of man will be in the hands of bankers! our collective world culture and conciousness owned by citicorp!
Well, you should double check this but this might explain why EMI just lost a case in Australia where “Men at Work” got successfully sued for quoting 2 bars of an old Aussie folk song in the flute solo of “Land Down Under”. Pure lawyer-fest greed and insanity – the ramifications mean that no one can use anything anymore because every interval has been used somewhere else already. Don’t believe me? Pls google and be horrified.
I think that EMI footed the legal bill as the owners of the copyright of “Land Down Under”, which explains why they couldn’t afford decent council for a case that should have been thrown out of court!
According to this case – no more musical “quoting” allowed. What constitutes a quote then? 2 notes? A minor second? Sorry – that was used in Jaws, that’s copyright infringement! This is just the tip of the iceberg as even any silence in a tune would violate John Cage’s copyright of 4’22”!
Another nail in EMI’s coffin by the looks of things… hopefully Citigroup gets lumped with it!
If the True American ways of doing the right thing by helping each other to survive, are degrading into a cut throat, capitalist, corporate gangsterism, then it isn’t surprising that these people don’t realize they are actually undermining their own survival.
I actually wrote to Guy Hands, with a proposal to save his business when he first got his hands on the company, pardon the pun:) Unfortunatley he never got back to me and the end is near, but I agree he was stiched up by the nature of the beast that was oversold by the old school moguls who wanted to go out with a bang. They succeeded and now languish like the those that went before them in rich settings until they pop their mortal coil. Unless by chance they get destroyed by natural disasters in a final fete de complete.
Cheers
Paul Cooke
Diamond Life Records
Paul Cooke Music
Hank Bordowitz and Paul Cooke have really said all there is to say; the company is in the wrong hands, a good example of “I wouldn’t start from here” when advising someone which road to take.
A quick sale of Abbey Road may help temporarily
(but check this out for an interesting if slightly loony idea):
http://www.facebook.com/n/?group.php&gid=495471210360&mid=1ec5e48G43688467G163afffG6
However, the sickness at EMI is probably terminal and it may be pointless trying to save a part of the music industry that has been bent on suicide for some time. Advising them not to jump has not worked – maybe it’s time to allow them to end it all and auction off the assets.
John Beecher
Rollercoaster Records
Debt may not have happened if they had put the Beatles catalogue on iTunes etc.
All those years that the majors lived off the stolen publishing has run out. karma Sucks. Citibank knows they can pay off there debts with owning the rights to the Beatles catalog alone. Its like owning the property that Fort Knox was built on. all artist in the last 20 years are taking the money and running. They go into music knowing about every penny they can get and leaving nothing for the “kitty”. So here comes apple Itunes with the best and cheapest media platform (The Ipod) with the ability to surpass TV RADIO And CD’s. Just when you thought it couldn’t get any better brings out the I Phone and countless apps. So why wouldn’t the bank want to own EMI’s catalogs. They took out the middle man. I tunes wins because the artist puts out music directly through then and sell it along side the Old material.
The problem of EMI is the same problem as why so little real music is sold on the cellular networks and many other places where digital music can be sold, non music people want to be in the music business but it cannot happen.
The future of Music is in the digital field and EMI has not embraced it properly.
the music business is a crazy business and an non Music person cannot master it, sorry!
At the recent Cellular convention in Barcelona , endless applications for selling music on cell phones were shown problem is that the content owners and the tech people dont see eye to eye! , who makes money? the VC’s who sell air companies to someone else.
Music people are very emotional about their music and so are artists, of course, its very hard for them to see eye to eye with a suit guy, that is the truth and was always the truth!
I predict that GUY will keep EMI rolling but maybe at some point he will hire the best music people money can buy and then things will turn around for him.
Sam Kleinman
London
only 6 minutes walk from the FAB studios at Abbey Road….
This is sad. I’m watching from a teachers point of view. What do I tell the wonderful talented kids I work with? That what their music boils down to is some bankers portfolio! The music in Temecula and southern Riverside county is booming, with no where to go. The gate keepers have locked out the new talent. Now the song writers have to rely on cyberspace.The hay stack of copious bands and wanna be’s.
Reszound wrote: “This is just the tip of the iceberg as even any silence in a tune would violate John Cage’s copyright of 4′22″!”
Cage recently won a copyright case against Mike Batt who had a silent track called 3′ 25″ or something similar… google it and be scared!
Slip slidin’ away,
Slip slidin’ away.
You know you’re near the end,
The more you’re slip slidin’ away.
Imagine a world,
Where music is like toothpaste.
Crest or colgate?
What’s the difference?
Who cares?
We are in this world.
Jim McGuinn said that the best thing about the internet is how much varied music is widely available.
And the worst thing about the internet is how much varied music is widely available.
No one should cheer for the demise of another titan, EMI.
Another one bites the dust?
Ron,
Indie labels will thrive in this new environment. No worries, tell your kids the future is bright.
How come only Billboard and you are covering this story?
I agree with John of Celtic Ways, and also with Moses’s alarm two years ago about EMI’s “forwardthinking” decision to acquiesce to Job’s radical vision for sold music. If they hadn’t have gotten rid of copy protection, there’s a chance the majors would have had the time to come up with some viable stance in solidarity about how to preserve value in the digital frontier.
I don’t want to see EMI (or ANY record label) fall into the hands of Citigroup (esp. since Citi is Saudi, isn’t it? Not even a U.S. company by ownership) But it’s so hard to feel sympathy for a label that caved in to the techies and their technocentric view of music as a cheap or free decoration for their new world. It sucks. It’s unfair. It’s theft really, and EMI set up the spike.
Moses,
A well written piece, but I fear you start from the wrong suppostion. Asking “how music got into the hands of bankers” supposes that it wasn’t there in the first place. But it is shareholders and bankers who put the money in to form EMI in the first place. It is they who the Beatles signed to (in a very real sense, the only way the music got into their hands, as it were, was by the Fab Four signing it over to them – are you suggesting the Beatles shouldn’t have been allowed to do what they wanted to with their own creations?), it was the shareholders and money-lenders who enabled the Beatles to exist, to develop, and to create. Why is there anything wrong with them owning it now?
I also don’t believe you can conflate this with a spurious argument about DRM. That’s a totally different topic, and any effect of which should impact all labels, not EMI alone, certainly by now.
On this topic, I suggest that DRM-free music is certainly the way forward; noting that hurting your customer (by using DRM) is never a good policy. DVD regioning found this some years earlier… it’s only the folk who nick the music illegally who can use it freely, which is a daft state of affairs. Don’t hurt the customer; and that means DRM free music for purchasers.
AVI
Well let’s see… Only EMI gave in to iTune’s DRM free request and they are the only major label in danger of going down. So i think there is a connection.
@ Ron Kempton
What would be wrong with your students music being owned by bankers? If they don’t want it to be, it doesn’t have to be. If they want someone else to invest in their talent and help them up the ladder, then why shouldn’t whoever helps them get a cut for taking the risk? If they choose to sell their publishing rights or other rights to a corporation to get help, what’s wrong with that?
@ Turaj,
If, indeed, Citigroup are Saudi-based, what’s wrong with that? Why would there be something more wrong in this situation if the company was Saudi based rather than UK based? What if it was Japanese, British, African, or North Korean? Would that somehow make it better or worse?
As an ex-staff writer with EMI publishing – I always felt that songs got thrown into the black hole after one left the company and they would rather queer a deal for usage then have a smaller licensing fee.
Sure wish there was a way to buy back my catalog before the bidding war starts!
@ Moses
I think signing up to DRM-free in no way demonstrates a connection.
Sure, there’s possibly correlation, but that ain’t the same thing as causation.
The reverse doesn’t hold true, for example – labels that didn’t sign up to it are not storming ahead making massive profits…
The effect of EMI going DRM-free is only demonstrable by looking at sales (and even then it’s complex); it’s nothing like simple enough to equte their current financial problems to this, which is relatively small beer.
In any event, the underperformance of the company (and the sector as a whole, compared with the ‘good years’) started somewhat before they went DRM-free, which rather undermines the suggestion that DRM-free caused it.
[you can argue it as a contributory factor, if you like, but I don’t really buy that either – certainly not a large enough factor to be significant in terms of the overall level of debt to pay back and investment required]
AVI
[I think signing up to DRM-free in no way demonstrates a connection.
Sure, there’s possibly correlation, but that ain’t the same thing as causation.]
If you read the artilce again, it spcicfialy says that I don’t see it as causation, but rather a “turning point.” Endemic of their desperation.
[The reverse doesn’t hold true, for example – labels that didn’t sign up to it are not storming ahead making massive profits… ]
You couldn’t be more wrong. I doubt you’ve read the annual reports of the other majors’ parent holding companies. Sony and UNI showed slim profit last year and Warner basically broke even if you compensate for “constant currency” issues. This, in an economy where almost every major industry is down 30% in sales, it seems music is virtually recession proof, except for EMI. So, I’m sorry Avi, rudimentary logic prevails, if all your competitors are holding firm and you’re losing money YOU must be doing something wrong. So we look for what EMI did differently than the the other majors. The only thing that stands out is their DRM-free move. There might be other things, but that’s what really takes center stage.
Sigh… Y’know it should not require so much effort on my part to explain the obvious: you can not make money giving away your product. Or in this case permitting people to steal your product. But some people have really drunk the high-tech Cool-Aid.
What can you do? What can you do?
I like how you try to pin EMI’s failure to their lack of DRM – their only decent move in the last few years. your logical fallacies aside, do you really not think that the entire EMI catalog wasn’t freely traded online before itunes dropped it’s DRM? you’re such a liar.
I was Executive Director of EMI Music Asia for around seven years and left when the Regional Office in Hong Kong was closed down in 2008.
Some of the boffins and buffons they sent over to “teach” us about this region were laughable.
Here’s what I don’t get: Sure, Guy Hands, the Chief “Terrarist” was oafish is his handling of the company.
The person who has managed to quietly slipped away is Eric Nicoli, the Biscuit Bungler, who has much to answer for if people bother to question him.
After all, a fish stinks from the head down and EMI was starting to stink long before The Guy marched in from the plantation and tried to run the company as if we were back in the days of the Raj.
Thanks Moses,
You are absolutely correct. We are in the music business; meaning WE SELL MUSIC! The tech companies continue to stoke the fire under the “give it away and they will pay” theory, which clearly isn’t working for Musicians, Songwriters, Engineers, Producers, and Record Labels. BUT, it does work for them (Tech Companies)… FREE CONTENT Woo Hoo!
After all these years and now EMI’s failure, it boggles my mind that Music professionals still provide places like My Space with 100% free content. I mean, what’s so scary about giving music fans a sample of say 30 seconds (like iTunes)? It works for music SOLD on iTunes!
If we stopped giving away 100% content to places like My Space and used iTunes as a business model, we would have leverage. The leverage to get paid! Please no more EMI’s!
http://news.bbc.co.uk/2/hi/entertainment/8561963.stm
Everybody in the music biz at the moment from the grass roots up needs to realise how much each and every one of us has contributed to de-valuing music. But the thing is the damage has been done and this far into the 21st century it is foolish to keep looking backwards. Peoples attitudes towards consuming music have changed. People take digital media seriously now, even music fans who still want ‘something they can hold’ also have mp3 libraries and enjoy streaming etc. I really enjoy Moses’s insights but this constant bashing of the ‘Tech Companies’ as the root of evil is getting a bit tired.
If people are honorable and understand the law, they buy their tunes legitimately. Lots and lots of people do. The best thing music companies can do is to encourage an honorable society.
This is a bad news to all who supports EMI music productions. Music is part of our everyday lives. Well, let’s hope for the best that EMI company will overcome this situation.
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