The model of Nipper, the gramophone-fixated dog, remains in the chairman’s office – but that is about the only piece of EMI’s 77-year history that looks likely to survive under the ownership of Guy Hands.
Since Hands, a titan of the private equity world, paid £3.2 billion for the record company last summer, the former bell-wether of the British music industry has been rocked by an artists’ revolt, with Paul McCartney and Radiohead already gone and Robbie Williams, Coldplay, Kylie, Snow Patrol, Damon Albarn’s Gorillaz and The Verve threatening to follow suit.
The press has resounded with lurid tales of excess, after Terra Firma, Hands’s company, unearthed a supposed £200,000-a-year slush fund to buy sex and drugs for artists (disguised as “fruits and flowers” in the company accounts), bizarre bills of £20,000 for candles, and revelations of a £5 million company house in Mayfair for the use of senior executives.
This week, Hands stunned staffers with proposals to slash 2,000 jobs worldwide, bulldoze the management and turn a blowtorch on the sprawling roster. EMI has more than 14,000 acts under contract, an absurd total, and one that no company could hope to promote effectively.
In an interview with The Daily Telegraph, the new owner reiterates the point: “About a third of the artists who sign with EMI never make an album,” he says. “We’re going to drop a fair number of them. You’ve got to get them to a level where you can provide a super service.”
Hands’s operations are usually only reported in the business pages, but the intoxicating mix of big money, outraged superstars and internecine warfare has guaranteed him front page headlines.
When he presented his job-cutting proposals to employees this week, he was surrounded by minders to protect him from the paparazzi. Terra Firma finds itself cast as a villainous asset-stripper, ram-raiding the family jewels and crushing delicate artistes underfoot.
But when the smoke clears, it has to be acknowledged that Hands has faced the facts that EMI had tried to hide from.
The firm paid lip service to the new era of digital downloading without ever giving up hope that CDs could somehow be made profitable again. Instead, the pace of technological change has cruelly exposed the company’s wastefulness and sluggishness.
One bright spot had been its £80 million “multi-streamed” deal with Robbie Williams in 2002. Hailed as a daring innovation, it covered not just album sales, but also tours and merchandising.
But now, as the news trickles out that a million surplus copies of Williams’s last album, Rudebox, are being shipped to China to be recycled for use in road surfacing, the artist is threatening to go on strike, and his manager, Tim Clark, has accused Hands of behaving like a “plantation owner”.
The refusal of the best-selling band Radiohead to sign a new deal last year has also been seized upon as a symbol of the short-sightedness of the new regime. But the most significant comments came from Paul McCartney.
When a sixtysomething knight of the realm complains that working for his record label has become “mind-numbing” and “a treadmill”, it is clearly time for radical surgery.
The 48-year-old Hands has no music industry experience, but he tells the Telegraph that he shares more of the innovative spirit that helped build the record business than his detractors would allow.
“I’ve always been an entrepreneur,” he says, “and I invest my money alongside that of others, rather than being a fund manager. I will continue to use my money to invest in businesses where I can make a positive difference to how they are run.”
Even when he was a student at Oxford, Hands showed his flair.
“If you were a student and you needed a few pounds, you went to Guy and he would give you an opportunity to sell paintings door to door, that had been bought directly from the artist. That was partly how we got through university financially,” recalls his close friend William Hague, who was best man at Hands’s wedding in 1984.
“By the end of it, he owned the house and the shop down the street.”
Today, Hands owns houses in Hawaii, California and Spain, along with his estate and vineyard in Tuscany. This is thanks to a gift for buying poorly run companies, replacing management, and extracting underlying value.
Analysts gasped when he paid British Rail £700 million for the Angel Trains rolling stock company during the Nineties, but he sold it for a £390 million profit, and has since added the Odeon and UCI cinema chains to his portfolio. However, he still appreciates the scale of the EMI challenge.
“It’s probably the most difficult thing I’ve done in my life, from a business perspective,” he admitted after his presentation to staff on Tuesday. “People were excited about a new vision for EMI, and a number of people said this should have been done years ago, but clearly they were nervous for their own jobs. They clapped and applauded, which was very nice of them.”
One of the chief obstacles, apart from the artists’ managers lined up against him, under the sobriquet of The Black Hand Gang, is the perception that people like Hands don’t belong in the business.
There’s still a sense that it ought to be populated by free-thinking bohemians who value artistic adventure over profit. Surely a rapacious venture capitalist, even a Bunterish and dishevelled one like Hands, shouldn’t be allowed?
“No disrespect, but the question’s irrelevant,” says Ed Bicknell, the former manager of Dire Straits and Bryan Ferry and a founder of the Music Managers Forum.
“Record companies are just like anything else – everything’s for sale. Whether it’s a Saudi prince or Guy Hands, it’s just a matter of who’s got enough money to buy a majority of the voting shares. It’s very rare these days that I hear anybody in the business talk about music – they’re all talking about ‘synergy’, ‘branding’ and ’360-degree business models’.”
Hands insists that “unless the industry finds a way to provide something that the consumer is willing to pay for, there is not going to be any music. If the industry doesn’t want to move, it will die.”
Some EMI insiders have been outraged by his claims of waste and inefficiency, but Bicknell suspects he’s right. “When I dealt with them, which was before the era of Tony Wadsworth [the ex-chief executive], EMI was like the Civil Service of the record business.
“It was uninspired and uninspiring. It was so much like a government department that a tea lady would come round with a trolley every afternoon.”
Hands sees the industry as an entrepreneurial opportunity rather than a calling. When he expresses admiration for Mick Jagger, it is not for musical reasons: “He is creative, very intelligent, realistic and focused. He is a real gentleman and would make a super chairman of a FTSE company.”
Unfortunately, Sir Mick has repaid the compliment by turning his back on EMI to sign a one-off deal with Universal for the next Rolling Stones album, the soundtrack to Martin Scorsese’s documentary Shine a Light. Although Hands is scheming to bring him back, his most pressing problem is to persuade managers like Tim Clark that swingeing cuts won’t damage their artists’ releases.
“Whenever you restructure something, you have a lapse before the new model hits its groove,” says Bicknell. “It could take him two years to get this where he wants it, and Tim and everybody are concerned about falling into that void.”
There are signs, though, that Hands’ message is not falling on deaf ears. After a meeting with the Black Hand Gang, The Verve’s handler Jazz Summers felt Hands was “beginning to understand the industry”.
Jonathan Shalit, who manages Jamelia, was almost euphoric: “The way the record industry has been going in recent years is to bury their heads in the sand. EMI was going nowhere, and EMI has now got the balls to make changes.”
Even if his plans fail – and much of the responsibility will fall on Roger Ames, one of the industry’s smartest executives and now in charge of signing artists in Britain and the US – observers suspect that Hands’s long-term goal may be to keep the highly profitable music publishing part, and sell the troublesome recording bit.
Hands’s bid for Chrysalis, which includes the publisher Chrysalis Music, supports the theory that he’s building a publishing empire.
“If Terra Firma was just thinking about making a profit, they should dump all new releases, reduce overheads to a minimum and just resell back catalogue,” says Bicknell. “It wouldn’t be exciting, but it would be much more profitable.”
It’s not exactly a rock’n'roll attitude, but it might have got the thumbs-up from the Beatles, when in 1963 they sang: “The best things in life are free/But you can keep them for the birds and bees/Now give me money.”
Thirty-five years later, the man who owns their record company could find himself singing along.
in The Telegraph, by Adam Sweeting and Juliette Garside
GUY HANDS is throwing down the gauntlet to the rest of the music industry to match his much-criticised turnround plan for EMI.
“I would like to be as big as the big three [music groups] and bigger,” he said, after visiting EMI staff in New York and Nashville to explain his scheme to strip out £200m of costs and reengage with music-buying consumers.
“We have a sensible plan to survive. The other labels need to have a plan to do that. They haven’t put anything forward yet. I would hate to find that we are the largest simply because the others have died.”
That seems unlikely for some time because Universal dwarfs EMI, particularly on its home British turf, where it has been losing market share. Hands’s Terra Firma is also fighting a rear-guard action to hold on to top-selling artists such as the Rolling Stones and Robbie Williams.
Hands is adamant that he won’t pay “ludicrous sums” to retain talent. “People move from label to label over time. The thing we are doing differently is that we are being realistic with what we are willing to pay in advances,” he said.
He is talking to artists at other labels to try to persuade them to defect to EMI, which announced last week that it was cutting up to 2,000 jobs and stripping record labels of their traditional sales and marketing role. He has told investors he wants recorded-music profits to soar from £60m to £528m by 2012.
But Hands remains at odds with the music-industry trade bodies, including the piracy-fight-ing International Federation of the Phonographic Industry, and is set to cancel EMI’s membership by March. He claims the issue is not the annual cost, but more to do with how the industry has bullied consumers into buying music on its own terms.
“The trade bodies need to change the way they operate,” he argues. “If they change, EMI will remain a member. If not, EMI will leave. I have a very, very strong view that we can’t cajole and sue our customers into buying music.”
Many artists from EMI’s 14,000-strong roster will be kept on but have their releases distributed only digitally in future to make them economically viable. The company is also examining plans to pair some performers with corporate sponsors. Hands, who is also bidding for the music publisher Chrysalis, hopes to line up a new chief executive by the end of June.
Media companies will have to abandon their efforts to prevent digital music from being copied and concentrate instead on tracking a song’s path around the internet, the head of the one of the world’s most popular Web 2.0 sites has said.
The chief executive of Digg, which created controversy earlier this year when users published a code that unlocked digital rights management (DRM) software designed to prevent illicit copying, said that media companies had to change the way they policed intellectual property.
If record companies focus on finding a way to measure how many times a song had been listened to on the web, using what is known as watermark technology, they will have a better chance of accurately estimating advertising revenues, which will underpin the new business model for the record industry, Jay Adelson said.
“What social networks show is that people control the information,” he said, referring to an incident in May, when users of Digg, who recommend and vote on stories they like on the web, posted the key to a piece of software which prevented HD-DVD movie files from being copied.
When the site attempted to take down the links, other users reposted them, to the point where the site’s administrators gave up trying to stop the activity, and let the links stand.
“There’s an inertia there that is almost impossible to stop,” Mr Adelson told Times Online. “What it means is that DRM has to change its scope and purpose. It has to stop being a system that prevents distribution.”
Asked what should replace the current method, he suggested that a piece of software could be embedded into a digital file and log how many times the file is downloaded or streamed over the internet. That information could in turn can be used to determine advertising rates.
“For the majority of people, it means DRM as they know it disappears, but in truth what’s happening is the content is being monetised in a different way. All the media executives will tell you that their strategy is moving in the direction of being able to monetise content without DRM.”
Some labels, including EMI, have experimented with making their music available without copy protection, but attempts by the industry to embrace the internet as a means of distributing digital music have failed to prevent the decline in CD sales, which have fallen by 23 per cent since 2000, largely because of piracy.
In a wide-ranging interview with Times Online, Mr Adelson dismissed persistent reports that Digg, which he helped to found four years ago, was to be put up for sale, and said that the site was on target to be profitable.
The most recent rumour, on the site Venturebeat, said the site has hired the investment firm Allen & Company to attract offers in the vicinity of $300 million.
Mr Adelson said that Digg’s revenues were good and that the site, which has raised $10 million from a range of venture partners, including Greylock, would not need more money before turning a profit, but declined to say when that would be.
Digg – which ranks stories based on how popular they are with users – was “100 per cent focused” on releasing new features, he said, including a much anticipated image feature, which will let people vote on photos and other images.
Under a deal announced early last year, Microsoft will serve all the adverts on Digg, meaning that the site’s staff – which will grow from 35 to about 40 over the next year, can focus on software development.
Asked about how other web 2.0 sites could compete with the likes of Facebook and MySpace, Mr Adelson said that he thought there was room for new networking sites to emerge, but that in order to gain a foothold, they would have to offer a very specific service, as LinkedIn had with its focus on professional workers.
In addition, he said, there was scope for sites which took a syndicated approach, like Digg, and used other sites as a way of “extending their own database and value.” (In Digg’s case, this means placing their own ‘buttons’ on other websites, so that visitors to such sites could vote for stories they found there, which in turn fed back in to the main Digg page.)
“That really is the Web 2.0 thing,” he says. It really is a buzzword that gets thrown around too often, but what’s revolutionary at the moment is that you have this collaboration beyond a single location. It’s the use of collective wisdom to affect ranking and value.”
Digg, which Mr Adelson founded with his friend, Kevin Rose, in 2003, had 6.1 million unique visitors in October, an increase of 109 per cent on a year ago. In the UK it had just over a half a million visitors – an increase of 82 per cent.
Mr Adelson was previously chief technology officer at Equinix, an internet exchange he helped found that routes web traffic.
By Jonathan Richards in Timesonline
In a move that would mark the end of a digital music era, Sony BMG Music Entertainment is finalizing plans to sell songs without the copyright protection software that has long restricted the use of music downloaded from the Internet, BusinessWeek.com has learned. Sony BMG, a joint venture of Sony (SNE) and Bertelsmann, will make at least part of its collection available without so-called digital rights management, or DRM, software some time in the first quarter, according to people familiar with the matter.
Sony BMG would become the last of the top four music labels to drop DRM, following Warner Music Group (WMG), which in late December said it would sell DRM-free songs through Amazon.com’s (AMZN) digital music store. EMI and Vivendi’s Universal Music Group announced their plans for DRM-free downloads earlier in 2007.
Getting Hip to the Internet
The impetus to lift copyright protection represents a sea change for the recording industry, which for the better part of a decade has used DRM to guard against what it considers illegal distribution and duplication of songs purchased online. In abandoning DRM on à la carte song purchases, the labels could create a raft of new, less restrictive ways of selling music over the Internet, such as through social networks like Facebook and News Corp.’s (NWS) MySpace. Partnerships with retailers such as Amazon could also help the music industry take a swipe at Apple (AAPL), which has come to dominate the legal download market through a one-size-fits-all pricing scheme record labels find restrictive.
Details of Sony BMG’s plans are expected to emerge in the coming weeks. Justin Timberlake, the popular recording artist signed to the Sony-owned Jive label, is participating in a Super Bowl promotion with Pepsi (PEP) that will kick off Feb. 3 and offer free distribution of 1 billion songs from major labels, including Sony BMG, through Amazon’s DRM-free download service, according to a person familiar with the matter. Sony has been experimenting with DRM-free songs for about six months. The company began giving away DRM-free promotional downloads for recording artists that sell less than 100,000 units, and at least one artist gained mainstream exposure through the effort. “A lot of these tests have led people to believe that maybe this works,” says a Sony BMG executive who asked not to be identified. A Sony BMG spokesman declined to comment. Amazon also declined to comment on its DRM-free deals, beyond what it has disclosed in press releases.
The move by Sony BMG is especially noteworthy, given the company’s checkered DRM past. In 2005, Sony BMG incited a consumer boycott and was the target of lawsuits after it embedded CDs with a form of DRM that was surreptitiously copied to and buried in users’ PCs (BusinessWeek.com, 11/29/05), leaving the machines vulnerable to viruses.
Abandoning an Outmoded Idea
Many, including music executives, consider the industry’s about-face long overdue. “This agreement is the first of many of these types we’ll be announcing in the coming weeks and months,” Warner Music Group Chief Executive Edgar Bronfman Jr. wrote in a Dec. 27 memo to employees explaining Warner’s breakthrough deal with Amazon. “Many have argued that we could and should have done this long ago.”
Labels used DRM software in an effort to prevent illegal sharing of songs on peer-to-peer networks, such as Gnutella. Instead, the restrictions served mainly to frustrate paying customers, forcing them to degrade the quality of music by first burning it to a CD before uploading it for play on the device of their choosing. Last year, consumers filed several class actions against the major record labels (BusinessWeek.com, 1/5/07) and, in a couple cases, against Apple, for restricting the devices and thereby controlling prices.
“DRM tends to punish the innocent more than the guilty,” says Rob Enderle, principal analyst at the Enderle Group, a technology research company. “It was hurting folks who were trying to follow the rules more than the folks who were pirating the music.”
Dancing to Apple’s Tune
Worse for the labels, the restrictions ultimately resulted in less control over the paid download industry. Because DRM tended to tie consumers to the store most compatible with their music device, the record labels unwittingly gave much of the power over music distribution to Apple, the manufacturer of the most popular digital music player, the iPod. Music industry executives say Apple has not wielded that power lightly. With control of an estimated 80% of the market for legally downloaded music, Apple pushed its preferred price of 99¢ per song over the opposition of several labels (BusinessWeek.com, 9/25/05), which preferred variable pricing that would allow some artists to sell at a premium.
Apple CEO Steve Jobs also refused repeated requests from the recording industry and iPod competitors to license its DRM technology so that iTunes customers could easily put their music on other devices, without first burning it to a CD or otherwise altering the files. In a Feb. 6, 2007, letter titled “Thoughts on Music,” Jobs maintained that licensing its DRM technology to many providers would make it too difficult to keep its antipiracy code under wraps: “Licensing a DRM involves disclosing some of its secrets to many people in many companies, and history tells us that inevitably these secrets will leak.”
Jobs used the letter to pressure the music labels (BusinessWeek.com, 2/6/07) to abandon their own use of copyright protection technology. “In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players,” Jobs wrote. “This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat.” The public shaming helped Apple take the moral high ground at a time when it was under pressure from European regulators to open its DRM to let iTunes customers download their music to non-Apple devices. With his letter, Jobs pointed the finger at the labels for supporting DRM, silently suggesting the wrath of consumers and antitrust authorities should lie with them. Within two months, EMI, one of the smaller of the big four labels, offered to sell higher-quality, DRM-free tracks through iTunes for a 30¢ premium. By Oct. 17 the tracks were selling for 99¢.
A Play for an iTunes Competitor
DRM is by no means dead. Music subscription services such as RealNetwork’s (RNWK) Rhapsody and ad-supported services like Ruckus (BusinessWeek.com, 1/22/07) will continue to use DRM to ensure music stops playing when a subscription ends. But these services represent only a small segment of the market. “There won’t be any DRM of significance by the end of 2008,” says David Pakman, president and CEO of DRM-free music download service eMusic, the second-largest service after iTunes. “The only time you will see it used is for rental services.”
Rather than following EMI’s lead, other labels are hoping to create another Apple competitor in Amazon, which is willing to give the recording industry greater pricing flexibility. “That was a big part of it—countering Apple’s control in a positive way by creating more able competitors,” says Mike McGuire, a vice-president for research at Gartner (IT).
Narrowing Apple’s lead won’t be easy. Just ask Microsoft (MSFT), which has made meager headway with its Zune music player and online music store. Still, no service has yet been able to offer DRM-free music downloads from all four major labels. Amazon could yet become a contender.With Tom Lowry and Spencer Ante in New York.
Holahan is a writer for BusinessWeek.com in New York.
British rock legend Sir Paul McCartney criticized his former record label EMI for its “boring” approach, and accused it of taking him for granted in an interview with the UK’s “The Times.”
Sir McCartney said he also became frustrated with the amount of time it took for EMI to release a song – while he wanted them released within weeks, record label executives expected to take months.
“I’d started saying to them: ‘Look, we could write a thing and have it released the next week.’ And they would say: ‘You can’t do that these days.’ So I would say: ‘Well, how much time do you need?’ And they’d say six months. I said: ‘Why do you need that long?’ And do you know what they said? ‘To figure out how to market it.’ I said: ‘Wait a minute, are you sure you need six months for that? Couldn’t some bright people do that in two days?’ Jesus Christ. I said: ‘Look boys, I’m sorry, I’m digging a new furrow.”
He also noted that he too was one of the millions who downloaded Radiohead’s “In Rainbows,” paying “something reasonable.”
“This was how we used to operate,” he noted. “I remember John [Lennon], for instance, writing Instant Karma and demanding it was released the following week.”
EMI, on the other hand, wasn’t able to perform such a “miraculous” task and he lamented that music artists there “had become a part of the furniture.”
“I’d be a couch; Coldplay are an armchair. And Robbie Williams, I dread to think what he was … But the most important thing was, I’d felt (the people at EMI) had become really very boring, y’know? And I dreaded going to see them.”
Asked what he meant by accusing the record company of being “boring”, Sir McCartney responded: “Well, because I could guess what they were going to say.” He added that he became frustrated with what he described as the “treadmill” approach of the company when it came to marketing music. “You go somewhere, speak to a million journalists for one day, and you get all the same questions. It’s mind-numbing.
“So I started saying: ‘God, we’ve got to do something else’.” McCartney split with EMI earlier this year, and released his latest album Memory Almost Full with coffee giant Starbucks’s newly-launched Hear Music label.
Now I can only imagine what it was like when EMI execs would meet with Sir McCartney, but you’d think that they’d give him carte blanche to do as he pleases. I think as a former Beatle, and as a music artist in every sense of the word, he’s at least earned that courtesy. When a guy like Sir McCartney says “Well this is what John and I used to do,” and “John” is the John of all Johns besides that baptist fella, it’s probably safe to bet that his plan will work out just fine.
I mean honestly, 6 months to market what he can do in 6 hours? No wonder the music biz is falling apart.
What’s also telling about Sir McCartney is that he really is all about the music. Always has and always will. Unlike Prince and others who seem to try and sue any website that allows fans to hear their music unless they benefit financially, he has own official YouTube channel. Sure he can afford it, but can’t Prince?