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Guy Hands: EMI must dump artists to survive

January 22, 2008

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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

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