EMI: A Sign of the Times?

Illustration, Aaron Taylor

Will the last artist to leave EMI please turn the lights off? As one of the largest music companies in the world haemorrhages artists on a seemingly daily basis, that question seems to become more pertinent. Radiohead upped sticks last year, taking the opportunity to release their latest album “In Rainbows” for virtually free online, and in the past few weeks The Rolling Stones parted company for a more lucrative deal with Universal when their contract expired. So why is one of the biggest music companies, home to the Beatles back catalogue, Robbie Williams and Coldplay come to a state where artists are almost queuing up to leave?

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There are a combination of factors - including the changing face of the industry, illegal downloads, bad management and a sense of complacency based around the almost guaranteed revenue stream of its enviable back catalogue. However the straw that broke the camels back was the recent purchase of EMI by the venture capital firm Terra Firma. As private companies, VC firms do not need to make public published accounts for shareholder and market scrutiny. In the heady days before the credit crunch they were heavy with easy cash to gobble up companies left, right and centre. They were considered unorthodox to say the least, a somewhat business fad and to some just plain gold diggers. Circling ailing companies, they swooped down with the intention to fix what they see is an almost failed - if not dying - company. Stripping the fat right down to the bone from the business, ruthlessly culling unnecessary workers and parts, they eventually sell it off for a tidy sum. In their wake they leave resentful former workers and grumbling listed companies horrified by the sheer audacity of their ways.

In the case of Terra Firma, EMI was such a company. It had fared worse than many of its peers by failing to take on the revolution in music that technology had forced upon it. It had failed in merger talks with some of its rivals and had been accused by business analysts of neglecting the lucrative US market, barely promoting major acts such as Robbie Williams. In a fit of desperation EMI had signed Robbie to a contract reputedly worth $160 million making him rich “beyond my wildest dreams” in his own words. EMI lacked innovation and flair to combat the changing face of music. It had become “boring” as Paul McCartney stated as he jumped ship a number of months ago; and vulnerable to a take over by its rivals. Even they were shy of making a move with a company burdened with $1.8 billion debt. However to Terra Firma, here was a chance to reform the business and make a quick buck. It salivated over what it saw as a cash cow of a back catalogue that included Pink Floyd, The Beatles and Rolling Stones, it bought the company in early last year almost without question and with seemingly undue haste for $6 billion.

That the music industry is unlike other businesses is a well-known fact. In their minds EMI was a “classic example” of its own strategy to “look for the worst business of its kind in the most challenging sector”. However Terra Firma seemed to be ahead of themselves, not fully understanding the company and industry they had now found themselves in. Radiohead issued a statement when they left EMI a year ago, haranguing the company that Terra Firma had tried to form out of EMI. Stating that Terra Firma “Don’t fully understand” the music industry guitarist Ed O’ Brien wrote “because one of the great things about the music industry is that it’s not an industry. It’s a collective of a series of relationships with people”. Here was a company, which only saw figures and accounts, dollar signs and financial opportunity to many artists and could not fathom this business based upon the intellectual property of the art of music. Terra Firma immediately began to cull what it saw as unnecessary employees, forcing 2,000 redundancies (almost a third of EMI’s workforce), and forensically combing accounts for a means to releasing more money. Here they found one of the more interesting aspects of the story. It was announced that in the financial year before the take over EMI had spent over $400,000 on what was stated in the accounts as “fruit and flowers”, allegedly a euphemism for sex and drugs. $20,000 was spent on scented candles alone in an apartment in L.A.

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The ruthlessness with which Terra Firma had wielded its axe, and the shocking probing of expenditure taken for granted in the music industry had created a revolt within the ranks. Artists grumbled and began to openly attack the company. When Terra Firma began to make Robbie Williams work a bit harder for his money the artist allegedly revolted. He had reportedly vowed to withhold new work in protest over redundancies within the company, although this was later denied by his manager Tim Clark. Nevertheless it only highlights the sheer scale of the economic problems facing the company and the harshness of the policies the private equity company had taken to combat this.

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Within a year, artists free of multi-album deals began to jump what they saw as a sinking ship. Radiohead left and found artistic freedom on their own. The Dandy Warhols complained consistently about the workings of EMI subsidiary Capitol Records and left to go their own free path. Finally the big shocker came this summer with The Rolling Stones leaving for Universal. Unconfirmed reports from Coldplay and Kylie Minogue’s camps had shown a similar eagerness to leave. To lose one major artist is unfortunate, but the new EMI had begun to look carelessness. To make matters worse for Terra Firma, the credit crunch had swallowed up all of the easy credit, which many private equity firms had lived on like a never ending drip. Saddled with massive debt and the sheer incoherence of the industry, it’s safe to say that EMI is close to fatally loosing its way.

What will become of EMI? There are many options. If the record companies are able to adapt to illegal downloading, EMI has a clear chance to pick itself up with or without artists. It could sell the whole business lock, stock and vinyl case to a rival. It could renew contracts to be similar to the 360-degree deals Live Nation has signed with artists such as Madonna to make money from not just the ailing record sales but also from the booming live business. It could simply sell everything while holding on to the publishing division and back catalogue. Any are viable options to Terra Firma, however one way or the other EMI will continue loose artists who feel stifled and neglected. The question is in the end will there by any left? So could the last artist in EMI please turn the light off?