The NYT has an article today about the ongoing saga at EMI and Guy Hands whose private equity firm, Terra Firma, is now trying to turn it around. The article notes the chaotic time that the new owners have had. I can only imagine what must have been an epic culture clash between the 'suits' and the 'creatives'. Apparently, Hands thinks they may have overpaid for the recorded music part of the business and he may sell it if market conditions don't improve. There's another dynamic with respect to the debt that Citigroup holds, which gives it a lot more leverage over Terra Firma than is usual when a loan of that size gets syndicated. In addition, there is a lot of scrutiny and, therefore, pressure, especially here in the UK where EMI is an important part of the country's cultural fabric.
At any rate, here's some free advice for EMI that is short of completely exiting the recorded music business: Get out of the new music business and, instead, become a catalog company.
- EMI's catalog is legendary and they clearly have a core competency in being able to profitably market and sell their catalog.
- On the other hand, EMI have proven not to be able to break new music. Yes, they still have Coldplay in contract whose new record seems to be a winner. But that's not enough. EMI's market share this year fell to 8.7% in the US according to SoundScan. That's barely more than just Atlantic Records! Bob Lefsetz gives his unique take here. Doing a quick scan through the Billboard top 50 and I can't find a single new music entry from EMI. (Yes I realize that Coldplay will soon be on it but you get my point).
- And, further proving my point, the EMI-distributed albums that are in the Billboard top 50 — Best of Radiohead, Now 28 and NOW That's What I Call Classic Rock — are all catalog!
- Breaking new music is costly and risky and hard to predict. Not exactly the type of businesses that private equity firms like to invest in. In fact, per the article, "…according to Mr. Hands, the company was doing worse than
commonly thought. An analysis by McKinsey and KPMG found that EMI had
lost £750 million ($1.5 billion) from selling new music over the last
“We didn’t believe it at first,” he said,
explaining that the figures that EMI previously reported counted sales
of re-releases of music from old acts like the Beatles as new music
“They were doing everything they could to hide the fact
that they were losing huge amounts of money in new music,” he said.
“The good news was they were making a fortune in catalog.”
So there you have it. Of course they'd need to refresh the catalog by buying new repertoire from others but presumably they can 'buy low, sell high' given their core competency in catalog.
Regardless, I'm hoping that they can turn it around — they are a legendary institution that changed the world — and I like that they're bringing in new blood from other fields that will have different perspectives and not have the institutional major label hangups (about which more later).