Is the recording industry broken?

EMI is looking to cut more than a third of its staff, with boss Guy Hands accusing the industry of “burying the creative process in bureaucracy”. Are music companies bloated? Can artists now reach fans directly via the internet, and run their own merchandising and gigs? Or is the marketing muscle of the major labels still essential for bands to break into the big time? Add your views below.
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Hands close to raising £200m for EMI
By Andrew Edgecliffe-Johnson and Martin Arnold in London
Published: January 13 2008 22:03 | Last updated: January 13 2008 22:03
Guy Hands is close to raising £200m ($391m) of fresh equity to inject into EMI as he prepares to slash more than a third of the staff in its problem-hit recorded music business.
In his first interview since completing the £3.2bn acquisition, Mr Hands dismissed fears that Terra Firma, his private equity group, could lose money on the deal, struck just before the credit squeeze began.
He accused the music industry of “burying the creative process in bureaucracy” and losing sight of its real function. “Our job is to monetise music for the artist,” he said. Instead, EMI’s network of labels had 19 managers, marketing executives and lawyers for every “A&R” talent scout.
Mr Hands rejected accusations from artists and their managers that he did not understand creative businesses, saying the challenges at EMI were no different from those he had faced in pub, train and aircraft leasing businesses. He declined to say if he would inject more capital but is thought to be close to sealing the largest co-investment round Terra Firma has raised, allowing it to hit earnings targets agreed with bankers and fund A&R investment.
He defended the deal’s price, saying: “Terra Firma’s history has always been that when the market thinks we overpaid the most, we make our most money.”
Staff and managers expect to hear at meetings Tuesday that 1,500-2,000 jobs will go from EMI’s music division.
Mr Hands also hinted at a clear-out of EMI Music’s roster of 14,000 artists, saying just 200 of them made most of its revenues.
About 85 per cent of artists lose money for their labels, he said, and EMI spends £70m a year subsidising the 15 per cent who never produce an album. The group has exceeded marketing budgets by about £60m a year, he added, and wastes £25m a year scrapping unsold CDs.
Allan Leighton, the Royal Mail chairman and one of Mr Hands’s closest advisers, said fundamental change was essential: “The model’s broke. It is not the sort of thing you can tinker with.”
Copyright The Financial Times Limited 2008

The industry that killed itself
by Dj Epicenter 15 Jan 2008 12:50 PM As a promoter, sound engineer, and a DJ, the industry has not kept pace with emerging technologies and new media gateways. The big giants are taking media sharing outlets and their users to court rather than utilizing their client base. Musicians have always been the best promoters of themselves and now the technology is there to promote worldwide via a cost effective medium, the net.dj_epicenter@hotmail.com

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by Luke 15 Jan 2008 12:40 PM What a lot of people are forgetting here is that despite the record companies holding the proverbial keys for the development of an artist, it is the artists themselves that are the business. If the artists aren’t happy (i.e. they don’t want to commerdcialise themselves by effectively ripping off fans with clothing lines and fan clubs etc.) then altrnative channels of music distributiuon will be sought out. As has been witness over recent years, many more artists are releasing their work themselves either over the internet or funding their own records.

To me, the future looks bleak for the record companies!

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innovation
by Cor 15 Jan 2008 11:32 AM As an outsider who likes to enjoy music, what strikes me is the lack of innovation the music industry output shows. It seems like an endless stream of low-risk, low profile music, always playing on the same middle-of-the-road taste patterns. Couple this with persistent high prices and it is quite clear why their customers are not satisfied any more. Innovation and risk taking is the only thing that can catch immagination of customers again and lift the industry out of their current problems.

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Is the recording industry broken?
by ray 15 Jan 2008 11:14 AM The recording “industry” is made up of artists, studios, managers, booking agents, marketing people, lawyers, promoters, and record labels. For most of these people the industry isn’t broken, it has just changed in the same way the horse’s and buggies went the way of the car. Bands probably don’t need labels anymore, but there may be some who choose to be on one. The internet is the distribution channel now, and it is up to the artist to make great music, and decide how the best want to get the word out. By themselves, with a label, or through some other means.

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Is the recording industry broken?
by Nitin Sareen 15 Jan 2008 11:03 AM Well, this does certainly pose an opportunity for companies like google/Yahoo/MSN which have marketing muscle as well as internet clout, provide a platform for artists where they can publish and release albums and other creative content. Most of the peices, traction, payment gateways, syndication, social netwoking user base are already in place. Tie all these together and we couldd have a personalized message from Joe Satrianni to all gmail users (who have signed up for music updates for example) to check out his new album on say, Google Music. Sample and buy on the web. Cut cds at home if required. Lower costs, easy access could be one of the ways to tackle piracy as well.

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Pricing
by Charles West 15 Jan 2008 10:38 AM The problem with the record industry is that they have gone from selling a luxury product (CD’s) to selling a commodity (songs, MP3’s) but they haven’t changed their marketing and pricing accordingly.

A vast drop in prices will lift sales and profitability. I am aware that this will kill the conventional sales channel but I don’t think that can be saved in whatever scenario, making it a painful but inevitable loss.

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We need to focus on the contents !
by Antonio-Carlos Pasinelli 15 Jan 2008 09:55 AM When it came to talk about taxes on mass-storage devices in Europe, some people argued that it would be better to focus on the contents rather than on the device used to listen to the music. This is a pragmatic approach, yet original for todays trends and moods. And of course, what is valuable in music is the music itself, not the MP3 nor the record containing the information.

But sometimes the music itself is not enough to promote a band. Touring, merchandising, fan clubs and advertisement is essential too. Everything that physicaly or virtualy connects the listener to the artists is a powerful communication tool.

The music industry has never been driven solely by records sales, even if sales are a good means to measure artists apeals.

The rise of the internet and music downloads lack these kinds of promotional tools, mainly because electronic adverts are quite inefficient and live performances can hardly be reproduced on a YouTube video.

Music industry business has changed, and the actual model may not benefit the i
ndustry nor the customers’ needs.

apasinel@etu.enseeiht.fr

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Re: Is the recording industry broken
by Josh 15 Jan 2008 05:46 AM Recording companies need to shift their focus from selling artists’ music to selling artists themselves, as complete brands. Rather than using piracy, tanking album sales, etc to provide less support to artists, Co.’s need to develop more robust relationships and explore alternate revenue streams (clothing lines, ringtones, cross-over to tv/movies).

This cross-over from artist to brand requires more, not less corporate support. More diversified media companies are in the best position to capitalize on this new model because they can leverage the “artist as a brand” across more more diverse content platforms–something artists can’t do alone.

Look at what Jay-Z did for the movie American Gangster or what Disney has done with Hannah Montana — the key for the music industy to create more robust relationships which capture more of the value from the alternative revenue streams flowing from an “artist as a brand.” If the industry shifts to this model and stops looking at album sales as a proxy for their future, a turn around may be in store.

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No certain outcome
by RP 14 Jan 2008 05:42 PM The cost structures within the recording industry are notoriously thick and overly bureaucratic – a change is quite frankly a matter of necessity. I think now more than ever with access to “social networks” like Facebook, MySpace and the like, there is an opportunity to monitor changing tastes as they emerge, and otherwise direct the attention of a larger audience to the social “buzz” (for want of a better word) as it develops. The historical emphasis on creating big hits and moulding the marketing budget to form is in need of reshape, in favour of greater flexibility and efficient marketing.

EMI set to take corporate world for a spin
By Martin Arnold and Andrew Edgecliffe-Johnson
Published: January 14 2008 21:21 | Last updated: January 14 2008 21:21
The next Coldplay album could be brought to you by Sudafed, under plans being unveiled by Guy Hands on Tuesday to boost EMI’s flagging earnings with corporate sponsorship.
The Terra Firma chief executive told the FT his private equity group’s plan for EMI would include several new ways of making money for artists.
“Football teams have very distinct corporate sponsorship. Why shouldn’t some of the leading bands have the same sort of relationships?”
As an example, he said EMI could help bands who would not make it on the international stage find local sponsors who want to break into the student market.
Mr Hands will on Tuesday present staff and artists’ managers with plans to cut £200m of costs at the struggling music group.
He dismissed outsiders’ claims that his purchase could face financial trouble. Citigroup – which financed the £4bn EMI deal – had agreed for his buy-out fund to put £200m of extra equity into the company last year, he said, and Terra Firma had raised £250m of cash from co-investors in its funds in the past week.
The extra equity allowed Citigroup to reduce its debt exposure to the deal from £2.7bn to £2.5bn. The co-investor fundraising has re-duced Terra Firma’s equity stake from £1.5bn to £1.25bn, still a large share of its latest £3.7bn fund, and raised money for restructuring and acquisitions.
“From a financial point of view, EMI is in an extremely strong position, and frankly is in the strongest position it has been for a long time,” Mr Hands said.
Terra Firma has agreed “unlimited cure rights” with Citigroup, giving it more flexibility on financial covenants by counting any fresh equity it puts into EMI as operating profit until 2010. Terra Firma expects returns on EMI to be between 30 per cent and 35 per cent a year over the course of its five-to-eight year investment.
When he reveals plans to cut 1,500-2,000 jobs – a third of EMI staff – Mr Hands will also present a vision of how to tackle the challenges of the internet era.
The Terra Firma boss dismissed claims that artists would suffer, arguing he was doing what musicians and their managers have long called for.
EMI’s marketing budget will shrink from over 20 per cent of total spending to 12 to 15 per cent. But Mr Hands plans to boost spending on digital marketing.
Acquisitions will probably focus on EMI’s more stable music publishing business.
Copyright The Financial Times Limited 2008
Hands-on approach helps EMI play to different tune
By Andrew Edgecliffe-Johnson and Martin Arnold
Published: January 14 2008 21:21 | Last updated: January 14 2008 21:21
Three months after Eric Nicoli moved out as chief executive, Guy Hands has taken little time to make the corner office in EMI’s headquarters his own.
The new owner has to rifle through cardboard boxes on his desk to find his papers and an old model of Nipper the Gramophone dog still watches over the room.
Mr Nicoli left little else behind, except a drawer-full of previous plans for revitalising a company, which was struggling for most of his tenure. The sheaves of consultants’ presentations offer a sad reminder of previous failures to turn things round.
What has changed is the pace of activity in the fifth floor executive suite. Mr Hands bustles between offices, consulting the advisers who have been scouring the company for savings since September.
Below, visible through the glass walls of the atrium, hundreds of employees are waiting to hear what Mr Hands’ plan means for them. At presentations at the Odeon cinema in Kensington High Street on Tuesday, he will tell them that one in three people in recorded music will be gone by July.
Mr Hands admits that EMI’s staff are used to restructurings. “Within the company, not at the senior level, but at the coal face level, the general view has been that past restructurings have been both tinkering and unfair, with the wrong people having been got rid of.”
The difference this time, he says, is threefold: “One is we are not trying to do something which is just tinkering; two is that it will be much fairer and more objective; and three is that we are actually changing the organisation at the same time.”
Although the prospect of 1,500-2,000 job losses has grabbed the headlines, his planned changes to EMI’s structure are as important, he says. The biggest change is that A&R executives – those in charge of finding and developing artists – will no longer have responsibility for other areas.
All the non-A&R functions, from marketing and promotion to manufacturing agreements and digital strategy, have been placed in a new “music services” division under the eye of Mike Clasper, the former BAA chief executive.
Mr Clasper will also oversee a separate “back-office” division, handing financial and legal affairs. The changes will see activities that had been spread out around dozens of labels in scores of countries centralised into a few hubs.
The idea is that A&R will find the artists and explain how they think they should be marketed to music services, which will then negotiate with retailers, digital music services and other partners while the back office ensures the plans are “seamlessly executed”.
Pat O’Driscoll, the former Northern Foods chief executive, has been put in charge of the process of deciding what skills the newly structured company needs and whether they exist in-house or need to be brought in.
Up to half of EMI’s staff will have to convince Ms O’Driscoll and her team at interviews that they have what Mr Hands describes as the skills, the ethical approach, the determination and the passion to do the job.
“We want the organisation to be fully in place by the end of June. Th
e faster you get through the process of change, the better,” she says.
The pace and scale of the project is unusual, Mr Clasper admits. “We are taking a business that is global that has only acted local and making it act globally,” he says.
The changes have alarmed some artists and managers, who fear seeing the people they know at EMI disappear. “It’s not only about money,” says John Webster of the Music Managers Forum. “This business is built on relationships.”
Dave Holmes, who manages Coldplay, says he is keeping an open mind before hearing the full plan. However, he says he would “definitely not” advise one of the new artists he represents to sign to EMI because “it’s a label which is going through too much change”.
Mr Hands admits the process will be painful. “In an ideal world there would be no pain in achieving gains. Unfortunately we don’t live in an ideal world.”
The changes he is making, he argues, have been called for by EMI’s artists and their managers. “We have listened to why Paul McCartney left EMI. We have listened to why Radiohead decided to do a digital release without a label,” he says.
Even before Tuesday’s briefings, Mr Hands has begun to get the message out, sending staff a 50-page booklet of ideas and advice he has gathered in the past three months. Any employee who has read its first page will be in little doubt of his intentions.
It begins with a line from the latest Joss Stone album put out by EMI, delivered by the former hard-man footballer Vinny Jones. “See although the players change/ The song remains the same/ And the truth is/ You gotta have the balls to change.”
Copyright The Financial Times Limited 2008