Saturday 30 April 2011

EMI is being throttled by music pirates!

EMI was founded 80 years ago and has grown into one of the 'big four' of the recorded music industry (with Universal, Sony and Warner).  Now, though, it is in the hands of its bankers (Citigroup) and a buyer is sought.  What went wrong? 

Earlier this month Britain's Daily Mail had no doubt.  A picture slogan spells it out: "the future of recording giant EMI is being undermined by Google" (the Mail's argument is that because music pirates show up in Google searches, then Google is complicit in music piracy).  In an extraordinary outburst the Mail rants that "digital piracy ... has made it all but impossible to sustain heavy investment in new artists".

Similar points were made in the NME recently, under the headline "EMI's Plight Proves It - Downloading Has Murdered the Music Business", and the BBC identified downloading as one of a range of problems undermining the company.  The Daily Mail agrees about other factors - it also blames "the aftermath of the financial crisis", ignoring the fact that the reason Citigroup has acquired EMI is that the previous owners (private equity investorsTerra Firma) had been unable to keep up the payments.  When Terra Firma bought EMI in August 2007 the financial crisis had yet to hit the headlines, and EMI was in desperate financial straights anyway.

Back then, Terrra Firma's Guy Hands identified a host of problems at EMI, but illegal downloading didn't appear to be one of them.  An article in GQ reported how an audit found that London staff had spend £700,000 on taxis in a year, and that some executive salaries were as much as double the market rate.  The Guardian reported that expenses were running at the rate of £100 million, including what Hands euphemistically referred to as "flowers and fruit".

The new owners were realistic enough to recognise that the music business was changing: to survive and prosper (like many of the newer independent labels) it would need to bring its costs base down in proportion to the size of the business.  The new CEO Guy Hands believed that he could add value to EMI by working its assets harder.  But as Neil McCormick in the Daily Telegraph pointed out, these assets were the musicians, and they didn't take kindly to being treated as balance sheet items.   "Radiohead, The Rolling Stones and ex-Beatle Sir Paul McCartney were amongst the most high profile of EMI’s artists to take themselves elsewhere in a huff."  Later they were joined by Queen and Pink Floyd (who had a separate legal dispute over royalties). Veteran EMI insider and producer George Martin voice their frustration "I understood Paul McCartney's frustration when he quit EMI... The old production teams had broken up; recordings seemed to be manipulated by a faceless committee. One-on-one contact no longer seemed to be applied."

Even Hands' allies saw the difficulties (without highlighting music piracy among these): the new chairman of EMI's holding company, former Director-General of the BBC Lord Birt told the House of Lords that EMI "has been slower than most to reinvent itself and to take advantage of new opportunities for discovering talent and better serving businesses and consumers" (Daily Telegraph)

EMI is a long-established company in a market that has been subject to disruptive changes.  It has failed to adapt to the digital era, and in recent times has been focused on business to the detriment of its artists and audiences.  The Daily Mail is wide of the mark talking about piracy making it impossible to sustain heavy investment in artists: EMI wasn't even able to hold on to the major artists it had. Music piracy has clearly affected EMI, but as I noted in an earlier posting, illegal copying of music has been endemic since the 1970s - EMI's heydey.

Besides, there is some evidence that persistent illegal downloaders are also often the biggest purchasers of recorded music.  How do we know this?  It's all in the Daily Mail.  I wish they would make their minds up.



No comments:

Post a Comment