It is hard to know how much longer the record label EMI can stagger on. One week it is selling the legendary Abbey Road studios. The next, the CEO is replaced with the veteran broadcasting executive Charles Allen. A day later, it loses a legal battle with Pink Floyd over whether it can sell single tracks as downloads.
Ever since the private-equity mogul Guy Hands bought the business for £2.4bn in 2007 for his private-equity fund, the business has lurched from one disaster to another. Even against some stiff competition, it must unquestionably rank as one of the worst takeover deals of all time. Indeed, EMI’s sorry tale illustrates how the City can take one of Britain’s most successful companies and turn it into a complete dog’s breakfast.
The slow, tragic demise of one of this country’s finest companies – key artists such as the Rolling Stones and Radiohead have already left and Pink Floyd and Queen are rumoured to be on the way out – is regularly portrayed as a result of technological change. Faced with a generation that swaps music for free on the internet, the old record labels are doomed, runs the argument. In fact, that isn’t true. Sure, the music industry faces challenges, some of them severe. But it is the money men who are killing EMI, not the web pirates. And that is a terrible indictment of the City and the way it operates. After all, EMI is precisely the kind of company that we should be nurturing, not destroying.
EMI is one of the few British companies that has been brilliant at riding technological change. It’s been around since the start of recorded sound (it was formed as The Gramophone Company in 1897). It virtually invented the modern pop business. Long before any of its rivals, it recognised it was a global industry, built around artists of stature.It pioneered album-orientated music, from The Beatles onwards, and was the first label to sell more albums than singles.
For the best part of a century, there was very little it didn’t know about getting ahead of the curve. When something new came along, it grabbed it, and figured out how to make money from it. Much the same was true of the internet. EMI was experimenting with digital music when most of us were still wondering how to plug in our modem. It was the first label to make a whole album available for digital download. It turned Lily Allen into one of the first MySpace stars.
Fast-forward to today and EMI’s core business is still in pretty good shape. It knows as much as it ever did about finding artists and selling songs. Coldplay’s Viva La Vida was the biggest selling album in the world of the last two years. It has just taken the country act Lady Antebellum to the top of the American charts. When it comes to its core business, EMI is still pretty good at doing what it’s always done.
Nor is the record business in the crisis that is sometimes portrayed. Last year, single sales – that is, paid-for downloads – soared 33%, to an all-time high of 152 million units in Britain. Ringtones are a whole new vast business. Album sales are down a bit, but only from 133 million in 2008 to 129 million in 2009, hardly a catastrophic fall. The overall value of the music industry actually rose by 4.7% in the latest annual figures from the Performing Rights Society. It’s an industry facing change, true. But it’s hardly in crisis. Take Warner Music. It is still a profitable company. Its shares have tripled in the past year. Universal Music Group, the world’s largest label, owned by France’s Vivendi, made e580m last year, and pushed up profits by 11% in the latest crisis. If they can do it, why can’t EMI?
In short, because instead of focusing on its main business, the company has been wheeler-dealing. As early as 2000 it proposed a merger with Warner that took up years before negotiations collapsed. It had another go with Warner in 2002, and when that failed again, tried to merge with Bertelsmann in 2004, before finally selling itself to Hands’s Terra Firma in 2007.
The City just kept pressing it for deals. It wanted a merger to boost the share price and to allow it to strip out costs, and keep the profits steadily ticking upwards. But mergers are an irrelevance when your whole industry is being reinvented. It doesn’t make any difference how big you are, and cutting costs is rarely the way to keep the artists happy.
Private-equity ownership has been even worse. In theory, it could have taken EMI out of the spotlight of the quoted market and carefully nurtured it through a period of change. Instead, it loaded it up with a ton of debt, and put a group of people who knew nothing about the industry in charge. A financial market is meant to provide the capital to allow firms to grow and to share ownership among a wide group of people. It should be a mechanism that helps encourage a healthy, balanced, creative economy.
The lesson of EMI is that the City, for the last decade, has been failing to do that. Not only does it consume vast public subsidies and pay itself vast bonuses, it can’t even keep alive British companies. If that carries on, it is going to be very hard for people to see the point of it.