Welcome EMI. Nice Meeting You.

I want to officially welcome Elio Leoni-Sceti, Ronn Werre and Sylvia Coleman of EMI to my little site. I was in London a couple of days ago with a friend and we just  happened to bump into the three of them and I was introduced. They told me that they were avid readers so I wanted to give them the royal treatment. In all fairness, they were very nice and had a good sense of humor about my stupidity and abuse of EMI. So I guess that I have to reciprocate and be nice. By the way Sylvia is extremely smart and Ronn and Elio showed that they could roll. Oh, and Ronn. We should talk about that friend of mine that I mentioned.  :-)

So guys, can I still beat up on Terra Firma?

© 2009, Wayne Rosso. All rights reserved.

Life Is Good At EMI

Here’s a really good one for you. Last week EMI sales reps started making calls to many if not all of their small accounts, mostly independent mom & pop stores, to tell them that they would no longer sell them product!!! Were these accounts bad payers? Nope. Would they not stock catalog or new artists? Nope. Then why in God’s name, you may ask,  would they simply cut loose paying customers? The answer given by sales reps — cost cutting.

So let me get this straight. EMI intends to save money by not selling their CD’s to independent retailers. Instead they want these retailers to go to one stops for their product.  These retailers are the only ones who buy catalog anymore. You sure can’t find it at Walmart and Best Buy. These are small businesses who have been loyal customers of EMI for 20, 30, 40 or more years. Like in the movie High Fidelity, these guys know every catalog number ever released. Every disk ever cut out of the catalog. They live and die by making personal recommendations to their customers–turning them on to new music. These shops are where music lovers go to discover and buy music. Several I have spoken with are so upset that they vow never to buy any EMI catalog again–or any new artist releases either. Only the certifiable hit product that they know will sell. They will no longer take chances on new EMI artists.

So I guess it just isn’t worth it to EMI to take these orders over the phone anymore. Too labor intensive. And after all, they’re doing so well that they really don’t need the business. Small potatoes. Let ‘em eat cake.

INTERESTING UPDATE: In making this policy change, EMI took the unusual step of notifying these retailers by phone instead of the standard letter. Could it be that they didn’t want anything in black & white?

Also, don’t forget that by being forced to buy from a one stop, not only does a mom & pop retailer pay more for his product (cutting into the already slim margins and pricing pressure from the likes of WalMart, etc.), but the one stops don’t carry nearly the depth of catalog that these guys need in order to make a living. And is this really a good strategy for EMI to introduce their new artists?  Another gripe they have is that now they won’t even get new and/or important releases (does EMI have important releases? Maybe the upcoming umpteenth release of remastered Beatles catalog) on Tuesdays, the new release day. It just makes it all the more difficult for them to compete and stay in business, even if it we were experiencing better economic times.

© 2009, Wayne Rosso. All rights reserved.

A friend in London was telling me a crazy story. Everyone knows that EMI has been cutting staff like they were lepers over the last couple of years. During this “reorganization” period they apparently had decided to fire most of the digital media people with the intention of outsourcing it instead.

They’ve apparently now done a complete about face and are actually trying to rehire many of the same people they fired over the last year with the intention of bringing the digital media stuff back inside.

I don’t know about you, but my head is spinning so much that I think I’m going to throw up.

© 2009, Wayne Rosso. All rights reserved.

"Problem? What Problem? See? I Told You Everything Is OK."

The following is an internal memo from EMI’sElio Leoni-Sceti to his staff:

Dear all:

Over the past couple of days, there have been some misleading and inaccurate media reports about EMI’s financial position. You may receive questions from artists and business partners.

The facts are as follows:

EMI’s financial structure

EMI has an extremely stable and flexible financial structure. Our debt, which is provided by Citigroup, is what is known as “covenant-lite.” In other words there are no traditional covenants.

Normal corporate loans have covenants–if a company breaches them, the lender automatically takes control of the assets. Instead, under Terra Firma’s agreement with Citigroup, we have some financial ratios that we are tested on at certain dates. If those ratios are not met at the required times, our holding company Maltby injects small amounts of additional investment capital which are called “equity cures.”

Those equity cures were expected and are provided for. They come out of a fund that Terra Firma established for Maltby/EMI nearly two years ago in the full knowledge that, as we transformed the business, there would be a need for some additional investment capital. In the last financial year, we were on budget with our equity cures.

EMI Music’s financial performance

Thanks to your skill and hard work, EMI Music is delivering strong growth in operating profits and cash flow, and we have maintained market share, despite being in a period of major reorganization.

That period is now behind us, and we are looking forward to an exciting new chapter as we roll out our consumer-focused strategy designed to provide the best service to artists and customers.

I hope this will help you to answer any questions arising from the recent reports.

All the best

Elio

Editor’s Note: I wonder if Robbie Williams feels better now.

© 2009, Wayne Rosso. All rights reserved.

This, of course, is not good news if for no other reason than it certainly doesn’t inspire a lot of confidence from artists and managers. Not to mention the message of weakness that it sends to the financial community and potential suitors. Peter Kafka recently ran an item suggesting that Warner Music hasn’t given up the ghost and is perhaps preparing to make another bid for the flailing label. Would regulators let such a deal go through? Probably. The merger of two weak companies could result in just one bigger weak company. Just ask Sony.

But let’s not forget about alternatives. As posed in a previous post, how about the US Treasury running EMI? Many have suggested that the government could actually do a better job at running the company. Maybe Barney Frank could become CEO.  Or a pre-packaged bankruptcy a la Chrysler and GM? Or maybe the company could be a consolation prize in the big EMI lottery.

© 2009, Wayne Rosso. All rights reserved.

There was also an interesting story in the NY Times yesterday about how record companies are becomming more “flexible” in their licensing terms. It’s about time. But my guess it that it is still not enough. Record companies have been stuck in their alternate universe for so long that they still don’t understand that the value of their content isn’t what it used to be. And they have to face the reality that now music is basically free. Anyone can get anything anytime. And suing the masses just doesn’t work. In fact, suing anyone just doesn’t work. So they sue a start up and put them out of business. So what?

When I was with Grokster, one of my mandates was to try to talk sense to the record companies and work with them to convert file sharers into music buyers. I would get one of two answers from every record label: 1) we don’t reward pirates; 2) shut down and then we’ll talk. Naturally both answers were utterly ridiculous. Addressing the later first, the labels were so stupid that they all thought that there was some master switch behind a curtain somewhere that we could flip to completely shut down the network. And they refused to believe it when we swore that was not the case. And even if we were able to shut down the network completely, what good would do to cut off millions of potential customers? They just didn’t understand that once you lose them you’ll never get them back. Just ask Napster.

In the first case, let’s dig into the history of the record industry. To say that they don’t reward pirates is utter fallacy. How do you think that they would combat rogue cd plants in Asia that they could not shut down? They made them authorized distributors! They just couldn’t understand that they could and should employ the same strategy with file sharing companies. Now I will admit, when the file sharing companies were winning in the courts before the Grokster case got to the Supreme Court, some of the p2p guys were getting a bit uppity. But that’s no excuse. The goal was to form an alliance that would work for everyone. The guy who tried to break the logjam was Andy Lack when he became CEO of Sony Music. But that’s another story for another time.

A lot of music people, most visibly Paul McGinnis (U2’s manager) want the ISP’s to protect their content. That’s ridiculous. As is the Warner Music proposal to get ISP’s (or colleges and universities) to pass on a “music surcharge” to its customers, just like a tax on your mobile phone. Also ridiculous. It’s just not the ISP’s job, nor in their best interests to do so. Content owners are responsible for their content, no one else. That’s always been the case. ISP’s are not government agencies and thus are not assigned that responsibility. And the bellicose arrogance that the recording industry has historically displayed have not exactly endeared them to anyone, including their own customers.

Jim Killock, executive director of the The Open Rights Group – a UK based group that works on digital rights and freedoms, told the BBC “We need a compelling ‘all you can eat’ music service to reduce illicit file sharing. But [we need] to remember that extreme enforcement measures would probably be very unfair and make people angry.”

So now we’re here in 2009 and something akin to the Sunni Awakening is being suggested by the NY Times article. But just like the Sunnis, record companies have to avoid overreaching. They have already made the investment climate nearly impossible for start-ups to get viable venture capital, as VC’s have learned not to trust them. The major label deals thus far have made it impossible for a start-up to succeed. What they now have to do is much more than is even suggested in the Times article. They have to truly want new companies to succeed and help them do so instead of looking at them as cash cows for big advance payments and high royalty rates in order to bolster their bottom lines. That was and is harmful short term thinking. What they have to learn is that they are all in it together. A-salaamu ‘alaikum.

© 2009, Wayne Rosso. All rights reserved.

Last week the Sony Corp announced their own bad news, having lost over $1 billion in the last year. Although Sony doesn’t break out its music numbers, we all know that business has been bad all over. Sony has been on its own cost cutting rampage and has been tightening the reins on travel and entertainment expenses. They fired the head of their commercial music operation a couple of months ago, John Ingrassia. Ingrassia was a very highly paid holdover from the Don Ienner days. And they have been aggressively cutting executive pay. But something interesting happened last week. Sony Music sued EMI over an executive. Seems as though EMI exec Ron Werre had signed a deal to move to Sony to take Ingrassia’s spot in 2010 when his EMI contract was up. The deal was to pay Werre the modest salary of $1million a year for three years! Now that’s what I call cost cutting. But after Werre had signed his new Sony contract, he changed his mind and decided to stay at EMI where he was promoted to COO of North America.

Now, let’s examine this.  Is there any doubt that Werre is staying put at EMI for LESS than that $1 million annually that Sony guaranteed him? No fucking way. So that means that EMI is shelling out big bucks for this guy. Once again, terrific cost cutting, guys. Furthermore, is there any way that Werre would agree to stay at EMI unless the company indemnified him? No way. So in order to keep Werre around EMI will be shelling out more than $3 million in salary and another potential $3 million to Sony if they prevail, and, of course, attorney fees.

So my assessment is that Ron Werre must have 14 karat solid gold testicles since somebody thinks he’s worth over $6 million.

You just gotta love how stupid the record business is.

UPDATE: I was talking with a buddy of mine who is a high level industry veteran and he pointed out that there is a bright silver lining in this for Sony. According to my friend, Ron Werre could turn out to be Sony’s biggest profit center of the year!

© 2009, Wayne Rosso. All rights reserved.

Wimp Rock Band Coldplay Accepts Grammy Award For Their Allegedly Purloined Hit "Viva La Vida". Don't They Look Cute In Their Faux Sergeant Pepper outfits?

Former Pop Star Yusef Islam, aka Cat Stevens

I’m sure you recall that pablum rockers Coldplay have been accused of plagiarizing their biggest hit “Viva La Vida” not by one other songwriter, but two. Guitarist Joe Satriani filed a lawsuit and Brooklyn band Creaky Boards also accused the band of stealing their stuff. Well, according to a report in the Brit tabloid The Sun, yet a third person has now accused Coldplay of ripping him off. Yusuf Islam, formerly know as Cat Stevens, claims that “Viva La Vida” is a direct rip off of his 1970’s composition “Foreigner Suite”. You  just gotta love this.

So what do you think?

© 2009, Wayne Rosso. All rights reserved.

Wuss Rockers Coldplay

Wimp soft rockers Coldplay are trying to get hip by giving away their new CD.  Fans who attend one of their upcoming North American tour dates will get a free copy of their new live album  The CD, called “LeftRightLeftRightLeft,” will also be available as a free download through the band’s website www.coldplay.com

This isn’t the first time for this type of giveaway. Prince gave away copies of his album ”Planet Earth” to readers of a Brit newspaper. But Coldplay, lame band that it is, seems to be catching on to the realities of the new music business and are sure to piss off their label. EMI, by putting a huge dent in their billing. So you have to give Coldplay credit where credit is due. But these knuckleheads at EMI can’t catch a break. They’re even leading in the Wayne’s World poll of which major record label will be the first to go down in flames with 55% of the vote. This is the highest percentage of anything that EMI has had since 1964 when the Beatles held all five slots in the Top Five US singles.

This all underscores the fact that physical product is becoming more and more utterly useless. CD’s are nothing more than coasters. At least Coldplay recognizes this and seem to understand that recorded music is just another marketing tool to build their brand and help sell tickets, merchandise, etc

So the next question will be if bands will now kill the golden goose by raising concert ticket prices to replace lost revenue from recorded music. Of course they will!!! Stay tuned.

© 2009, Wayne Rosso. All rights reserved.