Who needs Junior and Len's excess baggage?

The game is on. Citi has started preparing the final papers for the auctioning of EMI. The bidding floor is expected to be $2.5 billion, according to a report last week in The Wrap by Johnnie L. Roberts, with at least half a dozen buyers readying offers.

Of course Len Blavatnik’s name is the first that pops up when speculating about prospective bidders, but at this stage he comes with some baggage that may not make the transaction as quick and clean as Citi would like. Sources tell me that Citi definitely wants to get EMI off its books before the end of the year and although Blavatnik may make a substantial offer, he is also now the target of a number of shareholder lawsuits over the purchase of Warner Music and that could spook Citi in a big way. Not only are the lawsuits a potential problem, though some observers think that they’ll eventually go nowhere in the courts, but Blavatnik would definitely face regulatory scrutiny that a KKR, Ron Burkle or Tom Gores would not. The whole Warner Music sale has had a very fishy smell to it and Citi has had enough trouble fumigating the remnants of Guy Hands and Terror Firma. If the Blavatnik bid isn’t off the chart and is just competitive, why would Citi need the aggravation?

It’s no secret that EMI CEO Roger Faxon has been pushing to keep the company together as opposed to selling it off in pieces, and he’s right. Roberts interviewed a moronic ex-EMI employee who stated, “For the success of both, it’s inevitable that they come together. Neither, especially EMI, can exist as a standalone for any great length.” This, of course, is sheer stupidity. EMI, if run correctly, could easily remain an independent company in spite of the slow death of the music industry. And don’t forget that the publishing arm spits out a ton of cash that plenty of the EMI bidders would love to get their hands on.

My guess is that EMI will bring nearly as much, if not a little more, than Warner. I’ve always maintained that it is a better buy with better assets. Frankly, I think that WMG needs EMI more than EMI needs those knuckleheads. Warner has been thoroughly plundered during Junior’s reign. One of my favorite quotes is from a recent Forbes interview with Lyor Cohen who, when making his justification for demanding additional rights from artists in 360 deals, said that Warner Music needs the extra cash to retain “the very finest, most seasoned, most creative, thoughtful, transformative” executives to run the company. These guys, including Cohen’s own multi-million dollar package, are the same guys who have lost hundreds of millions of dollars for the company over the last several years.

If the WMG executives were that enlightened they would have signed a US Spotify deal by now. They will, and soon, but “creative, thoughtful, transformative”? No.

One thing is for sure though. You can bet that Lyor Cohen has a golden parachute with a platinum lining—just in case.

© 2011, Wayne Rosso. All rights reserved.

However EMI CEO Roger Faxon has been telling everyone who’ll listen that such a deal will never happen because it would not pass the regulatory smell test. And that may very well be the case. Impala has already staked out a hard position against any such merger and you can bet that both Universal and Sony would not necessarily be thrilled with it either.

When you think about it though, it’s really in Faxon’s best interest to bad mouth a WMG purchase of EMI. If that happened Roger would be out of a job and as we all know, there aren’t a lot of music industry CEO jobs around at the moment.

To his credit, Faxon seems to have steadied the ship a bit since taking full command. Katy Perry is still hot, though overexposed, and the financial future of the company is more encouraging since Citi assumed ownership and restructured the debt. There’s not as much angst seeping from Wright’s Lane as there used to be. The paranoia that ran rampant through the EMI offices during the reign of Terror Firma seems to have dissipated and employees are said to feel a little more secure for the time being.

We don’t really know how many of the bidders for Warner Music were real and how many were just kicking the tires. Some Warner shareholders are upset with the sale and are taking legal action. They contend that the sale was an insider deal; that a larger bid was rejected in favor of a lesser one from a former board member, Len Blavatnik of Access Industries. This could potentially foil the deal, even though Warner would owe Access a $57 million kill fee if the sale does not close.

One thing the Warner Music auction did prove is that there are still some suckers out there who are willing to put up a few billion for a record company. The down side for Roger Faxon is will the new EMI owners, whomever they may be, want to keep him around?

Faxon has already proven that he’s an adroit operator. His castration of Guy Hands was silent and swift. I’m sure that he’s figured every angle, but you never know. Maybe Roger could end up with Junior’s job.

© 2011, Wayne Rosso. All rights reserved.

Is Citi Music's Roger Faxon the new music industry anti-hero?

Oh the shark has pretty teeth dear,

And he shows them pearly white

Just a jack-knife has Macheath dear

And he keeps it out of sight.

Kurt Weill and Bertolt Brecht could easily have written this classic song about Citi Music CEO Roger Faxon instead of Macheath, the sinister, murderous anti-hero of Threepenny Opera. But maybe that’s a little unfair to Roger. We should mix in a little comparison to Brutus as well. For the good of the empire and all of that stuff, but it would have been a little more poetic if he’d waited until March 15 to stick it to Guy Hands.

Last week Faxon stole EMI right from under Hands’ nose and behind his back. He’ll go down in history as one of the most clever and devious guys to ever run a record company. Sort of like an Ivy League Artie Mogul, Jay Lasker or even Morris Levy– a combination of suit, dweeb and shark. He absolutely blindsided Guy Hands and stuck the shiv directly into his spleen, giving it a few twists in the process. But then again, who gives a shit about Hands?

Faxon did the right thing by EMI. No doubt about it. Getting Hands out of the way and restructuring the debt with Citi was genius on his part, even if duplicitous. But this wasn’t an altogether altruistic maneuver. In the process he certainly cemented his position with Citi as CEO of the label. He ain’t going anywhere for the time being and pretty much has Citi by the balls.

In one fell swoop EMI went from a sinking Titanic to cigarette speedboat, looking much sexier to any potential buyer. Of course the juiciest part of this whole drama was the final humiliation of Hands and Terra Firma. The coup de grâce, if you will. A kind of coda to the Citi trial. Not that Guy hasn’t suffered enough ridicule over the last three plus years. But let’s be honest—it’s been fun, hasn’t it? There’s nothing like a little schadenfreude to get the blood running.

So what’s next for Faxon? I suggest he become the next Treasury Secretary. Maybe he can stick it to the Chinese like he did to Hands and restructure the US debt.

NOTE: For a terrific behind-the-scenes account of Citi’s surprise takeover of EMI and the pivotal role Faxon played, read Ed Christman’s  piece in Billboard.

© 2011, Wayne Rosso. All rights reserved.

The Guardian reported over the weekend that Hands would not be able to meet the company’s debt covenant this coming March and could possibly turn over the keys to Citi within 4-6 weeks and just walk away. But not without pulling down £12 million in compensation last year. Nice work, if you can get it.

It was reported that Citi has already started lining up buyers, most notably BMG Rights and WMG, and assigned a price tag of £400 million for the recorded music arm and £1 billion for the music publishing division, a far cry from the £2.4 billion that Terra Firma paid for the EMI Music Group in August of 2007.

After a circus parade of CEO’s, Hands finally tapped Roger Faxon to head the company, probably a move he should have made on the outset. Many have lauded Faxon for operationally righting the ship. At least Roger himself has.

Just two months ago, in one of his famously leaked company-wide memorandums he has steadfastly claimed that the “tales of doom and destruction for EMI … had as much credibility as the idea that I might be the answer to the Yankees’ pitching problems or Manchester United’s defensive woes.”

Regarding the sale of EMI to another major, confidently opined “I don’t know if you’ve looked at any of our competitors recently, but none of them are having a particularly easy time of it. As a result, their corporate structures absolutely are not geared up right now to stomach the financial demands of attempting to take over another big company. And that’s before you even think about the regulatory issues that would almost certainly kick in if any one of the majors bid for one of their rivals.” And in response to rumors that Citi would break up EMI and sell of the pieces he scoffed “let me just put this one to bed once and for all. Both Citi and Terra Firma understand that the best way to build value is for EMI to remain as one company.” Right, Rog. You should try running for Congress.

Since then Faxon has patted himself on the back and taken credit for at long last clearing the path for the Beatles catalog to be sold on iTunes and for settling a long dispute with Pink Floyd and resigning them for another 5 years.

But were these real accomplishments? Not at all. It feels like Faxon was told to get the company’s affairs in order quickly so the sale process could go smoothly. After much vocal discontent and a mass exodus of high profile artists from the label since Hands took over, no one could afford to have these two huge loose ends, or any others for that matter, hanging out there to potentially queer a sale. He simply gave the Beatles and Pink Floyd exactly what they wanted in the first place. No great skill in that.

Faxon has been trying to portray himself as a “music guy”. In reality he’s just another suit who’s sweeping the sawdust off the floors and picking out a nice shade of lipstick to put on the pig.

© 2011, Wayne Rosso. All rights reserved.

I can handle things! I’m smart! Not like everybody says… like dumb… I’m smart and I want respect!

–Fredo Corleone

So much has happened in the business lately that I thought it would be a good idea to give credit to those who have excelled in entertaining us…an acknowledgement of sorts to the biggest bonehead of the month. To that end we have created the Fredo Corleone Award, or The Fredo for short, and it will be awarded to the most moronic figure of the month culminating in an annual kudo to the most consistently moronic person of the year. Criteria for judging includes, but is not limited to, stupid public statements, idiotic business moves, undeserved self-importance, and overall dull wittedness. Clearly there’s a lot of competition for the title.

So let’s get started with this month’s nominees

Actually, my name is Austin Powers. Danger is my middle name.

Guy Hands. This is an obvious choice as he has clearly met and exceeded all of the criteria, enough so to deserve a Fredo Lifetime Achievement Award. Enjoyable punching bag that he is, Guy made a couple of truly stupid comments this last week at an investor’s conference in Paris. Specifically he said that he and Terra Firma would “look like geniuses” if they hadn’t bought EMI. “EMI is where EMI is,” he added. And if he had been born without a penis he may have been Maria Callas.

Keep your friends close and your family closer

Rob Stringer. In an extensive piece in The Hollywood Reporter documenting the Amanda Ghost/Epic Records debacle, Stringer comes off as a complete nitwit, oddly defending Ghost while at the same time trying to distance himself.  ”I’m the first to admit that I made an experimental judgment that possibly wasn’t fair on Amanda. She struck me as a tour de force and a creative whirlwind — which the industry needs more of — and she was very keen to do the job and super-excited and confident about it. But in the last few weeks, we both agreed it was too big a mountain to climb.” The article goes on to describe Ghost’s behavior as nothing less than ghastly; even her routine of casually chain-smoking cigarettes and weed in her office. At any company in the world the human resources department would be all over this, but curiously the head of HR at Sony is another Brit crony brought in by Stringer. Acting as Ghost’s apologist, Stinger goes on to say  “Calling her abrasive could mean she’s not afraid of confrontation.” What he doesn’t admit to is how his decision (as well as his decision to hire Rick Rubin) was not only fiscally irresponsible and devastating to the artistic growth of the label, but also how this bright idea wrought havoc in the lives of dozens of label employees and their livelihoods.

Some only need one name: Cher, Madonna, Junior

Junior Bronfman. A perennial All-Star, Junior never fails to disappoint. The disingenuousness he displayed in last week’s earnings call regarding Warner’s dealings with the pioneering music service Spotify bordered on sheer art. After doing everything he could to block Spotify’s entry into the US market in a rather public Mexican standoff, Junior blinked and renewed WMG’s European deals with the start-up. In an attempt to paint himself as a digital visionary, Junior told reporters on the call “We’re pleased with the new agreement because we’ve long seen great promise in Spotify”. Way to go Nostradamus.

It’s been tough deciding on a winner. All of the nominees are certainly worthy of a Fredo. But this month’s Fredo Award goes to none other than Sony Music’s own Rob Stringer. Rob not only deserves it—he’s earned it. Congratulations Rob Stringer, The Moron of the Month, November 2010.

© 2010, Wayne Rosso. All rights reserved.

The recent verdict in the Citi/Terra Firma lawsuit has been analyzed more than the federal budget in the media recently. Reporters I’ve spoken with who were present during the entire trial say that there was a black cloud hanging over the courtroom during Guy Hands’ testimony. He acquitted himself so poorly that a jury of average New Yorkers decided that a megabank was for once telling the truth. Of course the idea that Citi fooled Hands, a Master of the Universe touted to be Europe’s savviest dealmaker and turnaround artist, was hard to swallow at the outset.

The following week Queen yanked their catalog from EMI after 40 years. This is the latest artist defection the label has suffered, along with the Paul McCartney and Rolling Stones catalogs as well as Radiohead’s high profile exit. One could easily speculate that the flood is not over, as Pink Floyd has had its own legal battles with EMI and could very well bolt when their deal is up.

And many industry insiders have felt that the imminent departure of Robbie Williams is a foregone conclusion, thus putting an even bigger dent in EMI’s future revenues. Let’s face it, how many times can you recycle the Beach Boys catalog after its been ground into sausage?

I had the opportunity to speak with Robbie Williams’ manager, Tim Clark of i.e. music, the other day about the label. Tim has been very critical of EMI in the past, most notably a very public spat with Hands when he first took over the label. “We’ve been quite pleased with what EMI has done for Robbie’s Greatest Hits album. They’ve worked very hard and done everything that we’ve asked.” When asked what the future holds for Robbie at the label, Tim just said that they’re taking a wait and see approach.

Similarly Brian Message of ATC Management, Radiohead’s representatives, told me “”One of the artists we work with is Eliza Doolittle and she is signed to Parlophone/Capitol.  As such we’ve worked closely with their front line label staff and have found them to be an excellent, motivated and talented bunch. EMI, the corporate entity, has clearly suffered at the hands of aggressive financial engineering but the core competencies of the people working with Eliza has been nothing less than impressive.” Not bad.

Another former EMI senior exec said that he’d always been a Roger Faxson fan. “Hands should have gone with Roger at the very beginning. At least he has a clue about the music business.” But is it too little too late?

This all came as quite a surprise to me, as I’ve been very critical of the label in the past. Although I’m actually pleased to hear this, it unfortunately doesn’t change much in the scheme of things.

Let’s say that Faxson wants to re-sign Robbie Williams or Coldplay or any other major artist. He’ll have to come up with big numbers. The problem is that he’ll probably not only need Terra Firma’s approval but also Citi’s. Not exactly an optimal situation.

The latest news to break is that WMG is readying a $750 million bid for EMI’s recorded music division. This is very interesting in that all of Warner Music, including the publishing arm, has a market cap of around $870 million and $2 billion in debt.

So how could this possibly happen and where would Junior get the money? One insider laid out a possible scenario that has Citi loaning Junior the money to buy recorded music and folding it into WMG. EMI would shed freestanding labels Virgin and EMI/Manhattan with only Capitol Records in the US and EMI in the UK. Blue Note could be folded into Nonesuch with EMI Classics perhaps merged into EMI UK. According to this insider this would result in an instant 50% savings and what would be left would be a Warner Music Group consisting of Warner Bros. Records, Atlantic Records, Capitol Records and Nonesuch/Blue Note Records.

Faxson issued a memo last week debunking all of the rumors and speculation. I’m not really sure that it meant much other than a rally the troops, feel-good, everything’s going to be fine message. After all, what do you expect him to say? “Yes, the Huns are at the door and you’ll all lose your jobs and be homeless”. I don’t think so.

No matter what Faxson says, it really doesn’t mean anything. It’s all out of his hands anyway. But one thing we do know is that if EMI falls into foreign ownership under the aegis of a tax exiled British subject, there just may be baying mobs with torches and pitchforks at the gates of Guy Hands’ estate on Guernsey. If you think that the UK media has been tough on EMI thus far, just wait.

© 2010, Wayne Rosso. All rights reserved.

Let a hundred flowers bloom, let a hundred schools of thought contend…

Mao Tse-Tung’s famous words of encouragement about the arts and sciences in the people’s China harkens back to the halcyon days of when Terra Firma bought EMI Music. In fact, it pretty much is what every EMI Records CEO has said when they first stepped into the executive suite, painting pictures of how they intend to bring back creativity and focus on the music with earnest commitments to finding new music and making the place more artist-friendly.

But within the ellipses of the above quotation, millions of people were killed. Enter Madame Mao.

With each changing of the EMI Records guard, a Cultural Revolution has taken place- executives coming and going, making the whole place spin like a dreidel. It’s kind of like Guy Hands, Elio Leoni-Sceti, Charles Allen and Roger Faxon are an ersatz Gang of Four. So I guess you could say that Roger Faxon is the EMI’s latest incarnation of Jiang Qing.

When Faxon took the job back in the spring, he was talking the talk. He actually made a little bit of sense, just like Mao. I was actually hoping that he would succeed. Since then his inner Mao has surfaced and he has eliminated all of the top key management and replaced them with his lesser cronies from the publishing arm.

Artist managers with acts on the label are starting to really get fed up. They march up to Wright’s Lane on what has become a regular basis to meet the new guys. Each time they have very pleasant meetings with everyone pledging to get to know each other better and work together. As soon as they walk out the door they never hear from the new guy again, and nothing happens.

So is Faxson’s need to surround himself with his publishing cronies merely a sign of a very insecure executive or is he purposely gutting the place? Maybe both. He could be disemboweling the recorded music division with the goal of getting it to the point that a buyer would actually look at it seriously. You have to figure that a buyer would gut it anyway, and Roger is just shedding the salaries to make it more attractive. In spite of all of the “were getting back to the basics—new artists, the lifeblood of the industry” rhetoric, EMI Records is essentially becoming a catalog company. (With the exception of the despicable Lady Antebellum, nothing has really connected in a monster way, including the new Katy Perry album.) And what do music publishers do? License catalog. For the most part, publishers don’t have a creative bone in their bodies, unless it’s for accounting. Accounting is the music publisher’s Viagra.

To the outside observer, it seems as though Roger Faxon is trying to be a hero by emasculating the recorded music division in order to get rid of it while Terra Firma tries to hang on to the publishing wing, with Faxon going back to his old job.

The China of today is certainly not like Mao’s China. Beijing is now the driver of arguably the world’s most powerful economic engine. Any casual viewer of the Beijing Olympics could see that China is not some 19^th century agrarian culture. But the EMI Records of today is not the new 21^st century China. It’s more like Pol Pot’s Cambodian killing fields, and soon with Citibank ATM’s in every EMI office-building lobby.

See any resemblance?

© 2010, Wayne Rosso. All rights reserved.

One of Terra Firma boss Guy Hands’ very first mistakes after he closed his purchase of EMI was appointing himself as CEO. In an industry known for its hubris, Hands set the bar to new heights. He immediately went out and started to piss off his biggest artists, which led to a migration out of Wright’s Lane.

But a couple of years later, Guy finally woke up and realised that he was not the right man for the job and decided to go out and hire the right man—an Italian deodorant marketer with no knowledge or experience in the music industry.

I met Elio Leoni-Sceti last summer at EMI in London. He seemed like a nice enough fellow, but he had absolutely no business being in the music business, let alone CEO of a major recording label. A couple of weeks later I commented to one of the other EMI execs in that meeting that Elio wouldn’t make it to the end of the year. I was off by 3 months.

Then Hands decided that he needed a more experienced man in the job, yet still one with no music industry experience. Charles Allen did have television and deal making experience, and I guess that qualified him to run a major record label in Hands’s mind. That was April 1st, and it lasted about 10 weeks.

So Hands must have had an epiphany and figured that he should maybe try to promote from within for once and elevated Roger Faxon, CEO of EMI Publishing, to CEO of the entire enchilada. The question remains, is it too little too late?

I’ve never met Roger and I really don’t know much about him, although I did see him address a conference at which we were both speakers many years ago. At the time he struck me as a bean counter in a nice suit.

Faxon gave a Q&A the other day that I read with great interest. He of course made excuses for the lameness of the company since the Terra Firma takeover, which is to be expected, and I understand that. I mean, he really has no choice. And to the question “How would you describe EMI’s overall digital strategy?” the answer was a little vague.

“The most important goal is to understand how to use the power of the digital environment to create connections with consumers around music. Then the strategy goes to the second step—how do you yield the value out of those connections? That’s actually the same strategy in every part of the business; it just expresses it tactically in a different way because of the technology.”

But I must give credit where credit is due. He gave a very intelligent answer to a question about the message the label is trying to send by repositioning itself as a “comprehensive rights management company”.

“The message is that we want to be a business that looks comprehensively at the way that you can touch consumers with music, and to drive the business—not through single channels, but across the entirety of the opportunity to reach consumers.

It starts in a different place than, “I’m in the record business. My job is to sell a record.” If I’m in the management of all of the rights associated with that recording, I’m looking at all of the ways that music will enter the market and reach the consumer”.

When asked what the most pressing challenge facing the label is, he responded with the obligatory piracy mantra, going on to say that it has resulted in a “complete loss of the economic value of music”.

Remember that, Roger, when you’re cutting new deals with digital services. Don’t be a dummy—remember that your product isn’t worth what you think it is in the market today. Don’t overvalue your content like some other schmucks in the business. It isn’t worth what it used to be worth, and that’s due to more than just piracy.

Given EMI’s past track record, I thought that this was fairly enlightened. He went on to make some pretty sensible statements regarding artist development, sales, marketing, mixed in with a little of the standard bullshit that is to be expected. But overall I was encouraged for the folks at EMI. I can’t believe that I’m saying this, but I actually hope that he does well and doesn’t turn into an idiot like some of his predecessors.

I must be either getting too old or taking too much medication. Or both.

© 2010, Wayne Rosso. All rights reserved.

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 – 2010, Wayne Rosso. All rights reserved.