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.

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.

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.

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 – 2010, Wayne Rosso. All rights reserved.

Eeeeuuuuu. What's That Smell?

I know that I have been writing a lot lately about EMI. I know that it seems as though I’m beating up on them. But to paraphrase the great Willie “The Actor” Sutton’s response when asked why he robbed banks, “Because that’s where the money is”.

Last week brought lots of news from the ongoing soap opera that is now EMI. Losses, write downs, artist discontent, and what seems like endless executive turmoil have marked the tenure of new owner Guy “Ham” Hands. Mr. Hands, when acting as CEO of EMI, alienated artists and managers to the point that it boiled over into name calling in the press and threatened liable suits. There exists in the UK music industry a group of very influential artist managers who are referred to as “The Black Hand Gang”, and they all have or had important clients signed to EMI. The group includes Jazz Summers, Tim Clark and David Enthoven, Brian Message, Dave Holmes and loosely works together as sort of an ad hoc artists’ rights group in regard to their EMI artists. The Black Hand Gang holds all of the EMI major artist assets and Hands did not make a very good impression on them. So he finally wised up, some would say too late, stepped aside and brought in the perfect man to save the business–an Italian executive experienced in marketing soap suds.

Now things seem to be lurching into high gear. The Rolling Stones, Supergrass and Radiohead left the label and Coldplay only delivered their last mega-selling album on the condition that EMI have absolutely nothing to do with the marketing. Coldplay would handle it themselves and EMI would foot the bill. Then Coldplay decides to give away their next album, a live throwaway compilation, denying EMI some much needed billing. But the UK’s Daily Mail broke the story last week that EMI’s young female superstar Joss Stone is so pissed that she’s actually willing to buy her way off the label! You know you have problems when an artist is actually giving money to a record company.

Prom King Guy With His Queen

To compound the situation, The New York Post also reported on a rift between the once good chums Guy Hands and soap selling EMI CEO Elio Leoni-Sceti. The Post reports that the two came into conflict over EMI North America COO Ronn Werre. It seems that Hands wanted to give Werre a “take it or leave it” offer once his contract had expired. Werre went out and got a better paying job at Sony. Hands got pissed and wanted Elio to hire back Werre at any cost. Elio was embarrassed and Sony sued. So the upshot is that Werre is swinging a big dick, Elio has been emasculated and Hands feels like Henry VIII with a new girlfriend. So don’t be surprised if Ronn Werre suddenly becomes Guy’s new Jane Seymour to Elio’s Ann Bolyn and is crowned queen of the EMI prom.

Jr. Moves To London

And just to prove that all of the action is in London these days, our genealogically advantaged little buddy Edgar Jr. is rumored to be moving there. So how does all of this play into Warner Music’s longstanding effort to gobble up EMI? Pretty well, I imagine. Jr. will now be siting on the sidelines with the ability to quietly stoke the overheated British press and further pick away at the ailing EMI. The Brits look upon EMI as a national trust in a sense. A part of the English fabric. So it will be interesting to see how Jr. will sow the seeds of public discontent with Terra Firma’s ownership of the company.

So who will be the next artist to jump ship at EMI? I have nothing but gut instinct to base this on, but my guess is Robbie Williams, arguably EMI’s biggest star. My guess is that Williams and his management are so disgusted with what’s been happening at EMI that they feel they just don’t need them anymore. Why? Because IE Music, Robbie’s management firm, has a longstanding business relationship with Ingenious Media, the top media investors in Europe and one of the few independent investment firms committed to the music space. And besides, the IE guys know what they’re doing. And they don’t need EMI. At all. And don’t kid yourself–EMI made plenty of dough on the first of what is now called a 360 deal. If you knew how much revenue Robbie Williams generates, mostly outside of the US, it would bring tears to your eyes.

When Terra Firma first took over I was in touch with Guy Hands and company. I was having one of several long conversations with one of Guy’s emissaries one day–they were still moving into the EMI building, it was that early– when I told him that everyone in the record business would do everything they could to make Terra Firma’s EMI fail. He was astonished and asked why on earth that would be. My answer was simple. Schadenfruede. In the music business its not good enough for you to succeed, you must also see your friends fail at the same time. That no matter how progressive EMI planned to be, they would meet resistance from every other label. It ain’t like running rest stops on the autobahn. As it turns out, I was wrong. They’ve fucked up so much that they didn’t need help from anybody.

© 2009, Wayne Rosso. All rights reserved.