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.

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.

"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.

I happened to notice a little story on Reuters newswire the other day about Guy Hands having to buy out several of Terra Firma’s investors who were desperate to bail out of their capital commitment to the fund. An old friend who spent decades in upper management at EMI and I were chatting about this today, and he reminded me of something.

No matter what the new EMI CEO says, or anyone at Terra Firma for that matter, it’s obvious to everyone in the music industry that EMI’s future is cloudy at best. Given that WMG’s market cap is floating in the $300 million range, Terra Firma’s multi-billion dollar investment in EMI isn’t looking very profitable. In spite of this, the good news for WMG is Hands and Terra Firma are and have been the butt of every joke in the business.

As my ex-EMI friend pointed out, who really has the money invested in EMI? Citi. And who runs Citi? Dick Parsons, who hired Roger Ames. Fun, no? But then again, Citi is getting bailed out by the US government. And then what if the Treasury goes ahead with plans for a bad bank where they would buy up all of the bad assets from bailed out banks. So could this mean that the government would buy Citi’s stake in EMI? Could Citi take over EMI and then appoint Roger Ames to run it just for the label to be taken over and essentially run by Timothy Geitner?

In the words of my friend, “This is actually one instance where the government could do a better job running the company”.

You gotta love it.

© 2009, Wayne Rosso. All rights reserved.