Shaking Up and Turning Around EMI

Courtesy of the LA Times...


October 7, 2002


Q&A

Shaking Up and Turning Around EMI
Music: The company's chairman and vice chairman discuss changes they made and the industry's prospects.



By CHUCK PHILIPS, TIMES STAFF WRITER


EMI Group was once hailed as the music company that brought the world the Beatles, Frank Sinatra and Nat King Cole.

But by the time record veterans Alain Levy and David Munns took over the British company's struggling music operations last October, employees were joking that EMI stood for "Every Mistake Imaginable."

Levy became chairman of EMI's Recorded Music division, and Munns vice chairman. Their arrival followed a decade-long string of profit warnings, management shakeups and financial setbacks at the world's third-largest music company. Last year EMI posted a loss of about $310 million.

After slashing 1,800 jobs, firing 400 artists and shutting down several record labels, Levy and Munns are finally putting some hits on the charts by such new acts as Norah Jones, Coldplay, Kylie Minogue and the Vines.

But the industry is suffering from piracy of music over the Internet, which is slowing CD sales. Levy and Munns, who previously transformed PolyGram, spoke candidly in their first joint interview about EMI's problems and other troubles facing the music industry.

Question: EMI was a mess when you took over. The stock market now values EMI at about a third of what it was worth during the mid-1990s. How do you deal with that?

Levy: It's very annoying to see the valuation put on record companies these days. The market is based on perception, and people now have a perception that the music industry is doomed. Is that the reality? I don't think so. The only thing to do is work hard to build a quality music catalog for the future.

Q: Before joining EMI you took a break from the music business. What looked different when you returned?

Levy: What struck me most was how the music business is a world in itself, one where executives are often richly rewarded--even when they fail. In other industries, people understand that when [sales] go down by 10%, you take a salary cut. When the market is down here, these guys think it's everybody's fault but their own. When we arrived, we could see there was a total disregard for the shareholders in this company.

Some of these executives make the same amount of money as the heads of investment banking firms--plus they demand a guaranteed bonus, even if they fail to make a profit. We put a stop to it here.

Q: You cleaned house by firing hundreds of employees. You also notified many senior executives that they either had to accept a 50% salary cut or walk. Can you talk about that?

Munns: We said to quite a few people around the world, "We've got a job for you, and this is what we feel a fair amount in pay should be; do you want the job?" Few left.

Q: Your predecessors signed superstar Mariah Carey to an $80-million-plus contract. Then you backed out of the Carey deal after just one record and paid her $29 million to leave. Why?

Levy: I know that decision shocked people. We can't really talk much about it. I just want to say that we have absolute respect for the artist and think she's a great star. The issue was the lack of profitability of the deal and the risk profile. We ended it because the deal was unlivable for the company.

Q: Universal Music Group immediately signed Carey to an estimated $20-million, three-album contract and is preparing to release her next album. How will you guys feel if it's a hit?

Levy: Believe me, if I had the same contract Universal got, we wouldn't be having this discussion.

Munns: I can't imagine any circumstance in the future where we would regret the decision we made.

Q: So why turn around last week and sign British rock star Robbie Williams to a $70-million-plus deal, paying him nearly $40 million upfront?

Munns: We can't discuss the details about Robbie's deal. After the Carey deal, we made it clear that we are not going to do crazy record deals that have a huge risk in them. I assure you that this is not a deal in that category. We'll make money on it with no sweat.

Q: It's an unusual deal. I'm told that you invested about $25 million for a stake in a management company run by Williams and will share in revenue generated by any of his sponsorship, publishing and acting deals as well as from concert receipts. Why do this?

Levy: Our goal is to transform EMI from a recording company into a music company that shares in all kinds of revenue generated by the artist. It's less volatile than record sales alone. You spread the risk. Record companies spend an enormous amount of money launching and developing an act--and we only get about 10% of the revenue. The idea here is to tap into a share of the other revenues.

Q: When you took over, EMI was posting profit warning after profit warning. How do things look today?

Levy: The company is in pretty good shape now. It's not hemorrhaging anymore. But now we need to rebuild the artist roster around the world, particularly in North America.

It's funny though. I've got analysts already asking me why our market share in America hasn't gone up in the last six months. This is a business built on artistic creation. It takes time to cultivate music careers. That's something we're very focused on.

Munns: Companies need to continue building music catalogs. We need to develop each artist's career patiently with a long-term, multi-album approach. If we abandon that principle, we will end up with a very fragile company and industry.

Levy: What people have been concentrating on in the last five years is signing as many deals as possible in order to land blockbuster No. 1 hits. It looks great in the short term. But in the long term, it doesn't work. That's why we want to sign and support artists we can develop so that in 10 years we create a legacy, a rich catalog of music.

Q: Many wonder whether there will even be a music business in 10 years. With piracy eroding profits generated by new hits and obliterating profit from old catalog sales, what makes you so optimistic?

Levy: Because the issues we've been facing in the music business are now starting to affect film, TV and software companies. As [high speed-Internet] connections accelerate the [piracy] problem for other industries, intellectual property companies will unite into a strong coalition to lobby the government. There's more pain to come, but the music industry will survive.

Q: What makes you think you can convince people that swapping music on the Internet is stealing?

Munns: Eventually, people will begin to understand that this is just plain wrong.

Q: Why should music fans feel any moral obligation to enrich music executives whom critics have accused of price-fixing and of cheating their own artists?

Munns: People enjoy bashing businessmen. I don't have a problem with that. But I don't believe the American public is corrupt at heart. People don't allow banks to be robbed. And they don't allow cars to be stolen out of showrooms. We are in a business in which we own intellectual property. We pay for it legally and we have a right under law to be compensated for its use.

Levy: I came up in an era when management believed a hit record could solve all problems. But no amount of hits will end the piracy epidemic. We're operating in an unknown arena here. We need to put the brakes on piracy. But we also need to develop a consumer-friendly product in the digital delivery world. And we need to do it fast.

Q: Some of your competitors believe that EMI is destined to be gobbled up?

Levy: Some of our [competitors] have great uncertainties about their futures and whether they fit into their parent company's schemes. We don't have those problems.

Some of our friends say we'll get gobbled up. We know nothing about that. We just do our jobs as well as possible to increase the value of the company for our shareholders and artists. Everybody--including the so-called gobblers--is afraid of the future right now.

Munns: We're the third-biggest record corporation in the world. There is no reason why we can't stand alone and be a successful independent music company.

http://www.latimes.com/business/la-fi-emi7oct07,0,5474949.story?coll=la-headlines-business

 

Mikeynyc, I know no one comments on your posts about what's going on in the music biz, but I read them and I apreciate the info.

Keep 'em coming!

 

BTW, It seems they are sincere about going back to the days of artist development.

To the issue of Mariah Carey: It sounds like they knew what they were doing when they divorced her with alimony. We don't know all the nitty gritty details of their contract, but seeing as how the superstar artist signing usually worked, it probably wasn't good for them.

I personally don't think this file-sharing crap is high on their priority list, although they do need to come up with a plan for a generation now used to the internet.

 

There's something to be said about a company that drops an artist for many other reasons than just the talent they have to sacrifice. I'm not the only one who thinks EMI will not starve to death now that Carey's gone.

Besides, EMI has a heck of a lot of trouble on its hands. It's not Internet piracy either. The market is NOT what it used to be. Pop music is really a very scary thing to invest in now. Artists get promoted, sold, dropped and forgotten in less than a year.

It's less hectic to become a stock broker.

 

It is wise that the company demands more from the artist than just paying them money to come up with hits.

Mariah Carey's new CD will be out in two months, and from what i've heard, it's the same old vocal contortions on bland ballads we've all grow sick of hearing.

 

Is it even possible to climb out of the huge-one-hit-wonder style of music? The market changes on a dime and you never know where 'tastes' will go next. It's sadly a part of pop culture now. "So 10 minutes ago", and all that.
I wish them luck. EMI oozes musical heritage, but that's not enough anymore.
Dan C

 

IMO the biggest thing EMI could do to help itself right now is, with Apple's consent of course, get the Beatles back catalogue properly remastered and re-released on CD. That alone would ease the pain of a $300m loss!

 

I'll second that,Kipper.They're sitting on a gold mine if they knew how to handle it.If they want to ween people off of music from the internet they need to introduce audiophile quality music to the masses at reasonable prices.ABKCO has got the ball rolling.

 

Good point Grant. I'm also appreciative.

Regards,
Geoff

 

You are all welcome, and I'm glad you enjoy them !

 

Well, now, there's nothing wrong with "one-hit-wonders". The majority of the great songs I grew up with on hit radio in the 60s and 70s, and even the 80s, were one-hit-wonders. How about The Outsiders, Los Bravos, People, Spiral Staircase, Smith, Major Harris...

But all that time, we did have developed, nurtured artists too. There is the only real difference. The indistry doesn't have hardly any of these anymore. The long-term artists carried the one-shots. The Jimmy Castor Bunch or Blue Suede had the hit, but Aretha Franklin or Steely Dan paid the bills. Yeah, I know, different companies, but you get my pont..

 

Agree. Not to slam one-hitters, I am doubtful that modern pop culture will support a Bob Dylan, Bruce Springsteen, Billy Joel, etc. All of these artists were "nurtured" by their label (in this case it happens to be the old Columbia Records) and they continue to pay off for the current company.
The boy bands and Brittany aren't one-hitters, but they are flashes in the pan in the overall scheme of things.
Dan C

 

Just I doubt like modern pop culture will not support a Willie Nelson, Johnny Cash, Kris Kristofferson, Conway Twitty, Loretta Lynn, Brenda Lee, Jerry Lee Lewis, Eddy Arnold, Roy Orbison, Burl Ives, John Denver, Neil Diamond, The Carpenters, Jim Reeves, Patsy Cline, etc. Even though a couple of these artists did have brief careers, they are all nurtured and developed artists.

 

I think a major problem is that the majors keep targeting a fickle, groundless generation that has no aligience to any one act. Also, all audiences are too fragmented now. You can't even find five people on this forum who have similar tastes.

My question is, what the hell happened?

 

Grant,

Segmentation of Radio into narrow formats, Cable TV (more segmentation) & Home video. The genesis for "what happened" began with the demise of the all-encompassing Top 40 Radio format in the 80's, MTV, VH1, etc. I remember when everyone listened to the same music on one (maybe two) Top 40 stations, when there was only network TV (three network channels) and there no home video. During that era, each of us was exposed to all types of music at a "one-stop." Now....

Make sense?

Bob

 

Yes it does but a very stupid move many years ago. In the future, entertainment will be targeted for an audience of one (technology plus direct marketing). Communial expereinces say good-bye (no more roar of an audience, only a sad clap from a lonely viewer)....


Todd

 

Hmmmm, I don't know if exposure is the answer. Many on this forum are baby-boomers or older gen-x types and a lot of members haven't been exposed to many types of genres. We always had seperate avenues for rock, soul, jazz, country, ect... Many households only had one type of music that was played in it.

 

Grant,

Not as much between the years of the late 50's through the late 60's - one maybe two Top 40 stations in each market - no other real alternatives except for R & B stations in some of the big cities. The Top 40 station in my hometown (150,000 city, 350,000 metro area) played everything from Marty Robbins, Lawrence Welk to the Rolling Stones, James Brown and everything in between - whatever made the charts, they played - no segmentation. The result - wide exposure for many different forms of music...and everybody listened to the Radio!

That was the point of my post.

Regards,

Bob

 

You had access to a VERY unique station!!! YOU were more fortunate than you realize!

Most radio, even what I remember as far back as 1965, was never half as inclusive! All the top 40 or whatever # hit radio I heard in the 70s pretty much stuck to the Billboard Hot 100 stuff, with no crossover. FM radio was the same as the AM dial from 1973-1976. After that, when disco came on the scene, nothing was ever quite the same again!

Country and Soul/black/urban/what have you radio were always exclusive to the genre they advertised.

I used to love visiting large cities because it meant I could hear what was on the R&B charts or what was going on in the R&B world. Couldn't get that from pop/top 40 radio!

If I wanted to hear what was going on in country music (which I never did), I could just tune into AM radio in the afternoons.

So, I guess you are correct in saying that radio was in big part to blame.

 

Grant,

Actually from about 1956 through about 1968, my experience was not really unique. It was the broad AM Top 40 format on AM or nothing really. Oh, there was the occasional appearance of a Top 40 act on TV, concerts, etc. but THE vehicle was AM Radio. In order to achieve ratings they played a wide format.

The following is a great link to my past:

www.thebig1290.com

Check out the links page and review the surveys posted on the WLS 89 Music Radio website. You will find those playlists from the that era very interesting!

Bob

 

But after 1968 things really did change. I lived in a different place so I did not hear such diversity on the air even before then.

Arizona radio never played much R&B that wasn't also on the Hot 100 chart until the mid 70s. But, by that time, when they had just started, automated, researched radio took over and it never really happened.

Rock radio pretty much stayed into the hard rock mode. You NEVER heard anything but that until recently, when you could hear, maybe "Superstition" by Stevie Wonder.

Urban stations did play the occasional Rolling Stones or Gary Wright track, or anything else that fit the style of music.

Country was the most segmented of all genres!

 

Grant,

No question - things really began to change about 68'. I agree with your observations when you examine the 70's and 80's.

I am using the surveys from the WLS website in research for my taping project.

Bob