One Saturday before Christmas, Guy Hands took his seat in a hospitality box
at the O2 arena to watch the Spice Girls on the first night of the British
leg of their tour.
Their songs, belted out between costume changes from gold latex to pinstripes
and bowler hats, may have been a little saccharine for Hands. One of
Britain’s best-known deal-makers, he is a heavy-rock man. But from some of
the best seats in the house, and accompanied by friends, colleagues and his
wife Julia, it showed that this unashamed karaoke fan seemed to be lapping
up his new role as a music-industry supremo.
Today the honeymoon – if there ever was one – is over.
Last summer Hands’ Terra Firma paid £3.2 billion for EMI, the music label that
counts the Beatles, Coldplay, Radiohead, Spice Girls and Robbie Williams
among its roster of stars.
Eight months on, EMI is in crisis, sales are slipping, artists are in revolt
and music-industry insiders and bankers believe the man with the Midas touch
is about to get his fingers burnt.
THIS Tuesday at the Odeon cinema in London’s Kensington, Hands will set out
his plans for EMI in a series of meetings. It seems certain to be a fiery
affair. On Friday, angry managers, calling themselves the Black Hand Gang,
were coordinating their response by e-mail.
Acts including Robbie Williams and Radiohead have already gone public with
their dissatisfaction, and Coldplay’s future with the label hangs in the
balance. “We are looking at the meltdown of a great British institution,”
said one senior music executive.
Jazz Summers, manager of the Verve, said: “We are going there with an open
mind but this company has not shown itself to be friendly to artists.”
Three months ago, things looked very different, at least to Hands. In front of
an audience of television executives in Cambridge, Hands seemed certain that
he had a plan that could rescue not just EMI but show the way forward for
the troubled music industry.
“We look for the worst businesses we can find in the most challenged sectors.
We get really happy when things are really, really bad,” he told the Royal
Television Society conference. “EMI, our most recent investment, is a
classic case.”
Hands proceeded to reveal how he had ousted managers from the Odeon cinema
chain, a previous purchase, because they were always jetting off to
Hollywood to see film premieres. “They thought they were in the movie
business, but actually they were in the popcorn business.”
The Terra Firma boss was about to bring the same iconoclastic attitude to the
music business. “Artists’ managers thought this was going to be great for
the music industry,” said one senior music executive. “They thought here was
this visionary with fresh ideas.” Now he “has turned them round the other
way. The problems are very real and they have to be addressed”.
One fear is that Hands overpaid. Terra Firma bagged EMI after rival financiers
and Warner Music, its on-off merger partner for the past seven years, could
not make the numbers work. Since then, Warner’s fortunes have tumbled, too,
as CD sales have continued to fall.
Timing is everything and Warner’s original backers did well when they floated
the company on the stock market. Warner’s new shareholders have been left to
suffer today’s pain.
The music industry’s woes are not the only thing working against the EMI deal.
Terra Firma’s one big plan – to secur-itise the company’s valuable
publishing catalogue – have been frozen by the global credit crunch. Now the
firm is in for a round of swingeing jobs cuts – up to 2,000 are expected to
go.
But what comes next? Observers who have followed Hands’s career since it took
off at Nomura, the Japanese bank, with the purchase of thousands of pubs and
the betting chain William Hill, think this could be the deal that floors him.
“The feedback from inside is that they don’t really know what they are doing,”
said one media industry investor. “They don’t really have a strategy that
gets them any music industry credibility. And there doesn’t seem to be
anyone in charge at the moment.”
For a company that was taken off the stock market and into private hands,
EMI’s gradual transformation has been unravelling under the bright glare of
publicity.
It does not help that some of EMI’s biggest earners are also its most
outspoken critics. Tim Clark, the manager of Robbie Williams, accused Hands
of behaving like a “plantation owner” who picked up EMI as a “vanity
purchase”.
The attack follows a rebuke from Sir Paul McCartney – the Beatles are EMI’s
biggest ever band – and Radiohead, who walked out on the label. Williams’s
next album, due in September, may be withheld.
Coldplay is another big act startled by the exit of UK music boss Tony
Wadsworth, the latest in a procession of executives to depart.
Roger Ames, a veteran music executive, now heads up the company but much of
his power has been taken away from him. He no longer has the final say on
how a band is marketed; that has been handed to Mike Clasper, the former BAA
boss, who is reviewing operations. The joke doing the rounds in EMI’s
offices is that staff are now allowed to bring only one bag to work.
“Ames has been reduced to a glorified head of A&R [artists and
repertoire],” said one music executive. “Who’s going to give him a record
when they don’t know how much say he’s going to have in marketing it?”
Stars have also been angered by memos from Hands demanding musicians work
harder at plugging their albums to justify huge advances.
Angering the talent is not a good move, say rival executives. “Music companies
don’t make anything – artists make the music. It’s pretty easy to find
another label,” said one. He said top acts were likely to sit on their new
releases and tour or work on web projects until EMI’s future became clearer.
“And there is no chance of the company signing any new top talent.”
If Coldplay decide not to hand over their next album, EMI could be in serious
trouble. Industry insiders calculate Terra Firma has to pay back £150m to
its backers by June and is £50m shy. Citigroup, Terra Firma’s biggest backer
in the deal, is said to be increasingly worried, and Hands would have to go
back to Terra Firma’s investors for more money, something he and his
supporters would be loath to do.
However bad it gets, EMI still has a lucrative publishing business that
accounts for at least half of its profits.
Coldplay’s next album is due out in May. The last album was a worldwide smash,
and without its support Hands may end up wishing he had sung a sweeter tune.
Cost-cutting goes on apace. The £5.6m sale of EMI’s May-fair flat, used as a
bolthole for weary executives, marks another break with the past. Axing
spending on fruit, flowers and candles to mollycoddle stars suggests that
rock’n‘roll excess is at an end. But the future may not be so cosy for Hands
either.
“In this business, Guy can’t be abrasive as he generally is, unless he has
someone to do all the soft stuff,” said one of his former consultants.
OF COURSE it’s not all Hands’ fault. The music industry is in trouble. Legal
downloads of music are soaring, but not enough to offset falling income from
CD sales, which are dropping by more than 10% a year.
Hands wants to broaden EMI to embrace income from touring and merchandising
and has assembled a crew of managers to help him achieve this. Few of them
have music-industry experience, but sources argue they do not necessarily
need it. “The model is broken. We have to find a new one,” said one.
As well as Clasper, Hands has drafted in Pat O’Driscoll, the former Northern
Foods chief, to look at personnel, and Royal Mail chairman Allan Leighton.
But perhaps the most controversial appointment has been Lord Birt, the
former BBC director-general, who is reviewing how artists are looked after.
They are seeking efficiencies across the board. EMI has 14,000 artists on its
roster, both dead and alive, most of them unprofitable. Some 30% who are
paid an advance never record an album. The same proportion of CDs are
destroyed because prepublicity has not been properly handled.
Friends say Hands is not moved by criticism. “He is not perturbed by
controversy,” said one source. “Quite the reverse. If he’s not making waves,
he’s not doing his job.”
At least he still has one.
EMI’S 110 PIONEERING YEARS
EMI began life in 1897 as the Gramophone Company after the invention of the
record-player. In 1899 it bought Francis Barraud’s painting His Master’s
Voice and adopted the image of Nipper the dog as its trademark –
divested 100 years later to HMV.
By 1914 the company was selling 4m records a year and had subsidiaries in 11
countries. The depression in the 1930s forced a merger with sister company
Columbia Gramophone. The new company was called Electric and Music
Industries (EMI).
EMI continued to work on technological developments, releasing the cheaper
Vinyl 33 record that raised sales. In 1955 the company acquired one of the
largest record companies in America, Capitol Records, which boasted such
famous artists as Frank Sinatra and Elvis Presley.
EMI continued to work with British artists, signing Shirley Bassey and Cliff
Richard among others. But its biggest break came in 1962 when EMI was the
only company not to reject the Beatles’ demo tape. The Beatles are estimated
to have sold more than a billion records worldwide. In the next two decades
EMI took on Pink Floyd and Queen, while in America its stable included the
Beach Boys, Stevie Wonder and the Jackson Five.
In the 1980s and 1990s most of EMI’s sales came from compact discs and the
company embarked on a number acquisitions that included Virgin Music Group,
Chrysalis records and a controlling interest in the Japanese joint venture
Toshiba-EMI.
EMI made history in 2000 by launching the industry’s first digital album. It
continued to sign top-selling artists, including the Spice Girls, Robbie
Williams and, more recently, Norah Jones.
