A marvelous piece in the New York Times this week takes the covers off the private equity group Terra Firma which bought EMI and casts its CEO as an abrasive know it all, that is chasing famous talent away from EMI as he searches for profitability.
The company’s music publishing unit, with 100 years of artist output provides a steady flow of cash, it’s the recording studio part of the business that is now lack luster and which has had to suffer the brunt of more than 2,000 announced job cuts and slashed budgets in music promotion.
So far Guy Hands, the CEO of Terra Firma has managed to leave the company leaderless, takes all the key decisions himself and took it over at a premium on the back of another poor year, just as the company embraced DRM free music, a move which was a success, but which was swiftly followed by every other label.
His predecessor Eric Nicoli, group CEO had been in the chair for years while the company fought off round after round of piracy, and spent many of his last months shoring up the company’s digital distribution channels.
The original purchase deal cost some £2.4 billion ($4.8 billion) which with debt valued EMI at £3.2 billion ($6.4 billion).
Hands may soon be forced to put the recording side of the business up for sale, complete with all the existing artist contracts, but retaining all the published works in the music publishing business.
Around 18 months ago Vivendi and its Universal Music Group agreed to buy Bertelsmann’s BMG Music Publishing business for $2.1 billion in a deal which created the world’s largest music publishing company which gives an idea of the type of value which is today placed on music publishing assets on their own.
The NY Times piece pointed out that an analysis by McKinsey and KPMG found that EMI had lost $1.5 billion selling new music over the last five years and that the accounts were set up to avoid this being noticed. Old music sold well, publishing did well, but new music was a disaster.
As a result some of its top acts wanted to use their own marketing teams to launch record rather than let EMI employees carry on with tired old marketing habits, while Hands wanted to source talent from online services like MySpace, where over 1 million bands show their wares.
The upshot of all this is that the credit crunch could force the company back to the negotiating table with its old adversary Warner Music Group, which it was in merger talks with for years prior to the Terra Firma deal. Citigroup stumped up about $5 billion of the cash required to buy the company, has been unable to lay off the debt, and may prefer to accept its losses and force Hands to sell out. Recently the company has been looking into new online ideas with executives hired from Google and Second Life, but it looks like EMI’s days as an independent company are numbered.