EMI is in the hands of its bankers after the iconic British record label was repossessed by Citibank earlier this week.
Citibank appears to have “turned” EMI’s management against its owners, wresting control from venture capitalist Guy Hands and his Terra Firma group after EMI’s management invoked an arcane clause in the loan conditions by declaring it “balance sheet insolvent”. Using British “pre-pack” insolvency regulations, Citibank then rushed EMI through administration in a matter of hours, gaining full control of the indebted music business from Hands. Terra Nova’s equity in EMI was thought to be worth just half of the ₤3.4 billion Citibank was owed.
The deal immediately cancels a substantial amount of EMI’s debt, freeing up the music group to be auctioned off to the highest bidder in what remains difficult times for the global music industry. Veteran British A+R executive Alan McGee (who founded Creation) recently blamed music piracy for the downward spiral, writing that “illegal downloading is murdering the music business”.
“Will EMI find a buyer?” McGee asks. “Bits of it will. Everyone wants a piece of its publishing catalogue, which is worth a lot — but these days no f-cker wants to buy a record company.”
The logical partner for EMI would be Warner, another struggling music multinational, but it has its own troubles after posting a disappointing first quarter loss of $18 million, on revenue of $789 million. The huge digital music sales that everyone in the industry hoped and prayed would finally return music to the good old days have not materialised; nor have the lauded “360” deals, in which music companies take a stake in artists’ touring and merchandise revenue, provided the necessary panacea.
In fact, as Charles Arthur writes in The Guardian, the music industry’s woes are worsening, not improving. Arthur cites the difficulty consumers still have in legally downloading songs and albums globally; for many of us, it remains easier (not to mention cheaper) to torrent a new album than to buy it. Arthur also draws attention to a recent research report by Forrester’s Mark Mulligan, who claims that:
Digital music has not achieved any of its three key objectives:
- to offset the impact of declining CD sales
- to generate a format replacement cycle, and
- to compete effectively with piracy.
In words which will strike fear into the heart of music executives gobally, Mulligan argues that “neither the 99 cent download [nor] the 9.99 streaming subscription are the future”. The future, he argues instead, is music as an “experience”. Twelve years after Napster, the music industry still hasn’t worked out how to put the genie back in the bottle.
So where does that leave the music business? In some respect, I think things may be better than they seem for the big music publishers. But in other respects, they’re worse. Here’s why:
Firstly, experience can be excluded, branded and sold. The predominant form of musical experience today is not the download but the live music festival or concert. And high fences and security guards mean concerts can still demand high ticket prices.
Large multinationals are already aggressively into this space (think Live Nation) and we should expect this to continue. Secondly, experience can be a good as well as a service: that is, really well produced and packaged vinyl can be an experience (although only a niche experience — then again, all music is niche now anyway), and great artwork can add to the experience — even of iTunes.
Finally, certain aspects of the music market are not being disrupted in the same way as downloadable songs — for instance, royalty streams where the end customer is large enough to warrant legal pursuit by collection agencies. This is why the most valuable part of EMI remains its copyright library.
On the other hand, in some ways things really are as bad — if not worse — for the music industry as the Forrester report suggests. Free music is not going away, and today’s teenagers simply don’t expect to pay for it. That battle is over. For all intents and purposes, recorded music is now non-excludable and non-rivalrous: record companies can no more charge for music than you or I can charge people in the next suburb for our fireworks display.
That’s a challenge that no-one in the industry seems willing to face up to, even those advocating streaming or subscription models. Hence, for the average musician, selling concert tickets — or selling performance fees to concert promoters — remains the only game that counts.
Music is not dead.
It just sells funny.
I’m finding it increasingly interesting how “failure of the old music industry giants” still equals failure of the music industry. And the whole debate is about copyright, piracy and distribution, a model for large conglomerates to change as little as possible, and seldom about the actual music (though occasionally about whether musicians can survive—I’m old enough to remember how well most, even moderately successful musicians survived financially, pre digital distribution .. that is, very badly). This is a debate set up by the old music industry giants. It ends up “the way it was” versus “nothing left at all really”.
Two very different ways of thinking about this …. how has the music industry been transformed already, outside of the big companies (is Boomkat, for example, making much money … that’s before you get to the zillions of netlabels etc)? And perhaps, just as importantly, has the music died? In my experience, the answer to the first is that the music industry is finding very many ways to continue outside of the very big business model (the industry has been supposedly dying for well over a decade now, after all …), just not as we know it. There are not only models out there, but practices that are working, although it’s true that we don’t know what the future brings (I’m not sure that generalisations about generations help at all here, however). Secondly, I’ve been listening to music of most kinds for 40 years, and I’ve never known a period when there was such a diversity of actual music, of such outstanding quality and ongoing innovation. No other time comes close. And much of this enabled by digital and networked technologies.
Music isn’t dead, but the current delivery and marketing system for it is. After the crass behaviour of the RIAA, no-one’s going to shed a tear over its passing.
“to generate a format replacement cycle, and”
Wait their business plan was based on making us pay for music we already own all over again? Well good riddance!
Given that I only just bought my first ever major label mp3 album where the files were sensibly named, had the appropriate metadata filled in and was of reasonable quality, they’ve only just got to the point Channel Bittorrent was providing for much cheaper years ago… No wonder they’re floundering!
That said, if you can find someone with a European credit/debit card willing to sign you up, Spotify shows the way for the future of the music industry. The future is a subscription model where a monthly fee covers everything you could possibly want to listen to.
A few years ago Kodak closed their Australian film manufacturing plant citing a steep fall in profitability in the face of cheap, disruptive digital technologies. The death of consumer photography? Obviously the opposite.
The struggles of industry mammoths like EMI, Sony and (hopefully) Apple come from two directions. As the article says, there’s diminishing revenue per sale (or resale if we’re talking format replacement).
But technology has also reduced the cost of creating and recording the music in the first place, itself underming the role of the record company.
Twenty years ago an act (band or singer) actually needed a record company to (a) get the album actually recorded (b) turn the sound into distributable product and (c) get it promoted, using music video or radio bribery. This was largely funded by advances of artist royalties, which meant that part of the role of the record company was investment banking, in which they took the financial risk that sales of the act’s product would recoup not only their own advances but also those of the roster’s other acts that had bombed. This whole process has become cheaper, too. There’s less need for the investment bank.
Recording artists can cope with this revolution. The money is earned nowadays from appearing live rather than retiring to sniff powder on the royalty stream. As an artist it will take time to inch your way up the pecking order, but no one ever pretended this was an easy industry and the record company only distorted this process anyway.
I spent Australia Day at the Big Day Out – basically all of the acts appearing after 6pm on the four main outdoor stages had been going at least a decade, in all likelihood originally beneficiaries of unsustainable marketing and promotion budgets.
But there was some fantastic stuff on before 6pm, performed by today’s talent adjusting to a low cost world with fewer middlemen.