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.”
Get Crikey FREE to your inbox every weekday morning with the Crikey Worm.
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.