Music 2.0

Somewhere in a quiet, business-like boardroom of a private-equity company not so far from here, an earnest group are trying to figure out what it would take to bring EMI Group off the public market back into private hands. The regulatory environment that is questioning in Europe the merger of Sony and BMG has ruled out any EMI/Warner merger. The continued exposure of the market to the daily ups and downs of the creative process (such as it is) within the label puts a level of intolerable pressure on the artist. The delay of Coldplay’s album because it wasn’t finished to the satisfaction of the band should not have been responsible for a share price drop – but it was. The fact is that EMI has been engaged in extensive cost cutting for the last ten years. The company has now seen its value reduced by more than half in the last five years – as such it’s a microcosm of the music industry. Indeed another negative side-effect of being on the public market is that the shareprice responds to any negative news in the industry regardless of how closely it is related to EMI’s own businesses.

Private equity firms in Europe (unlike those becoming a little more hesitant in the US) are still looking for bigger and bigger deals. See the current fuss over ITV and NTL. The benefits of taking large creative businesses private were well demonstrated by Richard Branson several years ago when he removed his group Virgin Group from the public market.

The real challenge though is to make sure that if such a process of privatisation took place, that the business model is thoroughly revised. The only way now, after all the cost cutting has been done in EMI, is to reconstruct the business completely.

This means:

Complete renegotiation of all artist deals so that there is proper transparency and participation in revenues, removal of idiocies like packaging deductions or deductions for breakages.

Aggressive paring back of the current catalogue in order to be able to pursue a proper 360 degree strategy with all artists going forward. The innovative and almost ground breaking deal made by the old Harrovians at IE on behalf of Robbie Williams should be the norm not the exception.

The deep deep catalogue that EMI excells in needs to be subjected to as many innovative and lateral new media models as possible. Reissue by subscription, download on demand, niche marketing in the long tail, are the kinds of new way of selling that EMI could exploit very effectively if it had some idea of how to do it.

Massive management reengineering – experiences like the recent discovery of fake accounting in Brazil is typical of old style music industry practices which have no place in today’s business. Again, proper transparent business models, artist contracts and management would erradicate that kind of nonsense that drags a business down.

If that private equity group is not looking at EMI as a suitable case for treatment, they really should be.

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4 responses to “Music 2.0

  1. What do you think the chances are of such a complete reconstruction happening? What are the other potential outcomes?

  2. You always ask the big questions Toni!

    I think that there is quite a good chance that such a major reconstruction will happen, because it needs to. The only choice is to wither on the vine and no business public or private of the size of EMI could be allowed that option. The only question is what is the ratio of pain to radical change? I think the level of pain is approaching a point where substantial revision of the model becomes invevitable.

    What does this mean? Ultimately, I think it means a democratisation of an entire industry and a redrawing of the landscape. That’s not to say that critical mass is not still a major factor in being able to be influential in “breaking acts” in the music world. But if what we really start to see is a new ecology of grass-roots connected, more niche oriented collectives of businesses – where the relationship with the consumer is what drives the identity of the business and not the bonus plan of the CEO – then that would be progress indeed!

  3. Pingback: EMI receives an approach « Compatible World

  4. I couldn’t agree more. Considering Alain Levy’s comments at the London Media Summit, this could be the first rumblings of the seismic shift in the industry everyone has been waiting for. The September issue of Wired had an awesome section on Music 2.0 which I am going to have to re-read.

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