The announcement today that EMI has dismissed its two most senior executives, Alain Levy and David Munns, and replaced them with Eric Nicoli is simply the latest step in the fortunes of the company which has persistently failed to address the demands of the digital era.
In the late nineties and for the first year of the new century EMI made the appearance of being innovative and actively involved in addressing the opportunities presented by digital music and the web. However, in reality, this early period was characterised by a skeptical exploitation of the free flowing venture capital finance in the market to garner additional revenues for the company without any accompanying investment. The result was a business that had licensed its content to a large number of digital businesses and had no infrastructure in place to deliver that content – let alone the licence renegotations with partner rights-holders that were required.
As the headlong consumer rush online has developed in the last few years, EMI has moved with the encouragement of Munns and Levy from being the liberal experimenter who appeared to be trying out all the new models emerging to see which might help the business, to becoming the most conservative major label which shied away from opportunities. At the same time the company encouraged its trade associations around the world to litigate against its own consumer customers thus throwing away the opportunity to develop a relationship with music fans and instead hammering at the preservation of the old business model that was dying under its feet. Not surprising when you consider that Munns and Levy were old-fashioned industry executives who knew how to get things done extremely well under the old model, but even with their elevated view could not be expected to embrace a technology which demands such radical change.
The announcement that Eric Nicoli is to become CEO allows the outsider perspective to enter the business and there is no question that the management challenge for EMI now is to reinvent the model for the business to take it through into a successful digital era.
Wholesale renegotiation of artists contracts will be an essential ingredient to this if the talent pool is not to drift away as contracts expire and EMI’s leverage in the marketplace erodes. The company has the opportunity to create a whole new kind of relationship with its artists. The landmark Robbie Williams deal that included share in live performances and other parts of the artist’s income was just the beginning of what needs to be done. The team of David Enthoven and Tim Clerk at IE should be brought in as consultants to help EMI’s board work the solution through. Their maverick style won’t suit the corporates much, but they know better than most what needs to be done. Whether they want EMI to be the company doing it is another matter.
Nicoli now needs to head an aggressive acquisition program of signing new talent under completely new terms. He should also go out and acquire a major share in the global live promotion business in order to capture all of the scope for income creation from artists’ entire range of activities.
Digital technology has completely and unavoidably disrupted the recorded music industry model. The content is now freely available on peer to peer networks globally and there is clearly nothing the industry can do about it. The value in the industry has been reduced and can only be restored by a major rearchitecturing of the entire music business – not simply the recorded part of it.
Nicoli doesn’t have much time as the sales of CDs plumet ever downward and all the new digital opportunities are poorly tied in. The cost cutting and staff reduction and frenzied shuffling of chairs on the deck have all been a poor distraction from the main task, a thin buttress that could never be strong enough to fend off the impact of ubiquitous technology and massive shifts in consumer behaviour.
Let’s hope that Nicoli, now that he has taken the executive reigns, can come up with the vision to bring this great company back around. I hope very much to be proved wrong, but my guess is he will probably now refocus his efforts once again on merging with Warner Music – cost-cutting by another name.