BUSINESS

DESPERATE MEASURES

BRYAN BORZYKOWSKI June 16 2008
BUSINESS

DESPERATE MEASURES

BRYAN BORZYKOWSKI June 16 2008

DESPERATE MEASURES

EMI is counting on Coldplay to keep the company relevant

BUSINESS

BRYAN BORZYKOWSKI

For one full

week at the end of April, Coldplay let its fans download the first single off its new album, Viva La Vida, for free. While that’s not a revolutionary idea in itself, the fact that 600,000 Internet users downloaded the track in a 24-hour span, and 1.4 million more grabbed it during the week, suggests expectations are high for Coldplay’s new album, out June 17. Undoubtedly, the London-based foursome wants its album to top charts around the world, but it’s EMI Records, Coldplay’s U.K.-based record label, that really needs Viva La Vida to explode. In the past few months, the embattled label has been in the news more for its massive job cuts, artist defections, and failed mergers, than for its artists.

Of course, with CD sales down 16 per cent last year, the entire music industry is struggling, but it’s EMI—which has the weakest worldwide market share of the big four labels with 10.8 per cent—whose future is most at risk. “You don’t need four major labels anymore,” says Claire Enders, a London-based music industry analyst and former EMI executive, “and because EMI is the weakest one in terms of new repertoire and financing, they’re under the most pressure.” The label has had problems for years. Its North American market share started tanking in the ’70s after the Beatles and Pink Floyd stopped making new records for them. But ever since the British private-equity firm Terra Firma bought the company for about $6.5 billion in May 2007—borrowing around $4 billion from Citigroup—things at EMI Group have been heading rapidly south.

Soon after that deal was struck, as the global credit crisis deepened, both the bank and Terra Firma became nervous. The two sides considered reworking their financing terms, but Citigroup didn’t want to fan the flames of the credit crunch by being the first major financial institution to renegotiate a deal. But at a private-equity conference in February, Terra Firma’s CEO Guy Hands admitted that running EMI was tough. He told the audience his strategy had been to “take the power away” from the A&R people—those who find

This year, Hands has taken several steps in the right direction. He hired Douglas Merrill, formerly Google’s CIO, as president, and put Nick Gatfield—the man responsible for signing Amy Winehouse

and develop talent-and put it with “the suits,” since they tend to be more invested in the label’s financial future. Though, he added, “trying to persuade 260 people to give up their power has been hard.”

Since then, things have only gotten worse. The company has cut about 2,000 jobs and lost major acts including Paul McCartney and Radiohead, who famously released its last disc independently online. EMI reportedly needs three extra months to reach Citigroup’s set financial targets. Enders believes that while Terra Firma has

successfully turned around companies in the past, Hands didn’t fully grasp the music industry’s problems, especially because 2006 had been a relatively good year. “The message was this business was going to recover,” she explains, “but then it started to fall off a cliff.”

'Being on a major label is like living in your . grandparents' house'

to Universal—in charge of EMI’s A&R department. He also inked a distribution deal with Joe Simpson’s Papa Joe Records, and his jobcutting measures are expected to save the company nearly US$400 million.

But one of Hands’ biggest accomplishments has been keeping Coldplay on its roster, all things considered. In January, the band’s own manager, Dave Holmes, told London’s Daily Telegraph, “Why would you want to release an album with a record com-

pany in the midst of massive layoffs? Coldplay have a lot of options.” More recently, the band has been more publicly supportive of the label. Still, as lead singer Chris Martin told Reuters, Coldplay is well aware of the direction the industry is headed. “Being on a major label at the moment is like living in your grandparents’ house,” he said. “Everyone knows they need to move out, and they will eventually, but we kind of like our grandmother.”

If Coldplay’s record stalls, EMI won’t go under. The company generates about 70 per

cent of its profits from its lucrative publishing arm, and one band can’t make or break a label. However, the Coldplay release illustrates the Catch-22 music labels are in: if Viva La Vida doesn’t chart high, EMI could have trouble attracting big acts in the future. But if the album sells well, as observers predict it will—Coldplay sold 8.5 million copies of X&Y in 2005—many will say the band’s success was achieved despite the involvement of the label rather than because of it. M