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Say Goodbye to EMI

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Moses Avalon

I know, I know. I'm usually the guy who's very Bullish on the condition of the music business, but this is one story even I cannot spin upward.



To save the beleaguered major label, EMI, its owner, Guy Hands has about a month to come up with about $150 Million to satisfy payroll and debts. In real estate terms, Hands is upside down on his house. He now owes more than he can sell the company for and his bank, Citigroup, is forcing him to foreclose rather than give him the chance to save the label that controls such classic catalogs as the Beatles.



Knowing he can not find a buyer or come up with the money, Citigroup's unofficial but rather obvious plan is to foreclose, at which point they get their hands on the super valuable catalogs for dimes on the dollar.



Normally, when companies this size are in trouble their creditors help out by restructuring the loans. But not here. In this case Citigroup, has bitch-slapped Hands and all but said, let it burn. When your own investors want you to fail, there is little hope of survival.



Historic music in the hands of bankers.



Hands wants to chop up the company now, but, under the terms of his loan, Citigroup has final say and they say “no," unless Hands can write the $150 Million check himself.



Lawsuits of “bad faith" are pending.



Some inside sources leaked to me that Hands has a fail-safe plan; that all the money he needs has already been raised through his private phone book. So far, however, there is no sign of hope. In the past several months EMI has played shuffle the cards with key executive positions, hoping to revitalize the morale at the world's smallest “major label."



How did this happen to such a giant? Well, let's head over the “I told you so" department of Moses Supposes.



LISTEN TO PAPA



In March of 2007, EMI quit the music business. Giving in to tech-biased rhetoric, they yielded to the ridiculous suggestion of a computer inventor named Steve Jobs.



Steve thought it would be a great idea to remove the copy protection from songs sold on his digital store, iTunes, which was responsible for less than 5% of music sales (then). As major labels laughed, EMI would blaze a trail into the internet environment. They thought, hey, we'll be the cool label that let's you give away the music after you buy it. Then fans will respect us.



I wrote then that this move would be the first nail in the EMI coffin. It was. “Fans" bit-torented and ripped through EMI's catalog like an eight-ball in a Drew Barrymore cocaine binge.



From my 2007 article, “The DRM Manifesto":



“If EMI's DRM-free move catches on, the other Major's will eventually be forced to do the same. If Jobs turns out to be right and sales go up, up, up--great, I'll personally issue a mea culpa. But if he's wrong, the Majors will not be able to re-cork the Genie. Their catalogs will be permanently devalued and they will eventually be forced to sell out on the cheap."



I threw out my apology card to Steve months ago.



Is this DRM-free decision in 07 the totality of why EMI will be holding memorial services before the year is out? No, there are a bevy of reasons, but the DRM-free decision was the turning point for the company. It showed that management had its head somewhere else besides making money the way a label is supposed to- selling music, not giving it away or giving in to pressure from ISPs.



ISP propaganda has been coaxing labels to remove all copy protection for years, claiming that it would lead to more “long tail" sales. EMI's failure proves them wrong once and for all.



CDs continue to dominate music sales despite an 11% drop from 2008 to 2009 and a 30% drop over the past ten years. All rhetoric aside, it seems, even ten years into the iTunes revolution, that the scales have not yet tipped in their favor; according to all sales reports, music buyers still prefer disk-shaped albums to virtual ones and would rather own a hard copy than license metadata that contains no tangible liner notes.



EMI's executives may have even realized that the DRM-free move was foolish within six months, as revenue dropped through the floor, staff was let go and then the artists cut from the release schedule. But it was too late. The genie had left the building.



If only EMI had listened to its heart instead of its suits.



WHAT WILL THE END LOOK LIKE



It will happen fast. It may be six to twelve months before the only remaining vestige of the once mighty label is the famous Capitol Records “tower" on Vine Street and Hollywood Blvd, where EMI executives work. This is probably the crown jewel of their non-music related portfolio and if history has its way, it will go Condo in a few years. Who wouldn't buy an apartment where the Beatles used the toilet?



I'm guessing the publishing division will be a bidding-war bloodfest. My money is on Warner. UNI will drive the price up, but ultimately lose out. The only winner here-- Citigroup who gets to eat their young with a side of relish.



Abbey Road Studios will sell to some rich dot-com ex-hippy turned Republican, and the record division... Ah yes, the record division. Well, now that's going to be interesting.



So far there has never been a label in all of the history of the music business that survived well without a publishing arm. How will one with a massive catalog that includes Radiohead, the Beatles and others fare in this game? Will they defy history? Will history defy them?



Again, UNI and Warner will probably divvy it up like a couple of 12 year boys trading baseball cards.



Predicted survivors: EMI's Latin division. Small. Low overhead. Good sales considering the market. They might be working out of the restaurant near the parking structure, but their jobs are safe for the time being.



I for one will miss Capitol/EMI. Their contracts were by far fairer to the artist than most labels and they once had the best A&R on the planet. But the lesson to be learned is the same the banking industry learned recently...



You're never too big to fail.



RIP EMI.



Long live the Big Three.



Moses Avalon

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