Citigroup has foreclosed on the debt-laden British record label EMI, home of The Beatles, Pink Floyd, Coldplay, and Katy Perry, among many others. The company was bought in 2007 by private equity firm Terra Firma, but was taken over by Citigroup after it became clear the parent company could no longer service its debt. How did EMI come to this — and what will become of the popular acts it signed?
What is EMI?
The iconic record label became synonymous with the British music scene over the second half of the 20th century. It signed acts such as the Beatles, the Rolling Stones, Coldplay, and Radiohead, and famously signed and then dropped the Sex Pistols. EMI is also the owner of subsidiary record labels Parlophone and Virgin. Along with Universal, Sony, and Warner Music Group, it is one of the remaining "big four" record labels.
When did things start to go wrong?
Almost all commentators agree that EMI's problems started with its sale, for $6.5 billion, to private equity firm Terra Firma in 2007. The new owner's focus on cost-cutting and restructuring prompted the Rolling Stones, Radiohead, and Paul McCartney to leave the label in protest. But that was just the first of Terra Firma's miscalculations. "EMI stands for Electrical and Musical Industries," says Neil McCormick at The Telegraph. But recently, its employees have come to know it as "Every Mistake Imaginable."
What kind of mistakes did Terra Firma make?
Where do you want to start? asks Alain Sherter at BNet. For one, "the timing was lousy." Terra Firma bought EMI "at the top of the bubble," and for far more money than it was worth. What's more, the new owners "swamped EMI with debt," borrowing billions even as the company struggled to remain in the black. As soon as they bought the label, the music industry collapsed — and "EMI sales plunged." Even worse, says the Telegraph's McCormick, they treated their musicians as assets to be streamlined and restructured. That was never going to fly in the "highly volatile and art-centered music industry."
Did this reign of error have any plus sides?
Yes, says Helienne Lindvall at The Guardian. For all its faults, the owner turned EMI "into arguably the most progressive of the major labels when it comes to artist relationships," allowing smaller groups to "create a tailor-made partnership with the label." Terra Firma also forced EMI to become a "fiscally responsible operation," says McCormick at The Daily Telegraph. "It is currently the most profitable of all the major record companies, albeit from a smaller base than its competitors."
So what happens now?
For the time being, the bank will run EMI's operations — bringing the British label under American control, notes Businessweek. Citigroup will eventually sell it off to the highest bidder. "Perhaps most likely is a tie-up with rival Warner Music Group," says Bobbie Johnson at GigaOm. But EMI's problem isn't financial — it's that the music industry has changed fundamentally. "If that merger goes ahead, it will prove that the music industry is as clueless as it ever was" about how to adapt to the new reality.
Will EMI survive?
I doubt it, says McCormick at The Daily Telegraph. "Not so long ago there were over a dozen major record companies, but every few years another one disappears, consumed into the voracious maws of its competitors." Music lovers can only hope EMI's new owners don't carve it up "too brutally," says Luke Lewis at the New Musical Express. "It would be nice if EMI were to be remembered as a much-loved, generation-spanning record label — rather than a dispiriting cautionary tale in how not to run a company."
What about the bands?
Fans of Coldplay and Katy Perry shouldn't be too worried, says music industry analyst Bob Lefsetz, quoted by the New Musical Express. Established artists will be treated well by whomever ends up buying EMI. But new or upcoming acts signed by the label won't be so lucky. "If you're developing, you're screwed."