Intrigue In Major Label Land

So now that Citibank has taken back EMI from the investment group Terra Firma for non-payment, what now? It's almost certain that Citi will sell off EMI's parts to cover as much of the debt as possible (they've already written off about $3 billion), but who are the buyers?

It's said that Warner Music Group really wants EMI publishing badly, but they have a problem as well. Apparently the company that bankrolled Edgar Bronfman Jr to buy Warners in the first place, Thomas Lee Partners, wants out badly and has hired Goldman Sachs to find a buyer. So how does Warner buy something when they're up for sale themselves? With help from a Russian oligarch, that's how.

Apparently Leonid "Len" Blavatnik, who's on the Forbes list of billionaires with $7.5 billion in net worth, is big buddies with Bronfman and it's been reported that he may fund the sale of EMI and buy TMP out of the deal as well. Warners would then sell off their own publishing arm, Warner Chappell Music, to KKR/BMI Rights Management, and be a lot stronger than before, thanks to a new publishing catalog that features The Beatles and Pink Floyd, among others.

But don't be surprised if the other remaining labels, Universal Music Group and Sony Music, have some say into this as well. Even though Universal is more about current music as opposed to catalog, they do own the major market share of today's music business, and would find such a piece as EMI Publishing too savory a tidbit to pass up.

So there's a lot of intrigue in major label land as they all jockey for position at the top of a hill that's getting smaller and smaller every day.

-----------------------------------

You should follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.

Help support this blog. Any purchases made through our Amazon links help support this website with no cost to you.

What The Beatles On iTunes Means For EMI

I received a couple of emails today regarding how The Beatles music finally being offered for sale on iTunes will affect the future of EMI, the major record label currently under siege, so I thought I'd expand on my response that I personally made to them.

First of all, despite what everyone may think, EMI did not go bankrupt. The company was purchased by the private equity firm Terra Firma with money borrowed from CitiBank, which Terra Firma could not pay back. Instead of trying to renegotiate the deal, Terra Firma sued Citi, claiming that the bank tricked them into paying too much for the label (what a wacky premise), but lost the case last week. Now Citi wants to liquidate EMI to get its money back, which may begin to happen soon.

A popular misconception is that EMI kept The Beatles off of iTunes, but that wasn't the case at all. In fact, it was the remaining Beatles and their company Apple Corps (not to be confused with Apple, the computer and iTunes company) that said no for so long. Even though EMI owns the master recordings, the band has veto power over new uses of the masters. Although it's been thought that the band and Apple Corps were too old-school anti-technology in their thinking, the real reason has been speculated that the band was unhappy with the terms demanded by Terra Firma, which if true confirms that this was a company that had no reason being in the music business in the first place. Of course, another reason to hold out this long is that all parties make more money on CDs, but that market's been saturated for some time now.

So what does the new deal with iTunes mean for the future of EMI? In the short term, this will help EMI greatly thanks to a quick infusion of cash, but will probably not change the ultimate future of the company too much. In fact, it might even hurt it a bit, since a prospective buyer no longer has the upside of the initial iTunes offering to look forward to (although they can look forward to the possible release of Bob Seger, who is still holding out on digital downloads).

Regardless, soon enough EMI will be purchased for pennies on the dollar and most likely disappear into history. The next legal battle will be over what happens to the master recordings of The Beatles, Pink Floyd, Bob Seger, Queen and other major artists if the label is sold, since it's thought that many of those masters will revert back to the artists if that should happen, thereby bringing the price down even further.

-----------------------------------

Follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.

Soon EMI Will Be No More

We're seeing the last days of the venerable record label giant EMI pass right before our very eyes. Very soon, the music industry will be left with 3 major record labels (Sony, Universal and Warners) as EMI winds down in a slow, painful death by sell-off.

A short recap on how EMI got to this point. The label was purchased by the hedge fund Terra Firma a few years ago thanks to a big loan from CitiBank. The problem was that Terra Firma bought them at the very worst time, just at the time when the price was highest before the recession hit, and paid way perhaps twice as much as the company was worth.

Before you know it, Terra Firma couldn't make the payments, so they resorted to good old fashioned lawyering to try to get them off the hook. They sued Citi for supposedly "tricking them into borrowing more than they needed" to pay for the company. This is like asking to borrow a $1000 to buy a guitar but the bank telling you "I think it's worth more than that, so here's $4000 instead." The banks have been loose with their money in the past, but in a huge deal like Terra Firma/EMI, they do a thing called "due diligence," which means that they check things out in detail before they lend the dough.

Last week, Terra Firma lost their lawsuit, which means that EMI and all their assets will soon become the property of CitiBank. Citi doesn't want to own a record label and publishing company (thankfully) and wants the dough instead, so that means that it will probably soon break up EMI and sell the parts.

EMI owns some of the worlds most valuable copyrights (The Beatles, Pink Floyd, and Bob Seger to name a few) and it will be interesting to see if those rights will revert back to the artists or be available to be sold, so expect some additional court battles. In the meantime, look for the assets like the historical Abbey Road and the Capitol Tower to be sold as well (who knows what will happen to them), as a great piece of history dies with EMI.

Of all the labels to go, I think that EMI is the one that hurts the most. It's legacy as one of the industry giants and a home of music legends stands tall, but like Columbia Records before it, will soon be forgotten.

Thanks to everyone who made my two sessions (Social Media For Musicians And Engineers) and book signings at AES in San Francisco over the weekend a success!

-----------------------------------

Follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.

10 Most Disastrous Music Industry Deals

The every insightful and entertaining Digital Music News had a great article today on the 10 most disastrous music industry deals, that I thought was worth sharing.

-----------------------------------
It's been a rough decade. Digital Music News dove into the archives for the ten most disastrous deals of the past ten years....

(1) Terra Firma's acquisition of EMI, $4.7 billion (2007)
Even Guy Hands (the embattled chairman of private equity investor Terra Firma) admits he made a colossal mistake on this one. One of the last super-leveraged buyouts before the bust, EMI has now become a $4.7 billion-plus toxic mess for Terra Firma.

(2) CBS' acquisition of Last.fm, $280 million (2007)
Scrobbling is cool and all - and this is still a very cool site - but few would "recommend" this deal today. Amidst predictable ad monetization challenges, the company has since switched to pay-only in certain European countries, outsourced full-length videos, and bid adieu to the original founders.

(3) Bertelsmann's investments in Napster, $100 million (2000-onward)
In retrospect, Bertelsmann was the forward-thinking maverick. But in the moment, that stance created a legal sinkhole for the company, accused of facilitating widespread infringement by keeping the P2P alive. The in-fighting lasted years before expensive settlements torpedoed Bertelsmann with hundreds of millions in losses.

(4) MP3.com acquisition by Vivendi, $372 million (2001)
Before MySpace was even conceptualized, MP3.com was setting huge records for IPO valuations, label lawsuits, and band profiles. Problems quickly followed the inflated purchase, and the site was quickly dumped by Vivendi Universal in 2003.

(5) The Robbie Williams 360-Degree Deal, $160 million (2002)
Williams loves being able to walk the streets of Los Angeles without being recognized. EMI, which structured the pricey deal, is somehow less thrilled by that freedom.

(6) The Sony BMG Joint Venture (2004)
The 50-50 JV (joint venture) was like "tying two sinking rocks together," according to one executive, and this seemed like a dead weight from the beginning. Bertelsmann walked away, and the combination was ultimately purchased by partner Sony Music Entertainment by 2008.

(7) WMG's Investment in Imeem (2009)
"We do not intend to make more digital venture capital investments," WMG chairman Edgar Bronfman told investors after suffering a $16 million write-off on Imeem in 2009. MySpace subsequently scooped the property for well under $1 million.

(8) WMG's Purchase of Bulldog Entertainment, $16 million (2007)
Bulldog Entertainment Group was best known for coordinating tony concerts in the Hamptons. The company eventually cratered with estimated losses of $30 million.

(9) Any Deal Involving PlaysforSure...
This was a mistake that caused endless suffering, for music service (Yahoo Music, MTV Urge, Wal-Mart), player (Sony, SanDisk, Samsung), and consumer alike. In fact, even Microsoft bailed on its DRM-heavy solution with the launch of Zune.

(10) Best Buy's Exclusive on Chinese Democracy...
Some comebacks are better than others, and Best Buy was left carrying a truckload of Guns N' Roses CDs. That did little to kill the big box exclusive, however, as plenty of big-name artists have used the concept to shift serious tonnage.

-----------------------------------

Follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.

EMI Trying To Spin Off It's Parts

As noted in a number of previous posts, EMI Records has been in pretty tough straights since it was purchased by investment fund Terra Firma a couple of years ago. The reason was the TF played fast and loose with Citibank's money, who put up most of the funds for the sale.

Now Citi wants its money and TF doesn't have it, so EMI has been in a slow death spiral. It can't pay it's bills and it can't get new artists or keep old ones since they have no money for support. What can they do? Sell off parts of the company, of course.

EMI recently tried to sell it lucrative publishing arm, but the sale was stopped by Citi. In the end, it will eventually happen anyway (it's publishing an catalog are the only things worth anything these days) as this once giant of industry dies a slow and unbecoming death.

But one thing it can sell is the revered Abbey Road Studios, according to an article in the Financial Times. The studio was purchased in 1929 for about $160,000 but reportedly will bring in tens of millions of dollars, since the brand name is worth far more than either the studio or real estate. That will hardly put a dent in the more than 5.5 billion dollars still owed to Citi, but the studio is bound to prosper more away from EMI than within it. If you're not much into music history, Abbey Road is where some of the biggest selling records of all time were made, including most of The Beatles recorded output, Pink Floyd, Radiohead, and many many more.

So if really want to buy a studio, take a tour of Abbey Road.



If you read my Big Picture blog, sorry for the cross-post, but I thought the topic fit for both.