Jun 10
16
What's Up At EMI and Why It Matters For All Companies With A Legacy.
Amazing to think that it wasn't too long ago that EMI Records ruled the waves…
This was the company that in the '60's brought us the Beatles, The Beach Boys, Gerry And the Pacemakers, Freddy And The Dreamers… Pink Floyd, Frank Sinatra, Dean Martin, Cliff Richard, The Band…
And then more recently artists such as Kim Carnes, Coldplay, The Chemical Brothers, Crowded House, Lily Allen… the list goes on….
Currently the company is in a pretty parlous state by all accounts.
The rumours abound that there isn't enough cash coming in to service the debt from when a hedge fund in the UK bought the company. A month or so ago there were further rumours that a deal to lease the entire catalogue to Sony for several billion dollars for a few years of rights had fallen through…
Over the weekend just gone, I was talking to an old friend who was, at one point in his life, the Managing Director of the company. I asked him if he kept abreast of what was happening at his old alma mater – where he and I had become friends back in the 1970's.
He did and, as only people who have been on the inside can ever know, he shared some insights with me that I found pretty interesting. Not because of what they say about the company, but what they tell you about how management ecosystems work, and why there are such dangers for businesses that you would think would be so utterly bulletproof, and which are not…
So here is the big problem:
Back when the music business was young, artistes got signed for the life of copyright of their recordings. As time went by and the stakes became much more competitive negotiators/lawyers started to get better deals. That meant better royalty rates and it also meant that the period that the masters would be owned by the labels changed from life to a period of time…
While new and great artists were being added to the catalogue there were fresh artists to work with, and there was always the ability to increase royalties and pay advances to extend the period of control that the company had over the masters.
However, once a record company starts to lose market share, and once it has been disrupted by iTunes where there is absolutely no real need for a catalogue artist to have an intermediary standing between it and the consumer, where is the motivation for someone to provide an extended period of control to the company?
In the case of EMI it seems that the Beatles catalogue can't be licensed to a third party without the band's specific permission. In the case of a lot of the artists signed later on, such as Queen and Pink Floyd and others, it seems that the original period of license is coming to an end. What that would suggest is that there is going to be a collapse in the size of the EMI catalogue, which in turn would lead to a collapse in the revenues that will be generated, which in turn would give the company substantially reduced clout in terms of its ability to attract new talent…
You can see where this goes, can't you?
Its got to be a headache of monumental proportions for anyone who is involved in looking at strategy to turn the company around.
So why did it happen?
It happened for the same reason that so many things are happening in so many industries.
It happened first because incompetence was rewarded. “How can that be?”, you might ask. “No one in their right mind rewards people who are useless”.
Well, I am sorry to have to tell you this, but that is exactly what happens when you get management in place that does not want to hear any argument or criticism of the way that it makes decisions. As a result you get what I saw first hand at EMI. They sent a managing director out to Australia to run the business here at one point in time who was totally out of his depth as far as running a creative business was concerned. He was a lovely chap, but didn't understand marketing and didn't understand talent. He understood numbers well enough, though. That was the period when the company in Australia started losing market share… Then they promoted someone who had run one of the factories to run the company. He was even worse – an absolutely dreadful manager, with a poisonous temper and attitude. And so it continued.
But most of that was hidden behind the incredible momentum of a huge company and a growing departure of people who didn't want to work for psychopathic managers. The ones who stayed on were those hardened souls who were prepared to put their heads down and do what was required to keep the boss happy. They were the ones who had mortgages that needed to be serviced and who just weren't confident or foolhardy enough to say, “shove it!”.
Eventually decent management came back into the company and things got back onto an even keel. But this sort of thing must have happened all over the world. The reality of markets and talent was ignored in favour of people with no real ideas or vision.
EMI was not an isolated case. Perhaps the worst time for this was during the period in which the music business was expanding, seemingly exponentially, during the late '80's.
The kind of thinking that leads to this comes largely from big companies believing that they can tough out changes in markets without changing their ways and understanding that new disruptive technologies and innovations don't just change business models. They also fundamentally change the way that consumers think. That change leads to a change in behavior too.
It is this inability to understand the winds of change that are blowing that seems to have brought undone Kevin Rudd, the Australian PM, too.
All over the country, and the world, people are becoming more aware. They know that they can't have everything. But they also know when they are getting the rough end of the pineapple. When the consumers revolt, companies clinging on to old business models need to beware.
It is only through embracing change and adapting to it that a business is able to sustain. Some changes won't be profitable or important, but they need to be considered too. Some changes will be incredibly important. The really hard ones to adapt to are the ones that are likely to be the hardest to stomach – ideas that totally disrupt the very essence of the business itself. And those are the ones that are most important to consider and to work with….