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KAI RYSSDAL: Back in the halcyon days of free and easy credit in the global economy, private-equity deals were a dime a dozen. Right before the credit crunch took hold last summer there was a buyout in the music business that’s still playing out. A group called Terra Firma bought the troubled British recording giant EMI. It paid around $6.5 billion, most of it borrowed. And it did what private equity usually does — cut costs and cut jobs. Two thousand employees left — a third of EMI’s global workforce. Some of its biggest stars have joined the exodus, too. From London, Marketplace’s Stephen Beard reports.
STEPHEN BEARD: It must have seemed a great buy at the time, a record company with superstars on board: Coldplay, Radiohead, and the elder statesman of pop.
But eight months on Paul McCartney has quit. So has Radiohead. And other bands could soon be on the run — like Coldplay and the Rolling Stones.
Has private equity picked the wrong product? Music critic Neil McCormick:
NEIL McCORMICK: The product is human. It’s music. It’s ephemeral. It’s creative. And it’s created by people who aren’t easy to guide.
Tough-talking by Terra Firma — and deep cost-cutting — triggered the artists’ revolt. Pop group manager John Webster says the bands worry that the company will spend less money on them.
JOHN WEBSTER: By that we do not necessarily mean huge limousines and first-class flights and things like that. What we worry about is that artists are not going to be given the marketing push that they were expecting.
But some artists may have been expecting too much. EMI, it’s claimed, had been spending $400,000 a year on what it called “fruit and flowers” — a euphemism for sex and drugs.
Ben Fenton of the Financial Times says there was one really bizarre expense:
BEN FENTON: Twenty-thousand dollars a month for candles at an apartment that EMI owned in Los Angeles. Difficult to imagine spending $20,000 a month on candles but, well, that’s rock and roll, I suppose.
EMI also spent heavily on advances, breaking a world record paying Robbie Williams $160 million. He reacted to the deal with all the decorum expected of a rock and roll superstar:
ROBBIE WILLIAMS: I’m rich beyond my wildest dreams!!
EMI can’t say the same. Word has it that a million unsold copies of Williams’ latest album have been shipped to China to make roads. EMI’s fundamental problem, says manager John Webster, is the same for all record companies: the collapse in CD sales because of file-sharing and piracy.
WEBSTER: How do you compete with free? You have a generation growing up that love music still. They just assume that it’s just … there.
The real money, he says, is now in live music, in merchandising, in sponsorship — areas which the record companies don’t control. A major economic shift is underway:
WEBSTER: The record companies who used to hold all the purse strings and therefore the power and were center stage are going to become peripheral. And that the artists and the managers are going to be the people at the center of all these deals.
The purchase of EMI may look like a blunder, but analysts say Terra Firma will sell the recording company and hang on to its fabulous back catalogue, accumulated during the industry’s heyday.
In London this is Stephen Beard for Marketplace.