GaGa as Head of EMI

The hottest thing in the music business is Lady Gaga.

The coldest thing is EMI.

EMI is now saying that it may not be able to operate as Terra Firma’s $6.5 Billion acquisition without seeking bankruptcy protection (corrected figure from earlier editions).

Never mind Katy Perry or the Beatles catalog. Chairman and founder Guy Hands has written to investors asking them for more money to pump up his latest survival plan.

Even if Hands comes up with the money, it could be a short fix. There is another major shortfall of cash expected by March of 2011 when loans become due.

Citibank (or as as Bill Maher calls it “Shitty Bank”) could be your next Clive Davis (at least in their minds).

Obviously to readers of this space this sounds all too familiar.

When radio consolidators or big-eyed record industry entrepreneurs buy companies at high interest rates, there is only one thing they can do.

Refinance at higher rates (like Lew Dickey has done at Cumulus).

This passing of the financial buck eventually leads to hitting the wall (as Citadel has done).

It all doesn’t matter in the end.

Citadel will never be a viable radio company again, but the sum total of its parts may be worth fees and liquidation payments for its soon-to-be creditor/owners.

Radio will not become a growth business again – not with new media making its move and the next generation clearly preferring new media.

But imagine for a minute if a traditional record label could be run by someone who actually knows the beat of today’s record industry.

Enter Lady GaGa – Stefani Germanotta.

Yesterday I wrote about Undercover Boss (the new hit CBS reality show) and how most radio executives at the top of their companies don’t know how to run a station yet that doesn’t stop them from running it into the ground from ignorance and arrogance. Same with record label execs.

Nonetheless, I like what GaGa is doing.

The smartest music industry man I know is Steve Meyer and he had an excellent piece in his publication the other day. Meyer said “if you want to sell more music, this is the way to do it” and it was Lady Gaga he cited as an example.

She has two albums in the top ten every week (“The Fame” and “The Fame Monster”) along with the number one single “Bad Romance”.

Gaga sells albums – that’s curious, isn’t it – in an industry that blames cherry-picking iTunes consumers for the labels’ inability to sell albums.

As Meyer reminds us:

“Universal Music Group has created two deluxe CD packages on Lady GaGa: one a deluxe 'Fame' CD set that includes a total of 21 tracks (all the tracks from both the 'Fame' and 'Fame Monster CDs' together); and a super deluxe limited edition and numbered package (and more expensive, but an incredible package nonetheless) in a box that includes the same CDs, pull-out posters, puzzles, 3-D glasses, copies of the sketches Lady GaGa made for outfits she's created, a beautiful book, and more”.

So, GaGa sells more albums, more tracks and the new songs produced for “Fame Monster” have generated 3 million sales according to Nielsen SoundScan.

Lady GaGa is a creative breath of fresh air for the pop music business – her bigger than life, costumed and over-the-top persona just happens to fit well with her talent and she has plenty of that.

What the record industry fails to get is that selling music is still possible, but not under the old model.

Here are a few observations:

1. Make the artists’ music available free for sampling (think of it as new age radio) and consider streaming sites another example. The labels will ruin streaming sites by trying to charge money for them and that strategy has clearly failed. So rule one – get the music out there so fans can get happily involved with it before you ask for money. Just like they did in the days when radio made the hits.

2. YouTube is your friend. Most consumers can watch videos for free on YouTube and get comfortable with an artist. Because they see it for free does not mean that they will not buy music and products from their favorite artists. So rule two, forget the predatory thinking that makes labels insist on cash while fans are becoming enthusiastic about their artists. Remember, before a music fan bought a single or vinyl album back in the day, they had first heard it (or part of it) many times before making the decision to own.

3. Offer a variety of ways consumers can buy their favorite artists. If they want CDs, make them available the way Universal has done with GaGa.

4. Keep the different packages coming. Steve Meyer says, “I imagine there will be a DVD of Lady GaGa's 'Fame Monster' tour when it ends. And I imagine the package for the DVD will be as engaging as the CD packages”. Rule four, once you’ve hooked the fan, keep the bait in the water.

In the end, the music industry would have you believe it is dying because of new media, the economy, the Internet, mobile devices and those bastards who are stealing us blind using illegal downloading.

But there is evidence all around us that the music industry is dying even as music is soaring in popularity and that label execs who cling to the old way of doing things are actually hurting their own fortunes.

The only reason Citi is going to become the new record impresario is that label execs appear to know even less than dumb bankers.

Therefore, look to Stefani Germanotta for help.

Energize the fan base. Do as Universal did and cooperate with the inevitable making it easier for fans to buy all things that have to do with their artists.

It’s ironic that label execs embraced the 360 deal concept tying up every aspect of their artists’ earning ability in the hopes of finding renewed revenues for their companies.

In reality while they demanded 360 from artists, label execs never adjusted their own thinking from 180 and from that limited perspective they find themselves making decisions where they can’t see the future – suing consumers, blaming free downloading for their misfortunes and cutting back the pursuit of artists like GaGa that are ready-made to sell music.

Music survives in spite of its leaders and as some of the labels lose operating control to the banks that were all too happy to prop them up, it is actually the artists who know their way out of this mess not bankers.

Oh, one more thing.

The RIAA is not retreating from its position that high damages should be paid in the few cases where they have prevailed in court against pirates.

Sell music or win damages?

GaGa knows what to do.

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