EMI’s Deal With the Devil

Bankruptcy brings out the worst in media companies.

Take what Terra Firma Capital Partners is trying to do to avoid handing its failed EMI record label over to Citigroup now that it cannot repay its loans.

Terra Firma operated by Guy Hands would rather license their artists (or as I call it, whore them out) than let the big bad Citigroup wolf take possession of their company.

That’s a far cry from American bankruptcy where the likes of Citadel and Regent can hardly wait for the big bad wolf to huff and puff and blow the house down.

Of course, in the case of Citadel and Regent, its principals get sweetheart deals while their shareholders get screwed.

What's not to like?

But Guy Hands has more ego than even Fagreed Suleman who earned his nickname by paying himself tens of millions of dollars for a job that should have paid him $1 million at best.

A Wall Street Journal article estimates that EMI’s deal to license its artists to rival labels could earn them $150 million a year. The question is, is that enough to get Citigroup off of their backs?

Warner, Universal and Sony could then cease being EMI competitors and become cozy buddies.

Such a deal.

Imagine if Regent and Citadel could license their radio stations to Clear Channel to avoid running into their loan covenants.

I'd better shut up. Don’t want to give them any ideas.

I wonder how long it would be before undue influence would be asserted on the product before it was created? How many cooks in the kitchen would spoil the marketing meal? Before the licensee starts telling EMI's artists what it wants.

Terra Firma has been trying to sell the other three big labels on their rent-an-artist idea for some time now.

This brings me to the question -- why do EMI artists need EMI?

Or a better question -- why do artists need record labels in a digital age that labels have resisted?

Imagine The Beatles in the hands of Sony.

Or Pink Floyd at Warner.

Great for Sony and Warner, but The Beatles interest and Pink Floyd’s interest are best served by what now?

In other words, it's EMI’s last act of desperation. All about them and their financial problems. Not at all about what is good for their fabulous stable of artists.

Ship their artists off to the competitors they probably should have signed with in the first place and don’t worry about the contracts they actually have with these groups and artists.

There is a real question as to whether Terra Firma can pull this hoax off fast enough to pay Citigroup. And whether such a cockamamie deal can clear U.S. antitrust law.

I know. I know.

Just about everything gets through the antitrust approval process. But EMI cannot be sure.

You know when you don’t like the rules, just throw them out.

Not a merger, okay.

Not an acquisition, fine.

And this generation of corporate boob makes fun of young people for wanting what they want when they want it.



Then there is the small question of whether the lender – you remember, Citigroup – would approve this licensing scheme.

The Journal article said, “Citigroup likely would approve such a deal only if it were seen to be in the long-term interests of EMI shareholders. A person familiar with EMI's stance said it may not need approval”.

That’s another extenuating circumstance.

How do these desperate CEOs come up with this stuff?

Terra Firma has its fingers firmly stuck in the dyke to prevent a flood of artist departures from its company. Pink Floyd was involved in a successful lawsuit against EMI for chopping up and selling off digital tracks from its albums that were intended to stay glued together as, well – you know – artistic expression.

Pink Floyd is also thought to be shopping record labels.

The Stones and Radiohead have already escaped EMI’s control since Terra Firma bought the label.

With all due respect to water analogies – and references to land (terra firma, Latin for “dry land”), there are other artists looking to leave EMI’s sinking ship.

And it’s not like the other big three labels are all that solvent.

Warner is playing fantasy sports with the thought of buying EMI for pennies on the dollar. Just what the music industry needs, two blind mice becoming one.

If the record industry is this lost – and it is – then why do artists need them?

They don’t.

Or soon won’t.

The labels need artists for catalog items. The record industry long since gave up its quest for music discovery.

Together, the labels through their mouthpiece the RIAA have collectively sued their consumers to stop piracy resulting in more piracy.

They can’t see that exposure is the drug that should intoxicate them, not the cutbacks and taxing of the radio industry that arguably made them their profits for decades through free exposure.

These four "brilliant" labels that constitute your record industry have single-handedly done more to stifle the growth of Internet and mobile streaming through unfair charges, taxes and royalties than anyone else.

In effect, hurting their efforts to win exposure of the one thing they have to market – music.

It doesn’t surprise me that companies like EMI turn to the same old tactics that got the record industry into trouble in the first place.

Incompetence and denial.

Terra Firma should be called Terror Quicksand.

Quicksand is defined as “loose wet sand that yields easily to pressure and sucks in anything resting on or falling into it”.

You watch – this bonehead move by EMI will suck in anything resting on or falling into it.

Warner, Sony and Universal -- I'm talking about you.

For those of you who would prefer to get Jerry's daily posts by email for FREE, please click here. Then look for a verifying email from FeedBurner to start service.
Thanks for forwarding my pieces to your friends and linking to your websites and boards.