Last April EMI made headlines worldwide with its decision to allow Apple's iTunes music store to sell its songs without the anticopying measures called DRM (digital rights management) that had become more or less standard for major digital retailers. Industry pundits had long considered DRM a dead end in the evolution of online retail because it punishes legitimate consumers by restricting what they can do with music they've bought but doesn't have any effect at all on pirates trading in unlocked files. It's also a waste of money, since DRM schemes are expensive to develop and implement and every one so far has been hacked, sometimes within hours of its introduction. Going DRM free was a coup for EMI—it could recast itself as forward looking, tech savvy, and consumer friendly. At the time it seemed a good sign, but other big players quickly followed suit, stealing EMI's thunder—and since then there's been nothing but bad news for the label.
This summer the private equity firm Terra Firma acquired EMI for $6.25 billion, capping a year in which the label lost more than $500 million. This development provoked mixed reactions in industry circles. On one hand, it was heartening that someone—anyone—was feeling confident enough about the ailing mainstream music biz to invest in it. On the other hand, Terra Firma's experience was in renting jets, managing natural gas pipelines, running pub and hotel chains—seemingly everything but music. It was assumed that, because the company wasn't part of the culture that tolerates the notion of "nurturing" talent (that is, taking a loss on new artists), its bean counters would have no compunction about cutting costs and slashing jobs.
It was a well-founded fear. Two weeks ago Terra Firma head Guy Hands announced that, among other changes, signing bonuses for artists would be capped and as many as 2,000 EMI employees—about a third of the label's staff—would be laid off. He painted a dreary portrait of an industry where failure is the norm, complaining in the Financial Times that EMI loses money on 85 percent of its artists and routinely overships by 20 percent, requiring the outlay of nearly $50 million a year to scrap unsold inventory. Just days after news of the layoffs broke, Hands acknowledged that more than a million unsold Robbie Williams CDs had been bought by a firm that intended to recycle them into paving materials in China—surely a bitter pill for the label that reportedly paid more than $150 million to sign Williams in 2002.
Historically EMI has had lousy luck developing top-tier acts and a downright terrible time breaking its biggest artists in the States. For every Coldplay, it signs dozens of bands like the Good, the Bad & the Queen, which may attract superlative reviews but don't succeed by major-label standards. Even while EMI was getting love for ditching DRM, many commentators pointed out that the move was a mixed blessing given the label's mediocre roster—its biggest asset, the Beatles catalog, wasn't part of the deal.
EMI's stock, which had fallen to about $8.50 a share before the buyout, briefly peaked at around $11.50 afterward—investors love to hear about layoffs. Now it's sagging again. But investor confidence, or the lack of it, may not turn out to be EMI's biggest problem. Artist confidence was dipping even before Terra Firma showed up—Radiohead went feral in 2004 after declining to renew their deal, and in March Paul McCartney signed with Starbucks' Hear Music label—and it's plummeting now. Robbie Williams, the Verve, and Coldplay have all threatened to withhold their next albums, citing the layoffs and concerns about the new management. The Rolling Stones announced earlier this month that they're taking their next record to Universal. And Radiohead, who released In Rainbows online via a paradigm-shattering pay-what-you-want program, said last fall that Hands and company were the reason TBD Records and XL Recordings—rather than EMI—were granted the privilege of pressing the album as a physical CD.
If EMI folds, it'll cede a chunk of market share (and probably a few orphaned marquee acts) to the surviving majors. But that advantage will do them about as much good as a few extra deck chairs on the Titanic. EMI may be especially vulnerable to artist defections right now, but the root cause of the label's ills—the decline in major-label CD sales due to a proliferation of viable alternatives to the established business model—affects everyone who's playing that high-stakes game.
Sony BMG will make some money from In Rainbows because TBD is one of its many subsidiaries, but a huge chunk of the band's fan base is already out of the market for a CD thanks to the download. And while nobody is publicizing the details of Radiohead's deal with TBD, the bidding war that preceded it almost certainly earned the band an extraordinarily generous percentage. It's becoming clear that decisions about the future of the music biz won't be made by the majors but by consumers and artists, and the big labels are getting uglier as they get more desperate. They've tried to scare the public away from new markets and technologies, using the RIAA as an attack dog to bring tens of thousands of file-sharing lawsuits. Artists who buck the system can hardly expect to be treated graciously either—EMI punished Radiohead by putting out deluxe editions of albums from the band's back catalog without their approval after the release of In Rainbows.
In October Madonna ended her relationship with Warner Brothers to sign with concert megalith Live Nation for a ten-year "360 deal," which covers not just new music but merchandising, touring, sponsorships, film appearances, and the like. Other big artists who aren't on EMI, like Trent Reznor, have joined the chorus of acts vowing to "pull a Radiohead." And even if no other heavy hitters walk away from the system, it's likely that in the next couple years tens of millions of albums that once would've put money in the majors' pockets are going to be sold without them. The Big Four should be worried about their obsolescence, not about losing prestige acts. Universal made a lot of cash off Soulja Boy, but they must know they lucked out—he was a phenomenon that happened through YouTube, MySpace, and file swapping rather than the traditional channels, and Universal was just in the right place at the right time. It's not hard to imagine the next smash ringtone single coming from someone savvy enough move a million units without a major label. If EMI and the other majors want to exist in ten years, they'll have to change radically—and seriously downsize their sense of entitlement. They might end up virtually unrecognizable, but I know lots of bands—and lots of fans—who think that'd be a good thing.
In last week's review of Rhymefest's mix tape Man in the Mirror I incorrectly described the between-song skits as conversations between Rhymefest and a Michael Jackson impersonator. Fest was actually "talking" with excerpts from old MJ interviews. v
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