EMI’s Hands Demands Change In Leaked Memo, But Will He Follow Through?
Guy Hands, the head of new EMI ownerTerra Firma told the label’s staff on Friday to "embrace digital or die" in a leaked memo.
Hands described Radiohead’s self-release as "a wake-up call which we should all welcome and respond to with creativity and energy". He also questioned the traditional label model where a few successful bands finance a multitude of bad A&R choices. "Why should they subsidize their label’s new talent roster – or for
that matter their record company’s excessive expenditures and
advances?" asked Hands. 
According to
the Telegraph, Hands is also said to have been surprised at the size of salaries paid to second-tier executives.
His solution? A more venture capital like model where the label finances a release or tour in exchange for a percentage of profits.
COMMENTARY – But will he follow through? In the several months since Terra Firma bought EMI, Hands has hinted at this kind of bold thinking. His solutions seem just what’s needed to turn aroundcthe Titanics that EMI and other majors have become
But thus far, VP’s still occupy dozens of expensive suites and here has been no promise that Hands & CO will fly coach. There have also been no bold aquistions or signings and no new staff brought on with recently proven stripes from the indie sector.
Perhaps I’m too impatient. Hands’ rhetoric is far more focused than that of say Rick Rubin or others charged with re-inventing the major labels. But actions speak louder than words’ and thus far we’ve seen no action.
I believe that Terra Firma can actually effect a change in the industry, as they bring new direction and points of view to an industry that is way overdue for a change and new faces and new ways to do business.
One of the casualties is the industry’s fundamental economics. A record label used to play an important financial role because it fronted the money to record an album, which could cost tens of thousands or even hundreds of thousands of dollars. Now any 14-year-old can pick up a copy of Apple’s (AAPL) Logic Studio for $499 and make respectable recordings. All that’s needed are generous parents or a babysitting gig.
Digital is the new paradigm. Who needs a record label to handle marketing and public relations anymore? Musicians can just set up a MySpace page and talk directly with their fans. Record labels used to help court radio stations, too, to get music on the air. Now you can zip MP3 copies of your first single via e-mail to anyone in the world.
Despite the challenges, record labels still perform some tasks extremely well. The Big Four turn out recordings that are technically pristine, meeting the exacting standards of radio, television, and film that are out of reach for most kids with computers. The labels also can transport these CDs worldwide, stock them at retailers, market them reasonably effectively, organize concert tours, and manage various business functions for artists under contract. “They’re very good at selling a Bruce Springsteen album and getting it everywhere at once,” says Dale Anderson, a Buffalo [N.Y.] journalist who produced independent folk singer Ani DiFranco’s first two records.
Record labels are experimenting with new approaches, too. Part of Bronfman’s new strategy will be to expand revenue sources with musicians so that record sales are but one part of a pie incorporating more frequent releases, touring, licensing, merchandising, endorsements, and sponsorships. Others envision a time when music — a market still showing respectable growth — becomes more of a product, like mobile-phone service or cable television, that flows into your home or telephone at various rate plans. Others argue that music will become free, with record companies and musicians making money from concerts, merchandise, and licensing.
What’s hard to see, though, is how the Big Four can boost their sales and income much in this new era. Manufacturing and distribution costs stand to fall in the digital transition, and record companies will handle numerous business and administrative functions for artists. But the profit bonanza of an $18 CD? Those days are gone forever. Record companies are likely to become geared more toward the commercial aspects of the business and away from the creative side. “They’ll still play an important role. The question is whether they’ll get paid for it,” says Kessler. “They’ll either go out of business or wake up.”
There’s talk of further industry consolidation — EMI was acquired this summer by private equity firm Terra Firma Capital Partners for $4.8 billion. Some analysts have said the industry’s conversion from CD to digital music may be a job best overseen by private owners. Terra Firma has committed to a digital model, as well as reaching out to renewing it’s focus on Artist Relations. Guy Hands has put Caryn Tomlinson in charge of artist relations out of their London Office and Artist Relations North America under Edna Abad in EMI’s New York office. Together, Abad and Tomlinson will continue to grow the relationship based on developing stronger personal ties with the artists and their managers and developing 360 contracts, including music sales, concert revenues as well as merchandising revenues. The move will be from merely producing a hit record to managing an artist’s career with them.
Not that CDs will become rare anytime soon. For all its online experimentation, Radiohead is expected to put the new record out on CD next year, shortly after the band ships an $82 “discbox” of album art, vinyl LPs, and eight bonus tracks. Another group, the Charlatans UK, will give fans its new record for free in 2008, with the first single coming Oct. 22 as a digital download.