Full Text Of Leaked Guy Hands’ Letter To EMI Staff
We’ve all seen excerpts and the news reports, but now we’ve got the fill text of the leaked
letter from Terra Firma chief Guy Hands to his troops at newly acquired EMI. The subject is Radiohead, but the underlying message is clearly that drastic changes lie ahead.
You can read the full letter after the jump, but an excerpt that we had not seen elewhere:
"EMI Recorded Music still has value to the vast majority of artists – in funding their development and in distributing and marketing their music – but highly successful bands have other alternatives for making money (such as touring) and a few, especially the more established ones, may be able to abandon their label and try to go it alone. You can see why they might choose to do so…"
This according to our sources is the full text of Guy Hands letter to EMI staff.
Dear all
RADIOHEAD
As you know, Radiohead, a band with whom we have enjoyed a long and productive history, have decided to release their new album, In Rainbows, directly to consumers via their own web-site. They have also allowed fans to download the digital album at a price to be set by the consumer. While some recorded music executives and other firms have expressed shock and dismay at this development, it should have come as no surprise. In a digital world, it was inevitable that a band with the necessary financial resources and consumer recognition to be able to distribute their music directly to their fans would do so. Radiohead is one of the most iconic, original and successful bands in the world, and one of the few with a fan base large and devoted enough to support the costs of such an initiative.
However, whilst most bands, including many successful names, will not be able to – or want to – follow in their footsteps, there are some important lessons to be learnt which support our analysis of what needs to change in the recorded music business model and which many of you have touched on in your letters and emails to us since Terra Firma bought EMI.
In this note, I want to address what Radiohead’s decision means for EMI and what it means for artists generally.
For EMI, this is a welcome reminder of the new digital world in which we operate and the need to focus on the services we provide to our artists. Those artists break down into three categories:
• Those who are already established and in whom we have invested heavily;
• Those with whom we are working to make really successful; and
• New, start–up bands.
EMI needs business models which work for all three categories, the reality being that the vast majority of the third category will fail to achieve commercial success and have historically been cross-subsidised by the first category.
EMI Recorded Music still has value to the vast majority of artists – in funding their development and in distributing and marketing their music – but highly successful bands have other alternatives for making money (such as touring) and a few, especially the more established ones, may be able to abandon their label and try to go it alone. You can see why they might choose to do so. Why should they subsidise their label’s new talent roster – or for that matter their record company’s excessive expenditures and advances – particularly when they are providing income to their record company through their catalogue sales?
We will need to give artists at all levels a deal that is fair to both sides, perhaps one that moves away from the large advances model of old and provides a true alignment of interests and transparency.
However, for every artist being signed to us, regardless of level, we need to deliver them maximum value and a world-class service; we need to develop products that the consumer wants. We need to develop revenue streams both for our artists and for EMI that come from many channels and not just from CDs. We need to be best in class at identifying and developing these revenue streams where best in class is not being judged against the recorded music business, but against international businesses of all types. We are determined to do so and to ensure that EMI Recorded Music has the people with the skills to provide such a worldwide service. It is only by doing this that we will be the best home to musical talent and the most innovative and creative music company.
In effect, the recorded music business needs to become more like the music publishing business which provides its writers multiple opportunities for distribution of their product in order to maximise copyright fees and royalties. In this effort, EMI publishing continues to be at the forefront of innovation and provides a broad range of services.
The recorded music industry, while seeking to develop some of these services, has for too long been dependent on how many CDs can be sold. The industry, rather than embracing digitalisation and the opportunities it brings for promotion of product and distribution through multiple channels, has stuck its head in the sand. Radiohead’s actions are a wake up call which we should all welcome and respond to with creativity and energy.
If you have any comments, please do feel free to email me as usual.
With best wishes
Guy
Sounds like a memo that was written to be leaked…
Why are you positioning Flom as the knight in shining armor to save EMI in North America? EMI is an international organization first and foremost. This duffer cannot see past the US mainland. He does not have a legitimate entrepreneurial bone in his body nor does he have the financial discipline or administrative acumen to be EMI’s North American Chief (not to mention the head of the recently formed Capitol Music Group). He is a jammy, silver spooner that always had money from day one, partied extensively in the 80’s and 90’s, went to rehab, had the backup of father-lawyer-power broker Joe Flom for protection (along with Azzoli, Morris et al). He is old guard that cares more about how he looks rather than the company and its employees.
EMI has been in a state of flux post the ejections of Levy, Munns (who appointed Flom), Slater, Gavin and the defection of Bandier. This has allowed Flom to fly under the radar of real financial scrutiny as the priority was to get the Terra Firma deal done post haste. The focus was on this transaction not what Flom was doing in the States. If Gavin was left in place (at least for the transition period) he would have put a stop to alot of the heavy spending that has artificially made some of Flom’s records look successful. This is someone that should be in a leadership position?
Jason was always protected in his 26 years at Atlantic. When he had a big record it was forced then as his ‘big’ records are forced now. He is not building any long-term careers. Do you really think that Red Jumpsuit Apparatus has been a profitable venture? That record along with 30 Seconds To Mars (who he inherited) and many others have all been pushed through the system using the old paradigm. Has anyone looked at the recording, video and promotional expenditures? These will not be career artists nor will their follow up albums have any traction. They mean nothing internationally. He has not built or associated himself with any career artists at EMI. The financial pit that he is digging will only deepen.
Jason needs platinum records to justify his existence and ego among his music industry “executive” peer group. He is already wealthy (from birth and Bronfman’s payoff to get him out of the building). He has no incentive to be thrifty. He wants the accolades. He wants the red carpet. This is not the discipline necessary of a leader in this industry’s current age. Without his RIAA endorsed plaques he sees himself as a loser, an outsider, someone who has gone cold. Do you really think it will take the private equity finance brethren at Terra Firma more than a few minutes to figure this out. They want profitability. That is their certification. That is the credo that they abide by. If you look at the top 5 releases that Flom has taken credit for since taking his post you will see that all have been financial misfires. Misfires using EMI’s money to make himself look good, at the expense of the company.
What about A&R? Very overrated. His historical knack for finding bands was entrenched in using phone research and/or spotting regional airplay on small labels and scooping from that trough. Would a more effective model (assuming you subscribe to this form of talent scouting) not be to hire real, mathematically inclined statistical analysts utilizing customized software tied in to web metrics fractionation?
Executive team? One only needs to take a look at who he has surrounded himself with. Bring them across the pond and they would be immediately detained at Her Majesty’s pleasure!
Digital? Bloody awful. There is no expertise here. This bloke is still living in the 1990’s. He is just another recycled relic of the old machine. Mr. Hands, make changes before another English institution is flushed down the loo.
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.
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.
It’s amusing to see this as a ‘leaked’ internal email. It is clearly written as a press release. But having it ‘leaked’ gets more attention to it then just distributing it through PRWeb 🙂