VideoIt was pop-music history in the making. Last summer, as Europe melted in a heat wave, crooner Robbie Williams scorched all records with his three-day sell-out concert at Knebworth, a 15th-century Tudor estate in the English countryside. As part of a 21-date European tour, 375,000 fans packed the concert venue, while an additional 3m people turned on their TVs to watch one of the three live performances. Riding the high of the UK's biggest-ever concert, EMI, Williams' record label, quickly released Robbie Williams Live at Knebworth, which became the fastest-selling CD of a live performance in the UK, as 118,000 units flew off record store shelves within the first week of its release in September. A hugely successful DVD followed. For EMI, the cash registers were humming.
So it wasn't surprising, then, to see CFO Roger Faxon looking relaxed and cheerful, as he whipped through the UK record company's interim numbers at a presentation in London in November. What the 54-year-old American lacked in Robbie Williams-style glitz, he made up for with happy financial news. The highlight: year-on-year sales in the six months to September 30th at the main recorded music business held steady at £760m (€1.1 billion), despite a 10% industry-wide slide in sales, and outstripped financial analysts' forecasts.
EMI's finance chief was clearly pleased to see the pay-off for the long months of hard work, of which the Williams concerts were just a small—albeit dazzling—part. Faxon had completed a successful debt-servicing programme, while also pushing through a tough internal restructuring and cost-cutting regime. What's more, a bevy of deals with legal online music retailers to give consumers easier access to its digital catalogue of artists—Coldplay, Norah Jones, Radiohead, Kylie Minogue and Paul McCartney, to name a few—was putting EMI ahead of its larger rivals in the race to exploit the latest music distribution channels.
The November gathering was a far cry from the presentation EMI gave nearly two years earlier. On February 5th 2002, the day EMI announced Faxon's appointment as group CFO, chairman Eric Nicoli delivered a profit warning and explained how EMI was hurting along with the other music heavyweights—Vivendi's Universal, Time Warner's Warner Music Group, Bertelsmann's BMG and Sony. The boom years were over. The industry's growth trajectory ended long ago and, starting in 2001, all the big labels had been reporting heavy losses. EMI would end its fiscal year in March 2002 with a decline in group sales of 8.5% to £2.5 billion and in group Ebita of 42.6% to £191m.
The industry's sin? Was it, as Larry Kenswill, president of Universal Music's eLabs unit, put it last summer, that "the music industry refuses to acknowledge the public's perceived God-given, inalienable right to free music"? Probably not. Its woes go far beyond enemy number one—music piracy. Fast-changing consumer tastes, shrinking margins and the general economic downturn were all hitting the music business hard.
Pop Flop
Given that backdrop, EMI's turnaround seems to have all the makings of a chart-topper. As one industry expert says, EMI might come out of the current slump as the best-managed of the music companies. But just like its rivals, EMI isn't yet out of the woods. The record labels are still trying to come to terms with the irony that, despite their woes, "music consumption is probably higher than it's ever been," says Mark Mulligan, a London-based senior analyst at Jupiter Research. He cites not only piracy in all its forms, but also legitimate downloading, computer games, DVDs and mobile-phone ring-tones among the many ways that music is now consumed.
With the traditional music business not expected to recover for at least another year, theories abound about the future shape of the industry. Some experts predict that the Williams concert is a sign of the times—big revenue streams coming from multi-platform exploitation of mega-star contracts. Alternatively, given that digital downloads are now outselling traditional singles sales, some analysts see the industry moving inexorably towards an all-digital world.
Of Renoir and Radiohead
Faxon learned early on how fast the music business is changing. From the company's slick, new headquarters in west London's Kensington neighbourhood, he recalls what he faced back in February 2002: Alain Levy and Martin Bandier, the respective heads of EMI Recorded Music and EMI Publishing, needed help restructuring their businesses. Along with a pile of debt payments that needed his immediate attention, £100m of cost savings had to be found, including cutting nearly 2,000 jobs (20% of headcount at the time) and its roster of artists by 400 (25% of the total). Though hardly radical in other industries, Faxon's steady focus on these tough cuts had rarely, if ever, been seen among the music majors.
However, with those immediate tasks done and dusted, it's the longer term changes that will prove more vexing for Faxon. "EMI has been demonstrating good discipline, not just looking at market share, but also at profitability," observes Trevor Pritchard, a media analyst at Standard & Poor's. "But to be able to repeat that year after year as [old-line music business] continues to decline is really quite tough." The challenge for Faxon is to change EMI's old-fashioned business model to one that can deliver sustained, profitable growth—and do it quickly.
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