Faxon has been here before. He spent the 1980s in senior marketing and operational roles in the turbulent film industry. While at Columbia Pictures, he found "a business that had lost its creative way and needed to focus on fewer, more creative products." The solution "was about marketing for everything but the creative, and about how you introduce a product to a broad audience."
From there, Faxon moved into the cut-throat world of fine art, joining Sotheby's as managing director of its troubled European arm (well before the once-venerable auction house pleaded guilty to price fixing). "Sotheby's issue was that the art market was in decline in 1990," says Faxon. "It was left with an unprofitable European business and, much as [the music] business, it was not focusing entirely on the right things. In their case, they thought their success was based purely on their expertise...which is very important, but it wasn't what differentiated them in the marketplace." The key, Faxon saw at the time, was to make Sotheby's "more extroverted, more outwardly focused, rather than focused on the product alone." To that end, he copied the example set by Sotheby's in the US and built up customer service within each of the departments.
All this resonates with Faxon's work at EMI today. By the time he joined EMI in 1994—as senior vice president of business development and strategy, rising to finance chief of the music publishing arm—he had a good take "on what the business had to look like," he recalls. "I had that vision for some time, I have to say."
Until recently, EMI has been pursuing a strategy of industry consolidation—a strategy in which it has so far failed to participate, having lost out on three merger attempts since 2001. In the latest, in early December, EMI was beat in its bid to acquire Warner Music, as a consortium led by Canadian tycoon Edgar Bronfman Jr. swooped in with a $2.6 billion (€2.06 billion) offer. That topped EMI's cash-and-shares offering by a good $900m. Meantime, Bertelmann's BMG and Sony signed a letter of intent to merge their US and European music businesses into a 50:50 joint venture. If those deals clear regulators and other hurdles, it will leave 75% of the world's music market in the hands of just four large groups, while EMI slips to a distant fifth in terms of market share.
Faxon insists that EMI is not sweating its failure to find a merger partner. "From our standpoint, there's no compelling reason why we need to be involved in industry consolidation," he says. "The reason to consolidate is to achieve significant savings, and it gives you greater opportunities to make investments more rapidly than you otherwise can. But it doesn't give you a competitive advantage, it doesn't help you sell more CDs or move more products off the shelves." Nevertheless, the Warner deal would have helped cut an estimated $300m of costs.
So, what is Faxon's vision? "The record business has been focusing on the product and the product alone. But the reality is that it isn't just about the music. It's about how you get the music to consumers, how you get consumers excited about a product. It might not seem like a big leap, but the conceptual shifts are massive for our business," he explains. "My view is that we must be consumer facing. It doesn't mean that we have to be any less creative, but we have to understand how [our business] fits into the consumer context. It no longer works to say: 'If we make great music, they will come.'"
Yet knowing what works has confounded the big labels, most obviously in their efforts to come to terms with digital music technology. "All the record labels have been quite slow to accept that consumers don't care where they get their music from," asserts Rebecca Ulph Jennings, an analyst at Forrester Research. On top of that, she says, the labels badly misjudged the appeal of Napster, the online music file-sharing pioneer, and the many clones it has spawned since the industry shut it down in 2000.
The music industry's plan recently has been to battle rather than embrace the shift to a digital marketplace—going so far as slapping lawsuits on individual music downloaders in the US, starting with a terrified 12-year-old girl in New York City. A PR disaster, insist many observers. But the record labels are unrepetent, and last month announced that their clampdown will now expand to Europe. But with or without the record labels, downloading is a hit with consumers. Forrester Research, for example, says that file sharing is responsible for nearly $700m of the $2 billion fall in CD sales since 1999.
Can't Beat 'Em, Join 'Em
A glimmer of good news for the big labels arrived in the form of numbers showing that more and more consumers are paying for downloaded music. Late last year, while Nielsen NetRatings in the US was reporting that downloads via Kazaa—the biggest of the free file-sharing networks—had dropped from a high of more than 17m unique users a month in March to 7.6m in October, Apple Computer announced that its new legitimate fee-based service, iTunes Music Store, sold more than 25m songs in its first eight months.
It's here where EMI reckons it is ahead of the pack. Faxon says that in the last four years, EMI Music has signed more than 70 licence agreements with various digital music companies and was the first label to issue licences to online music-subscription services MusicNet and Pressplay. Last spring, it also announced a major agreement with 20 European retailers to sell thousands of its artists' music via their websites. It further expanded options for consumers by allowing legitimate copying onto portable players and burning music onto CDs. The message from EMI is clear: It is ready to support any legitimate digital distributor, whatever the format or channel.
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