Jury Finds Terra Firma Just Made A Bad Deal In Buying EMI

from the well,-that-went-without-saying,,, dept

Way back when private equity firm Terra Firma bought record label EMI, we actually had some hope that by putting in place some folks with a different viewpoint, they might actually help EMI make the transition to the new world that the other record labels were unwilling to do, since they were too tied to the past. And there were a few encouraging early signs. EMI’s new boss, from Terra Firma, Guy Hands, told everyone at EMI that Radiohead’s business model experiments should serve as a wake-up call to respond to new challenges with “creativity and energy,” rather than lawsuits. Along those lines, he also threatened to withdraw from the RIAA and the IFPI. Finally, he hired two big name techies: including Google’s former CIO and Second Life’s co-founder.

However, there were also indications that the company was still very much unable to adjust, and didn’t really welcome those outside views. Part of it, apparently, was that EMI’s attempt to negotiate new deals with its biggest artists was done in a somewhat tone deaf manner, which pissed off those artists, who got the impression that EMI was trying to take advantage of them rather than trying to help them. On top of that, the company backed down on its threats to leave the IFPI and the RIAA… and instead became one of the more aggressive record labels in suing innovative start-ups and directly suing their execs in attempts to bankrupt them. It wasn’t much of a surprise that the two tech superstars EMI hired both left pretty quickly, as it became apparent they were marginalized within the company.

With this approach, not surprisingly, EMI has suffered massively in the market, and last year, Terra Firma tried to pin the blame elsewhere by claiming that Citigroup had mislead the firm into buying EMI, convincing the private equity firm to overbid. As we noted at the time, this seemed hard to believe. It was no secret that the record label business was in bad shape at the time and really needed a different approach if it was to survive. The problem was that, for all of the early talk, Terra Firma and Guy Hands never really figured out a way to change the company at all.

Now a jury has ruled against Terra Firma saying that Citigroup did not mislead Terra Firma and, basically, Terra Firma just made a bad deal. Considering how they’ve run EMI, perhaps this is not too surprising. Of course, this also means that Terra Firma is not going to get out of the massive debt obligations it owes Citigroup, which likely means that Citigroup will get to takeover EMI, meaning it will sell off the pieces (most likely to Warner Music) knocking the major record labels down to just three: Universal, Warner and Sony. It seems that, as long as they keep merging, they can pretend that it’s okay that they refuse to adapt.

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Companies: citigroup, emi, terra firma

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Comments on “Jury Finds Terra Firma Just Made A Bad Deal In Buying EMI”

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Josef Anvil (profile) says:


It just seems odd that Terra Firma didn’t figure out that in addition to hiring the “new”, you also need to fire the “old”.

It just seems like EMI thought they would continue to use the old ways on the new stuff. It’s like building a car then sitting on the roof with reins attached to the wheels and wondering why it isn’t working.

The record labels just don’t get it because they still have a ton of cash on hand and they are unwilling to believe that the world has changed. Let them expend their resources and slowly die off in their fight against evolution.

Richard (profile) says:


as long as they keep merging, they can pretend that it’s okay that they refuse to adapt.

This is a standard pattern for companies that are in decline.
The next stage is for them to be taken over by a big company in another sector. After a while the company will realise it made a bad deal, and, lacking the emotional attachment that the orignal owners had, will simply let it die.

Anonymous Coward says:

Six big record labels playing with a hive;
A bumblebee stung one and then there were five.

Five big record labels going in for law;
One got in Chancery and then there were four.

Four big record labels going out to sea;
A red herring swallowed one and then there were three.

Three big record labels walking in the zoo;
A big bear hugged one and then there were two.

Two big record labels playing with a gun;
One shot the other and then there was one.

One big record labels left all alone;
He went out and hanged himself and then there were none.

Karl (profile) says:


While the ruling itself isn’t a big shocker, the whole situation is bad all around.

I heard that Terra Firma had acquired EMI, and that they were going to try more modern business models. This was a good thing in my book. But I hadn’t really kept up with the developments, and they’re incredibly disappointing.

It had the potential to be a massive game-changer if it succeeded. I mean, this was not just some indie label or musician being successful with new business models, but one of the Big Four. Had they been able to turn the label around, you bet your ass that the other labels would have noticed. It would have made the industry as a whole better for everyone: labels, artists, and fans.

But they didn’t. And from what I can tell, their failure wasn’t with the business models, but with Terra Firma’s reluctance to go all in:

It just seems odd that Terra Firma didn’t figure out that in addition to hiring the “new”, you also need to fire the “old”.

Exactly right. If the “new blood” encounters resistance, you don’t drive out the new blood, you get rid of the old. Anyone who didn’t like the new direction should have been told, in no uncertain terms, to take a hike.

You may think this is good news, in that it removes one of the big players from the board. But that won’t help the game:

They can only merge and piecemeal themselves together for so long until their whole system collapses.

Unfortunately, this isn’t true, at least not in our lifetimes. The music industry is still an oligarchy, and EMI’s exit won’t open up the market. It’ll just make it easier for Universal, Warner and Sony to consolidate their power even more – making it even less of an oligarchy and more of a monopoly.

And good luck waiting for those guys to fail. The one thing they all have in common is that they’re subsidiaries of much larger mega-corporations, who have money-making assets in a diversity of markets (e.g. film/TV, consumer electronics, video games). They can run the labels at a loss for decades without their parent corporations losing money, so they are far less inclined to change business models. And because they are much wealthier, they can influence lawmakers that much more.

Nor is it good for EMI’s artists:

When EMI goes bust do the Artists get their copyrights back? Hell no.

Precisely. The artists will go from being employees of one company, to employees of a much larger company. They won’t get out of their deals; and when it comes time to sign new deals, they’ll be forced to take them from the New Boss, or drop out of the Big Three altogether. Their back catalogues will be divvied up and sold to the highest bidder – not that they’ll see a single penny of that money.

I’m really hoping that this will be Terra Firma’s own “wake-up call,” a call to clean house, wipe the slate clean, and start fresh. The next best thing would be for a larger tech company – say, Google – buy up EMI’s assets, and clean house themselves.

Unfortunately, I don’t see that happening. I’m guessing that EMI’s assets will be bought by another major label for pennies on the dollar, the back catalog shelved, and the artists dropped or re-signed with even worse deals. Then, they’ll blame it all on “piracy.”

It’s a sad day for music.

Parables (profile) says:

Bloody Idiots

These guys had no reason to buy into a business they knew nothing about in the first place. If they would have started with getting the OLD guys out, who know very little about the digital music side of the business, and brining in new talents that do, EMI would have had a better chance.

And Citigroup? That’s another disaster waiting to happen. I speculate that Citigroup will sell off the entire company as a whole, or will divide it’s parts and sell them off that way. EMI does have one good asset, it’s music catalog, which is the largest of the three majors.

I guess we’ll have to wait and see how this all unfolds. It should be very interesting nonetheless.

Benjamin Wade Inman
Parable of Sound LLC
Nashville, TN

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