Pink Floyd have been in court with EMI, their record label of 43 years, over what level of royalties they should be paid for digital sales of their music, and as to whether tracks from their concept albums can be sold as singles. The Times reports that Pink Floyd have won their case on both counts, and now recover the right to package their music as they see fit, and to be paid a higher rate for online sales, although exactly how much hasn’t been disclosed. This exclusive, music first approach is typical of the band, and totally at odds with EMI’s cash-hungry stance at the moment; obviously the boys don’t need the money as much as the label does at the moment…
Smoke without fire, storms in teacups and cries of “Wolf” abound; despite all the discussion of and online about the potential sale of Abbey Road studios to try and help ease EMI’s cash crisis (yes, we squawked [should that be tweeted?] with the rest of the giddy hens), which included such notables as Sir Paul McCartney and the National Trust, there is no truth to the rumour that they are looking to sell the iconic recording venue – in fact they rejected an offer to buy it just last year…
EMI (actually it’s parent the Gramophone Company) bought the house atNo. 3 Abbey Road in 1931, at the bargain price of £100,000 (around £20 million in today’s money) and turned it into a custom built studio complex capable of recording a full orchestra. The first of such being Sir Edward Elgar conducting the London Symphony Orchestra in recording sessions of his music. It is one of two that the company own, the other being Capitol Studios in L.A., and is most famous as the namesake of the Beatles album. Now it is beingrumoured that EMI are considering the sale of the studio to help meet the financial targets imposed by the massive loan that their owners Terra Firma took out against the value of the company.
Having admitted in the Financial Times that his investment in EMI has shed around £2 billion in value since the 2007 purchase, more information is being made public about the radical solutions that Terra Firma’s head has been considering – including splitting the company into it’s recorded music and publishing arms. This would have the effect of protecting the publishing arm in the event that EMI is unable to meet the financial requirements placed upon it by lender CitiGroup (with whom Terra Firma, EMI’s owner, is currently contending a lawsuit over whether or not they were lied to in the buying process). If the various stratagems that are being discussed can’t be enacted, and EMI fails to meet it’s responsibilities, then we will likely see the breakup of the massive record company into it’s constituent parts, or a merger into one of the other big 4 labels.
Since 1st August 2007, when Terra Firma bought EMI for $8,000,000,000 with a 90% approval from it’s shareholders, the bottom line on EMI’s financial reports is set to show losses of more than $1.5 billion dollars, despite Terra Firma and its allies pumping in half a billion dollars worth of equity. EMI managed to meet the covenants imposed on it’s debt by Citibank in January, but is highly unlikely to do so in the coming quarter-year reports without further funding from Terra and Co.
EMI’s earnings are equal to paying the interest on their loans ($215 million!), but if they can’t improve their financials they’ll be in danger of defaulting on their debt and having the company fall back into the hands of the lenders, Citibank. Of course, there is still Terra Firma’s lawsuit against Citi in the offing, claiming malfeasance on Citi’s behalf in handling the auction of EMI – One can imagine a lot of white knuckles and short words as the cheque for the interest payments is signed.
If the debt does turn bad, it seems likely that Citi would break EMI up for parts, the gem being the still-profitable publishing department. Such a move would drastically change the face of the mainstream music industry, particularly in the UK, where most of EMI’s artists are based. A lot of the big sellers would go to the other major labels, but the felling of one of the biggest trees in the wood would make a lot more room for independent labels to grow up from under.
Remember back in October, when EMI were negotiating a deal with Grooveshark, then changed their mind and decided to sue them, then broke off the pursuit of their lawsuit and instead signed a licensing agreement with them? The press releases (via All things digital) went something like this:
1:
Recently, EMI Records chose to abandon the template we’ve built with the help of other major copyright holders and opted for their traditional intimidation tactic of filing a lawsuit as a negotiating tool. We find the use of this negotiating strategy counterproductive, as Grooveshark has been willing to conclude an agreement with EMI Records that is economically sustainable for both EMI Records and a start-up company the size of Grooveshark.
2:
“EMI Music and EMI Music Publishing have collaborated with us to create a mutually sustainable deal which represents the future of digital music,” says Grooveshark CEO Sam Tarantino. “We will continue to deliver the best music service on the Internet to our users, and we will expand our capacity to strengthen fan-to-artist connections through our technology.”
“We think services like Grooveshark offer great music discovery options for fans,” said Mark Piibe, EMI Music’s Global Head of Digital Business Development. ”In turn, Grooveshark offers a new revenue stream for our artists and will help us learn more about how we can better connect different types of fans with artists.”
The mixed feelings about Grooveshark’s operation seem to extend outside the EMI boardroom – Universal are now suing Grooveshark for copyright infringement on some big artists from their pre 1972 recordings, including Marvin Gaye, The Jackson 5, The Who and Chuck Berry. Why they’ve chosen these particular artists to make a case on is unclear, but the case is seemingly strong: if Universal are withholding the copyright to the tracks that Grooveshark is playing then they have no choice but to either prevent access to the tracks that are in question, and make reparations for past breach that are acceptable to the label, or fight the court case. The long term effects of this case will be interesting to see. Grooveshark have been allowed to operate relatively unmolested by the big labels while other services, like Seeqpod, have been forced out, so why have Universal decided to apply pressure at this point? Are they thinking like Grooveshark suspect, that they can bully their way into a deal with the streaming service without having to give away a rock bottom streaming royalty rate?
As you may have read here on our blog Terra Firma are suing their advisors/lenders Citibank for perpetrating a fraud against them – essentially Terra are saying that Citibank mislead them about the amount of competition there was for the record label’s purchase, the benefit to Citibank being more than £92 million in fees and lending them £2.5 billion that they claim they didn’t need to borrow. The plot thickens when you realise that EMI was in a huge amount of debt to Citibank, among others and that it was in danger of defaulting on the debt if it wasn’t rescued by a purchaser. The specific accusation is that a Mr. David Wormsley, a Citi employee who was advising Terra Firma told a rather significant pork-pie in an attempt to prevent Terra from dropping out of the bidding for EMI, precipitating a ‘busted auction’ – something that would have massively decreased EMI’s stock price, and thus the value of Citi’s asset, as well as EMI’s ability to repay any value that was still outstanding in their loan from Citi.
These accusations may be coming from a party that is desperately trying to shore up a huge investment in a failing company (look at EMI’s previous 10-K’s for an idea of their year on year losses), but they are pretty frightening for the big 4 labels – file sharing may finally be on the wane, with big torrent trackers like Mininova and The Pirate Bay being forced to go legit, but costs at labels are still outstripping income, and copyrights on some of their biggest selling artists are going to begin running out over the decades to come: the first Beatles song will come out of copyright in the EU in 2012 (unless there’s a change in the law).
Apple, eMusic and some other download stores are breaking ground in making online music profitable, but there are indications that even iTunes market share is dropping – innovation is happening with streaming services like Spotify entering the fray with big-label backing, but the true form of digital music in the decades to come is as yet undecided. I wonder if EMI will be there to see the changes happen.
As we published in this post, that’s certainly the standpoint of Swedish artist, Magnus Uggla and the Lady might well feel the same, based on the information in this post, saying that she was only paid a pittance by the Swedish performing rights society for a huge number of plays on the music streaming service Spotify:
According to a report today, Lady Gaga’s track “Poker Face” was one of the most popular tracks during a five month period on Spotify and was played more than a million times. So how much money does she get paid by STIM (the Swedish Performing Rights Society) for this massive achievement?
SEK 1150 – that’s around $167 or roughly 113 Euros.
But that’s not quite the whole story… The performing rights contribution splits out to $0.000167 a play, but so what? Lady G (or more likely her record label) will also be being paid directly by Spotify with a flat fee per play (a couple of pennies per track) and a chunk of the service’s ad revenue. Lady Gaga’s direct revenues from that many streams will be in the five figure $USD range, and the performing rights system probably does more to support their own bureaucratic infrastructure than it contributes towards paying her a sensible wage. It would be interesting to know exactly what proportion of their receipts is paid to artists, and what is spent on running the society, as well as why the PRS collects a fee for every track played on services like Spotify, even those of tracks by non-PRS-members.
Lily Allen has previously complained on Twitter “@citricsquid did you know the major own hold massive stakes in Spotify, and earn advertising revenue at yet another loss to the artist”that she’s not seeing any of the revenue from her Spotify plays, but this is likely to be because the majors have all bought shares in Spotify, and are both giving them an easy ride on the music licensing fees and taking their own substantial cut of anything that comes back. Lily Allen would do well to have a little faith in Spotify, given her well publicised feelingsagainst file sharing.
Of course, this diminished revenue wouldn’t be a problem if she’d signed her music up for digital distribution to with someone like RouteNote, who get the full per track rate, and only take 10% on the back end.
That said, the decision of the majors to support Spotify and other streaming services is a pragmatic one; if it is really the case that freemium services are reducing piracy and providing a way for labels to ‘monetize’ their catalogues online then it makes sense for the majors to be in on the ground floor and take advantage of future success, especially since they’re looking such ghastlyfinancials [pg. 33 for the headlines] in the face. Right, now that’s sorted we can all go back to wondering whether or not the Lady is a trap…
Like everyone else on Wall Street, and particularly in the music industry EMI is facing pressure from it’s creditors, and the outlook is not improved by the rejection of a recent proposal from Terra Firma (EMI’s owners) to pump £1 billion into the company, in return for Citibank (the sole major creditor to EMI) writing off a proportion of the £2.6 billion of the debt owed to it. Presumably this means that without a similarly radical solution, EMI is going to be facing issues maintaining liquidity or meeting it’s covenants (the agreements which govern the amount of debt it’s allowed by it’s creditors to operate with).
Even the upturn in their revenues, while encouraging, only represents a small percentage, and we’re not yet privy to their yearly report, which they’re holding off until after their talks with CitiBank have reached a workable conclusion. Looking at last year’s operating losses of -$258 million and a total loss (including things like amortisation and depreciation of assets) of -$757 million, the company is looking another thumping loss in the face, without much prospect of a return to the black side of the line in the short term (take a look at pg 33 of this report for the scary numbers).
As previously advised, Terra Firma has been in discussions with EMI’s lender. Until these discussions have come to a conclusion, it is not appropriate to publish an Annual Review of Maltby Capital for the 2009 financial year.
As already announced, EMI Music (the recorded music division) delivered a strong operational turnaround with EBITDA increasing from £51 million to £163 million for the year ended 31 March 2009.
EMI Music Publishing, the leading publisher of popular music, continued to deliver strong performance with EBITDA increasing from £112 million to £135 million for the year ended 31 March 2009. (via the EMI website)
[I'm not sure I agree that this upswing qualifies as a turnaround, in the face of their yearly losses overall...] If one of the big 4 were to fold under market pressure, what would happen to the rest of the industry? Collapse of the mega-label structure would surely spell anarchy in the music industry as a whole, but anarchy is good for change…
Morrisey is passionately asking fans NOT to buy albums/singles.
Hitting the shelves late this year will be a box sets dedicated to Morriseys/Smiths music, “the singles 7″ 89′-91′ “released on October 12th. Twinned by a the HMV/Parlophone singles 91′-95′ on November 2nd. Both sets will contain around 9 (according to the NME) 7″ singles complete with B sides and with the optional original packagin.
Morrissey would like it to be known that he has not been consulted by EMI/HMV/Parlophone with regards to two forthcoming boxed sets of Morrissey singles. Morrissey does not approve such releases and would ask people not to bother buying them. Morrissey receives no royalty payments from EMI for any back catalogue, and has not received a royalty from EMI since 1992. Morrissey also does not approve of, and was not consulted on, the Rhino box of Smiths CDs, or the Warner releases of Smiths LPs on 180 gramme vinyl. Morrissey last received a royalty payment from Warners ten years ago, and, once again, he would ask people not to bother buying the reissued LPs or CDs.
But there is an enormous amount of fans of either Morrissey or just music in general that don’t necessarily feel that anything wrong has occurred. Rumours are flying that Morrissey signed a contract to release royalty rights to the mentioned distributers, for a large undisclosed figure and cannot acctually claim rights for Smiths music between 1989-95.
RouteNote though, for what its worth are with Morrissey. What do you think?
Pink Floyd have been in court with EMI, their record label of 43 years, over what level of royalties they should be paid for digital sales of their music, and as to whether tracks from their concept albums can be sold as singles. The Times reports that Pink Floyd have won their case on both counts, and now recover the right to package their music as they see fit, and to be paid a higher rate for online sales, although exactly how much hasn’t been disclosed. This exclusive, music first approach is typical of the band, and totally at odds with EMI’s cash-hungry stance at the moment; obviously the boys don’t need the money as much as the label does at the moment…
Like everyone else on Wall Street, and particularly in the music industry EMI is facing pressure from it’s creditors, and the outlook is not improved by the 
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