Terra Firma is finally making substantive changes to EMI's organization. FMBQ has some information on changes to Capitol Music Group's organizational structure. In addition to the promo group changes mentioned below, some staffers were laid off.

What transpired today is the assemblage of one central promotion team by which (EVP of Promotion Greg) Thompson will continue to oversee. Again, the composition of this central group, which includes a national executive team for every radio format and a field staff, has yet to be officially unveiled by the company. The function of this central promo team will be to service the following labels: the Capitol Music Group including Capitol and Virgin; all the imprints in the Bluenote Label Group including Bluenote, Angel, Manhattan, MetroBlue and Back Porch; the Caroline Music Group and Astralwerks. The team will also work in conjunction with the Nashville office for country crossovers and the EMI Christian Music Group for crossover artists as well. The U.S. Latin label is not part of this initiative.

Greg Thompson will continue to report to President Lee Trink, and he and his team will support and service all of the promotion efforts for the aforementioned label groups.

Billboard.biz named names:

Among those let go were Virgin Records VP of promotion Dave Reynolds, Virgin director of promotion operations Jordan Rosenblatt, Virgin Boston regional James MacDonald, Capitol Chicago regional Amy Kaplan and Capitol Florida regional Ric Austin. Additionally, several assistants have been let go from the Los Angeles office, including Jen Kelly.

Posted by Glenn at 9:08 PM | Link
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From the New York Post:

Three high-level industry sources familiar with the situation claim EMI needs more money to cover the restructuring costs, which are running higher than anticipated.

Once source said Terra Firma is looking to possibly raise another $60 million for EMI to help pay for the cuts. Multiple sources said raising the money was not going to be a problem for the firm. ...

Terra Firma insiders are attributing the holdup to European labor laws, which require a lengthy review process before pink slips can be handed out.

The cuts are now expected by June, a source said.

Darn red tape.

Posted by Glenn at 6:00 PM | Link
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Citigroup has canceled plans to sell its EMI debt. The bank had lent about $4.9 billion to finance Terra Firma's acquisition of EMI and was planning to sell the debt to third parties. Risky debt is hardly popular these days. Citigroup will keep EMI's debt and sell off $12 billion of loans to the buyout firms.

From the Wall Street Journal: "Citigroup worried that such uncertainty would add to the squeamishness of the already-jittery debt investors it is trying to lure."

Posted by Glenn at 2:10 PM | Link
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EMI incoming head of digital Douglas Merrill did a Q&A with Billboard.

There's actually academic data that suggests file sharing is good for some artists. That's very much against the common prevailing wisdom, but the minute you look at the data on it you find some fascinating things. I think part of what I'm excited about doing at EMI is doing a bunch of experimenting to see what works and what doesn't. How do we add value to artists? How do we help fans find and experience artists? How do we find the right value to add? I'm really looking forward to see what happens in the next 12 months.

If you sum all the papers on P2P, the overall opinion is that it neither helps nor hurts recorded music sales. Merrill is right to say file sharing helps some artists. Unfortunately for EMI, file sharing tends to hurts the big earners (this is supported by some research) and helps the most the sort of albums that don't recoup. If Merrill's presence can help turn mid-hits into profitable albums, EMI will have won half the battle. I don't doubt Hands believes a restructured, re-imagined EMI can be sustained with lower expenses. The other half of the battle is continuing to create big hits (which, again, are exposed to file sharing).

Hits also have the greatest exposure to format substitution. Hits are usually driven my singles, and customers are free to cherry pick the single and forgo the purchase of an album. I think one of Merrill's top goals should be to figure out ways to maximize the percentage of all purchases that are albums or bundles. When consumers embrace digital music, they tend to get more into a singles mindset. This is ruinous for record labels that can't recoup on sales of single tracks. You can argue that labels need to change so projects are less dependent on album sales and are more likely to break even, but most of that is out of Merrill's control.

Merrill also spoke with the Los Angeles Times and brought up the P2P topic.

As a sign of his willingness to consider bold moves, Merrill held open the possibility that people sharing music online -- an illegal practice that the music industry has fought to stop through lawsuits -- might help some artists during certain parts of their career. "Maybe a lot of the things we assume are not actually correct," he said.

I'm not sure where he's going with this. Can one harness file sharing at one point in an artist's career and minimize its damages at another point in the artist's career?

Posted by Glenn at 1:42 PM | Link
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The fact that this news arrived on April Fool's Day gave me pause, but it appears to be legit. (Although All Things D confirmed this news twice, VentureBeat confirmed through a source Merrill's departure from Google, and News.com's Elinor Mills confirmed the Google and EMI angles, I hereby reserve the right to update this post with conflicting or correcting information.)

The news: EMI has hired away Google VP Engineering Douglas Merrill to be its new head of digital.

This is the kind of culture clash that will be written about for years to come. I hope somebody is going to do a Harvard Business School case study on Merrill's attempt to overhaul EMI's digital department and help transform the company into the next-generation media company imagined by Guy Hands.

Reading on Merrill:

• February 14, 2008 interview with InformationWeek. "The CIO of tomorrow is not a business service person; the CIO of tomorrow is a technologist who understands business in a different way. The job I get to have, and I think is increasing prevalent in industry, is I get to find new ways to enable people to be more effective. I get a job which says, 'What are the business problems we have to solve and how can we transform them?' and that's a fundamentally different skill set."
• March 18, 2008 interview with the Wall Street Journal.
• Merrill's bio at the Google website

Side note: Someone at TechCrunch left the comment, "Roger federer is now the president of EMI? That has to be an april fools joke." Yeah, he does look like Federer!

Posted by Glenn at 8:39 PM | Link
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Coincidentally, EMI came out in favor of Nokia's Comes With Music plan on the same day news broke about Apple's early-stages talks about a similar device-plus-subscription bundle for its iPod and iPhone devices. Reuters has a very brief article. Nokia is set to roll out the service in the second half of the year.

"We want to be part of it. I believe strongly that when it launches we will be there, with a full offering," Wemppa Koivumaki, head of EMI Finland, said at a press conference.

How could Guy Hands, with a vision for a new kind of entertainment company, not be part of Comes With Music?

Both bits of news comes as worries mount that iPod sales are slowing and Nokia's stock took a hit over fears about the U.S. credit crunch and a slowing U.S. economy.

Posted by Glenn at 4:20 PM | Link
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Billboard.biz reported today that EMI will remain a member of the IFPI (press release here). The company's new ownership had threatened to drop out. On January 8, Billboard.biz reported that EMI had sent a conditional resignation letter which said EMI would drop out at the end of this month unless "discussions with the other major labels over the future structure and funding of the IFPI and the national industry bodies...lead to a solution that we are able to support."

EMI was said to have wanted a more cost-efficient, global trade group rather than pay dues to separate groups such as the RIAA and IFPI. The company's stance has resulted in some changes at the IFPI, though nothing but cost savings were mentioned. Said EMI Music international labels president Jean-Francois Cecillon,

We undertook to work with our colleagues in the other major labels and with [IFPI chairman/chief executive] John Kennedy on a cost saving plan for the IFPI and together we have been able to find solutions which we believe are achievable whilst maintaining what the IFPI does best in representing our industry.

Update: The Financial Times article has information from a source that said the IFPI receives half its funding from national trade groups "but EMI had been able to make a substantial cut to its direct contribution."

Posted by Glenn at 2:59 PM | Link
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There are a couple of ways to look at EMI's deal with the Daily News that will offer free downloads from the News' website to purchasers of the print version.

This deal marks the beginning of a new EMI and a fresh approach to generating revenue from its catalog. This one deal isn't going to change the company's fortunes, but it is important for symbolic reasons.

On the other hand, one has to wonder why this type of partnership had to be born from a private equity acquisition and management overhaul. What is preventing companies from marketing their catalogs in radically different ways that generate adequate returns? That's what this deal points to: A lack of creativity by the other three majors and a good portion of the indies. Different ideas aren't going to be enough. Radically different ideas are needed. Everybody's throwing things against the wall to see what sticks...but most often they're all aiming for the same part of the wall.

There have been few new ideas that represent this sort of shift in thinking. Here are the ones that stand out.:

One is Nokia's Comes With Music, a great combination of hardware and service. Sony BMG's MP3 cards, although universally scoffed at, shows a new way of thinking about non-traditional formats at non-traditional retail. Matador's "Buy Early Get Now" is a jump forward in approaching the timing and packaging of music. Selling downloads of original songs for use in video games (such as Guitar Hero) allows users to enjoy music in a totally new setting. And, of course, Radiohead's tip jar album release that preceded the standard CD and digital launch, which showed how simple distribution can be.

Posted by Glenn at 4:28 PM | Link
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As a follow up to my post on silos (and how EMI can't and shouldn't do too much to bring some of the down), here's a quote from New Improved Plan Resonate Blog that comments on a Wall Street Journal article on EMI's restructuring. I couldn't agree more with this post:

Jim Fusili at WSJ makes a pivotal error by assuming that EMI’s stated commitment to A&R will benefit "music lovers." Fusili asserts that EMI’s "silo mentality" leads to the unnecessary segmentation of consumers.

This would be true if EMI were in the business of directly interacting with consumers. They’re not. The music industry relies heavily on distribution partners and, most importantly, retailers. ...

Retailers use segmentation and classification to help customers find what they’re looking for. Distributors, ad agencies, publicists, booking agents, old media outlets, and new ones alike use segmentation to deliver an attractive product. Segmentation is useful and desirable in a world where so many different dialects are spoken.

Many hip hop fans love classical music, and vice versa, yet they don’t want to have to dig through the Lil Mama to find their Liszt.

Label execs generally won’t pretend to have the same talents of a successful local record shop manager. Similarly, financiers shouldn’t pretend to have the same talents of an A&R rep."

Posted by Glenn at 1:15 PM | Link
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If you're following Terra Firma's transformation of EMI, this Telegraph article on Guy Hands makes for good reading. The Telegraph actually spoke with Hands for the article. While it's not a tell-all in the vein of a Barbara Walters interview, it is a nice break from the usual ways we hear about EMI: prepared statements and anonymous sources.

Posted by Glenn at 10:42 PM | Link
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• There are rumors that EMI has made an offer for Chrysalis, one of the few remaining independent music publishers in the UK. (BBC News)

• Reuters just reported that Warner Music Group has also bid on Chrysalis. (Reuters)

• FCC commissioner Michael Copps cautions against media companies being taken over by private equity groups and has urged the FCC to launch an investigation. His main complaint is the structure of these companies, which he argues may render the FCC unable to take action in the event something goes wrong. (Dow Jones)

• Alltell Wireless and mSpot have announced a new service called Music powered by Celltop, which allows users to access the DRM-free music collection on their PCs over the Alltell network. The service costs $3.99 per month of $9.99 for three months. (Press release)

• Spotted in a post about how MySpace is still killing Facebook in terms of traffic: "I spent some time on MySpace last night, exploring the profile pages of family and friends and was shocked to see that all the music players on the site are now sponsored by Zune. It was news to me but I'm told it's been that way for weeks. I haven't been able to find a single shred of coverage of that deal on any of the top tech blogs - but I would assume it's helping sell more Zunes than ever." I've looked at a dozen or so mainstream pop artists' MySpace pages and haven't seen anything sponsored by Zune. (ReadWriteWeb, via Techmeme)

• Physical music sales in France fell 17.1% in 2007. (Billboard.biz)

• An article about Indiedrive, an online music store that offers music only on 1GB USB flash drives. The flash drives, which cost on average $20 apiece, contain MP3 files, videos, pictures, artwork and anything else the artist wants to include. (Shakopee Valley News)

Posted by Glenn at 11:11 AM | Link
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From The Guardian:

"EMI, bought by Guy Hands' Terra Firma group last year, confirmed today that worldwide headcount will be cut by between 1,500 and 2,000 as it slashes costs.

Confirming EMI insiders' fears, the company said ahead of staff briefings this morning that it was launching 'a series of wide-ranging initiatives within its recorded music division to enable the group to become the world's most innovative, artist friendly and consumer-focused music company."

Posted by Glenn at 8:09 AM | Link
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More reports about the coming changes at EMI, which will be announced to its staff tomorrow.

Wall Street Journal: "The private equity firm, which bought EMI last year for £3.2 billion, plans to strip EMI's individual record labels such as Capitol, Virgin and Parlophone of many of their responsibilities. Most or all of the labels' sales and marketing staff will become part of a new global structure reporting to EMI's headquarters in London, according to the person. That should leave the labels to focus on signing up musicians and helping them create music, known in the industry as artists and repertoire or A&R."

Times Online: "The cutbacks will focus on recorded music, which is less profitable than publishing. Mr Hands wants to exploit further the back catalogue at EMI, the label behind Kylie, Norah Jones and the Beatles, by digitising more recordings."

Posted by Glenn at 6:17 PM | Link
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The Times Online has an article today on the restructuring plan EMI will announce tomorrow. About 2,000 jobs are expected to be cut in an effort to reduce marketing expenses. Other highlights from the article: the company will be split into two groups (creative and back office) and a new incentive scheme will be based on profits. Take a look at the article for the details.

I'm practically in awe that EMI is taking the step to base incentives on sales and profits rather than shipments. It makes so much sense and would have been standard in any other industry in the world, but somehow music companies put the focus on shipments. In the digital era, shipments equal sales, so there's no issue. But on the physical side, basing goals on shipments too often puts the focus on the wrong part of the supply chain. Sometimes sell-through takes a back seat to loading up retailers and distributors. From my years in sales, I learned that goals based on shipments too often lead to excess product sent to accounts only to be returned after it gathered dust. The only winner is UPS.

Posted by Glenn at 5:52 PM | Link
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Guy Hands, who is leading the transformation of EMI, is finding out how difficult change can be in the music industry. The head of EMI owner Terra Firma, a private equity firm, is faced with an artist-manager revolt over his plans to remake the troubled music group. Even though the status quo will be their downfall, artists and their managers are obviously far more comfortable with the status quo than the uncertainty that goes with the pending changes.

Today the Financial Times looks at Hands' artist manager problem. Tim Clark, Robbie Williams' manager, told the Times that in two meetings with EMI he saw none of the "fresh thinking" he believes the company needs, and he has urged other mangers of EMI artists to "demand answers to hard questions."

One EMI senior adviser said EMI's changes would make the company more effective. "There will be more people focused on A&R [artist and repertoire] than there are today" and that "A&R and artist support will be a bigger share of the business than it is today." That statement conflicts with earlier reports that EMI will cut its A&R staff and depend more on new technologies to discover and develop new artists. Here's a quote from a November 2007 article at the NY Post:

"The firm also wants to reduce costs in artist-and-repertoire and marketing by $58 million by using social networks and user-generated Web sites like MySpace to discover and promote talent."

Here's the thing: criticism of the old model are far easier to come by than specific examples of badly needed "fresh thinking." Whatever changes EMI eventually makes will alienate some artists and their managers. There is simply no way to make everybody happy. EMI will be faced with a slate of potential models that will result in few to many estranged artists. If Hands shows his mettle, he will do what is best for the company in the long term and ignore the impulse to make a few superstars happy in the short term. With no activist shareholders looking over his shoulder, Hands should be able to make the proper decisions.

Posted by Glenn at 4:59 PM | Link
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The Telegraph reported that Terra Firma is planning to broadcast live music events of EMI artists at movie theaters. An EMI spokesperson confirmed the report. The company owns Odeon and UCI, the largest theater outside of North America, and is looking to use this new format as a part of its transformation.

"Coldplay, the Spice Girls and other performers signed to the EMI label will be given the option of broadcasting a live concert to screens in dozens of cities. The format would be used to launch new albums, with fans, media and music executives invited to the screenings and given the option of picking up the CD or film of the concert on their way out of the cinema."

With most expectations for new revenue coming from mobile, this is an interesting development. And it's a good idea, though whether or not consumers will buy into the final product is far from known. I assume the price of admission will be similar to a movie. That's good, because concert ticket prices are getting ridiculous. And fans in markets not on a tour's route can still experience a live show. Incremental CD sales will be there, in small numbers, but the focus should be on revenue from the screenings.

Posted by Glenn at 11:08 AM | Link
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• Ad-supported download site SpiralFrog has received a much-needed $2 million in additional funding in the form of convertible notes. The notes' interest is a tidy 12% annually, interest is to be paid quarterly and the principle is due on April 19, 2008. Between the company's IPO and these convertible notes, SpiralFrog has taken two of the more costly routes to raising money. (Press release, via paidContent)

• Digital track sales rose 47.7% in Britain in 2007. CD sales dropped 10%, according to the BPI. (Times Online)

• eMusic closed out 2007 with more than 400,000 subscribers (it was at 350,000 in November). The download site doubled its forecast for Christmas Day new customer trials. (Press release)

• An article for California residents or retailers doing business in California: A new California law, which went into effect yesterday, allows gift card holders to redeem for cash a balance of less than $10. (Modesto Bee)

• Antony Bruno has a list of artists that could possibly follow in Radiohead's footsteps. (Billboard)

• EMI artists are worried upcoming marketing budget cuts will hurt their sales. Gee, you think? EMI's problem is the same that William Hesketh Lever had a century ago: Half the money it spends on advertising and marketing is wasted, and the trouble is it doesn't know which half. If Terra Firma can figure out which half is wasted, EMI artists have nothing to worry about. But you know what? EMI artists should be worried. (Financial Times)

• MeeMix, which streams music matched to users' tastes, went live yesterday. (VentureBeat)

Posted by Glenn at 10:33 AM | Link
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• With so much attention being put on Terra Firma's cost-cutting plans for EMI, things are getting a little absurd. Check this quote from an article at The Telegraph: "EMI's new owner, Terra Firma, has told managers at the music company to only ship CDs they expect to sell after discovering millions of pounds were being lost annually because of returns." Maybe Guy Hands is really that green, but somebody should tell him that offering retailers a returns guarantee allows EMI to get titles stocked. Take away that returns allowance and add more risk than a retailer is willing to carry alone. If Hands & Company has a better idea, especially on how one could convince a retailer to • stock a developing artist, please share. (The Telegraph)

• The promo departments of Roadrunner and Atlantic will be merged. Current Lava VP or promo Mike Easterlin will replace Dave Loncao as Roadrunner's SVP or promo. (Billboard.biz)

• More layoffs: Island Def Jam laid off a dozen workers last Friday. (Silicon Alley Insider)

• West Babylon, New York indie store Looney Toons reopened after the owner decided to rebuild and improve the store after a devastating fire. Inventory grew by 30% and an in-store stage was added for performances. (Newsday)

• This article is a good overview of the proposed legislation in France that will punish its citizens who engage in illegal file sharing. One tidbit I did not know: French music legend Johnny Hallyday endorsed Nicolas Sarkozy. (International Herald Tribune)

• The Digital Pricing Conundrum Part IV: The Loss of Resale. "On average, you'd pay $10.19 for one of the top-10 titles in iTunes, as opposed $11.49 for the equivalent CD. But you could, on average, net $6.23 for subsequently selling your CD. So the mean potential 'loss of resale' premium for these iTunes albums was $4.93." Read this Coolfer post about the value in the choice to resell a CD. (Digital Audio Insider)

• Greg Kot interviews Paul McCartney. Kot asks the (sadly) predictable question, Are record labels done? McCartney responds, "No. It's not final. I feel like I made the right decision, because right after I left, EMI got sold, so obviously something was wrong. They are now in new hands and are applying themselves and they're going to bring themselves into the modern world." (Chicago Tribune)

• Coolfer has a Facebook page. Sure, why not? So many people use Facebook these days, it's the best place to keep in contact. Feel free to befriend me. (Coolfer on Facebook)

• Arguments for dropping DRM: Getting rid DRM is bad only for the most risk-averse and pessimistic in the industry. Without DRM, entrepreneurship will flourish and labels can enter a new era of marketing. Whatever increases in piracy result will be overshadowed by the gains from a growing digital market. The bottom line is the bottom line: A net gain. Not a silver bullet, but a net gain. (Big Red Horseshoe)

Posted by Glenn at 10:30 AM | Link
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• The Financial Times continued its critical coverage of EMI owner Terra Firma today with a report that Terra Firma chief executive Guy Hands sent letters to the RIAA and IFPI that threatened to cut off EMI's funding to the trade groups. Hands considers the $25 million per year it gives to both bodies another example of wasteful spending. As the article points out, if EMI stopped paying the IFPI and RIAA, it would have to make do either lobbying for itself and tracking down both physical and digital pirates on its own dime, or do away with all three activities. Some may look at this as a sign that Hands does not approve of the activities the RIAA and IFPI undertake on EMI's behalf, but it could be nothing more the latest result of cost-cutting brainstorming sessions. (Financial Times)

• C3 Presents, the company behind Austin City Limits and Lollapalooza, will partner with UK company Festival Republic (Live Nation) to launch the Vineland Music Festival. The site, in Vineland, New Jersey, is between Philadelphia and Atlantic City. The festival, to be held August 8-10, will be a camping festival like Bonnaroo. (Billboard.biz)

• I learned something in this good post about file-sharing and indie labels: Gold Standard Laboratories shut its doors a few weeks ago. "Part-owner and main man Sonny Kay ran the label either from a dirty office in LA or from internet cafes and phone boots across the world while being on tour with his own screamo punk bands. Addressing in an email what forced him to shut down he said: 'Filesharing was never much of a problem until everyone got the ipod, then the sales disappeared overnight.' And this comes from a label which is, I mean was, looked upon as the Warp of punk rock – releasing extreme punk and experimental music - NOT a label that produce radio hits." (Vegard Waske)

• Mark Piibe, formerly the SVP and head of content at MusicGremlin, has been hired as EMI's SVP of digital business affairs. (Silicon Valley Insider)

• A discussion of breakage at eMusic. "The current payout rate of 30.5 cents a track actually exceeds what I'm paying per track via my $9.99 for 40 downloads subscription (the old rate) and approaches what newer subscribers ($9.99 for 30 downloads) are paying for each track. (And the per-track rate actually goes much lower with booster packs and bigger subscription plans!) Using the 'half the subscription revenue goes to labels' formula (and ignoring any deducted costs), it seems likely that the zero-breakage per-song payout rate would be somewhere around 12 to 17 cents. The fact that it's twice that amount indicates just how much breakage is occurring each month." Said an anonymous commenter, "Average breakage at eMusic is right around 50%." (Digital Audio Insider)

• Warner Music Group formed a partnership with the family of Frank Sinatra to "integrate content, rights management and the preservation of the legendary entertainer's inspirational personality and prodigious body of work under a single entity." Frank Sinatra Enterprises will manage all things Sinatra and handle licensing of his name and likeness. (Press release)

• The Orchard has inked a distribution deal with historic Vee-Jay Records. (Press release)

Posted by Glenn at 9:37 AM | Link
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The Financial Times' Lina Saigol has a piece titled "Legacy of Winning the Wrong Auction" that's worth a read. An excerpt:

"Bankers bored of the credit squeeze are now obsessing over Guy Hands and his £4bn investment in EMI. Word is the chief executive of buy-out group Terra Firma is in a wild panic about his impulsive acquisition and how he'll manage to make a return on the record company he bought on the back of 43 pages of basic due diligence."

Saigol outlines five problems: too much money invested in EMI; too many staffers working only on EMI; cutting costs without hurting performance; securitising music business cash flows in a tough credit market; and Hands' "shape-up-or-ship-out" stance with lazy artists.

If I was going to add something, I'd expand on Hands' cost-cutting plans. For example, Terra Firma's proposal to cut A&R expenses in part by scouring social networking sites for new talent would make for a horrible strategy. If EMI invests money based on often meaningless MySpace (and the like) popularity, it's going to find itself with a roster of Tila Tequilas with little long-term potential.

Another problem with cost-cutting is that it will hamper labels' and distributors' ability to properly work releases. The natural result will be fewer releases to match the lower level of costs. Fewer releases equal lower revenue. This is the nature of an industry that is rather unique in the business world: entertainment companies must constantly launch a high number of new products. Big earners tend to have short shelf lives and must be replaced by new earners.

Success through cost cutting makes far more sense in an industry with more stable revenue and long-living products with a high level of brand equity. Hands should focus more on internal improvements and investments and less on cost cutting.

Posted by Glenn at 10:14 PM | Link
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• The New York Post got its hands on a confidential investor presentation in which EMI owner Terra Firma outlines its plans to improve its position in the music company. Highlights: Terra Firma is looking for $223 million in fixed costs savings (mostly in recorded music); it plans to cut $31 million from sales and distribution; it expects to save $58 million in A&R costs by utilizing social networking websites to find and promote artists; and it hopes to improve cash flows by 766% over five years by taking advantage of improved digital and mobile margins. In addition, Terra Firm has set aside $100 million for acquisitions of smaller indie labels. That's quite a wish list. (New York Post)

• The new Microsoft Zune devices officially launch today, but there was a lot of coverage yesterday. Engadget compiles some (positive) reviews of the updated portable media player. As always, most of the fun is in the comments. (Engadget)

• Silicon Valley Insider wonders how low Warner Music Group's stock can drop. Pali Research's Richard Greenfield, who just helped prompt a drop to his target price of $7.50, has now set a target at $5.00. Greenfield is worried about the loss of CD shelf space after Christmas. Is that really the only reason for the lower target price? That should have been built in a while ago since we've known for a while -- and has been speculated for eons -- that labels are going to get less love from the mass merchants and chains after the Christmas selling season. No secret there. (Silicon Valley Insider)

• Music-oriented social networking are the new social networking sites, which were the new coffee houses, which were the new bagel shops, which were the new video arcade/ice cream parlor. Here's an article on Cyloop.com, which has deals with Warner Music Group and The Orchard and plans to wrap up Sony BMG and Universal Music Group by the end of the year. Unlike most social networking site,s Cyloop has a niche: the Hispanic market. (Miami Herald)

• Warner Music Group chief executive, Edgar Bronfman Jr., is warning mobile operators to improve their music offerings or lose ground to the likes of Apple and Google. "With Apple's iPhone innovation and Google coming in, if the mobile phone industry doesn't respond with highly competitive offerings, they're going to watch their share of the opportunity diminish," he said. And as operators' share of the opportunity wanes, so do labels' fortunes. (Financial Times)

• For you lawyer types or those simply interested in RIAA lawsuits: "Examining Hard Drives During Discovery." Here's a sample: "The right to examine the contents of an opponent's computer hard drive has been categorized as unusual relief, yet can prove valuable during the discovery process. Nonetheless, under the federal rules, courts will not, as a matter of course, grant a party's demand routinely. Rather, imaging is generally permitted when there is a finding that an adversary's document production has been inadequate and that a hard drive examination could uncover omitted, relevant materials. In the absence of such a strong showing, courts can be reluctant to allow an examination, particularly given that hard-drive imaging can be a costly procedure that adds to the litigation expenses of all parties." (Law.com)

• Optimal's VinylDisc, one side vinyl and the other side CD, will be chart-eligible in the U.K. (mi2n.com)

Posted by Glenn at 9:03 AM | Link
|EMI||Mobile Music||Warner Music Group|

Over the last few months I've covered EMI's market share to measure the impact of its digital strategy. Links to previous posts are below. It has been five months since EMI dropped DRM on its downloads. In that time, its release schedule has been relatively weak and the overall recorded music market has experienced a slowdown.

Since EMI dropped DRM in late May and got a big launch day boost from iTunes, its digital album market share is up 8.9%. The other three majors have mixed results. Sony BMG has lost market share for both configurations, Warner Music is mixed but fairly even and Universal Music Group is up markedly for both configurations.

EMI's digital share currently stands at 10.1% (though October 28). It was 10% at the end of September, 9.9% at the end of August and 9.7% at the end of July. At the end of May, when iTunes started selling DRM-free EMI tracks, the market share was 9.3%. Those small increments add up -- one tenth of one percent of digital album market share equals almost 40,000 units. Eight percentage points equals about 320,000 units.

The problem here is that EMI's CD market share has dropped 5.5% since late May is even worse for the bottom line. Each tenth of a percent of CD market share equals 330,000 units. A drop in CD market share to 9.3% from 9.8% is a loss of 1.65 million units.

The telling aspect about the above graph is how EMI's CD and digital album market shares have moved in the opposite directions. The company's CD share has dropped while its digital album share has risen. When both move in the same direction, as is the case with two of its three competitors, it indicates the relative popularity (or lack of) of a company's release schedule. But when the two move in opposite directions, it is a sign that other factors are at play. In the case of EMI, the company has improved its competitive position at digital stores. EMI has had a relatively weak release schedule since late May and has seen its CD market share drop since Norah Jones' album was released in late January.

Without the presence of something to jump start its digital position -- dropping DRM, getting prime attention at iTunes -- EMI's change in digital share would be similar to its negative change in CD share. A good estimate is a 15-point difference in digital album share. That equals about a 600,000-unit swing.

Previous posts on EMI's market share since May:

• EMI Math: Graph Of A Digital Sales Increase
• EMI's New Digital Strategy May Have Prevented A Worse June/July Slide
• An Update On EMI's Digital Album Share

To download a PDF of this post, click here.

Posted by Glenn at 1:52 PM | Link
|EMI|

• The New York Post reported this morning that EMI owner Terra Firma has been seeking additional funding in order to lower its position -- and therefore risk -- in the music company. Sources logically wonder how Terra Firma could dilute its equity position so soon if it wasn't disillusioned by EMI's prospects. (The article says Terra Firma performed "limited due diligence" and now has a better understanding of EMI's financial position. I'd be surprised if Terra Firma performed anything but thorough and exhaustive due diligence given the target's precarious position.) In addition, the private equity group is reportedly mulling the sale of EMI's distribution unit as a way to cut costs and raise cash. (New York Post)

• MTV is moving into song lryics. Using Gracenote's technology and database, MTV will incorporate lyrics into its websites and plans to launch a new television series called "Name That Tune." (Crave)

• The New York Times' Janey Morrissey has an article on how rock bands today are minding their money and creating non-album revenue streams. (New York Times)

• Labels are pleased with initial results of album-specific download cards. Sixteen percent of digital downloads of Eddie Vedder's "Into the Wild" -- six percent of all sales -- came from 4.5" by 6.25" iTunes cards. (Billboard)

• Pollstar asks why more artists don't sell CDs of their own performances. Short answer: Some promoters have rights to venue recordings, there are origination fees to pay and the CD-creating hardware isn't cheap. If consumers would be happy with getting files on their own thumb drives, at least part of those costs could be avoided. (Pollstar)

• An interesting comment from The Eagles' Don Henley on this article about the band's upcoming, Wal-Mart-distributed album: "The Internet is a wonderful thing, but as a tool for distributing music, it doesn't matter if you can reach the whole world if your fans can't find you. The Internet has not worked out on a large scale for anyone I know. So some people are going with indie labels, which for the most part are distributed by majors. And some have gone with certain large coffee companies." (Boston Globe)

Posted by Glenn at 8:33 AM | Link
|EMI|

A report at The Guardian says private equity firm Terra Firma has no plans to sell EMI. Said Guy Hands in an address to the Royal Television Society:

"We are determined to keep that part of the business and we are determined to make it viable. ... We look for the worst business we can find in the most challenged sector and we get really happy if it's really, really bad. EMI, our most recent investment, is a classic example. We're just hoping EMI is as bad as we think it is."

Hands indicated he wants EMI to survive less on big hits (a lot easier a task since Radiohead's contract expired) and more on less successful titles. "The vision of EMI is to be big enough to do everything we can for every artist, but small enough to care for every artist." Of course, with hits selling less and the marketplace becoming more fractured, that kind of goal almost goes without saying. There's no way around scaling down one's goals.

Selling less of more is easier said than done. It's an imperative that has been said all decade and nobody at a major has figured out how to do it. The best way to do it, in my opinion, is to sign artists to contracts that bring in other revenue streams such as touring and merchandise. That lowers the risk inherant to every new artist. EMI has not made the acquisitions and joint ventures that its competitors have made to position itself for such contracts.

If Terra Firma plans on succeeding just with music and publishing, and honestly wants to lower the threshold for success, there is one option: Act like an indie. That means operating on a thin and lower-paid staff with fewer resources. It would be a double-edged sword, though, since that kind of operation would be limiting in the end.

As for that thin staff...the Times Online read something in Hands' speech that The Guardian did not. Dan Sabbagh thought Hands' statement about getting away from "the cult of the hit" was a hint "at what are likely to be deep job cuts in EMI’s 5,500-strong workforce."

Posted by Glenn at 5:03 PM | Link
|EMI|

Eric Nicoli is out as the chief executive of EMI. Nicoli, as well as finance director Martin Stewart (read bio here) will depart the company that just weeks ago was acquired by private equity Terra Firma. He will leave with a $5.6 million payout. Chris Rolling, who comes from chemical company ICI, will be the new CEO and COO and will report to Terra Firma boss Guy Hands. Roger Faxon will continue to run EMI's publishing division. Ashley Unwin, formerly with Deloitte Consulting, will be brought on as director of business transformation.

The pieces are in place to radically transform EMI. Given the marketing deals now in place, as well as the company's stated goal of extracting value from the EMI catalog, separating recorded music from publishing seems unlikely -- in the near term. The Times Online on Terra Firma's move to bring in music outsiders:

"His appointment is a deliberate attempt to bring in outsiders to a business. The venture capital group wants managers who 'serve the artists' rather than 'spend their time hanging out in LA,' although they are willing to bring in new executives with music experience if they feel that credibility with talent is important at a senior level. ... The new team's strategy will be determined over the next few months, but Terra Firma said that the 'initial focus will be maximise the value of the significant assets in EMI's publishing business and to realise the digital opportunity in recorded music'. Insiders said a rapid sale of the recorded music business to Warner Music was off the agenda."

Billboard.biz reports of an internal letter to EMI artists sent by Nicoli that offers assurance that Terra Firma is committed to growth and respect toward the artists.

New management after an acquisition is common, but some thought Nicoli would stay on board. Just yesterday, the free London daily City A.M. reported that Eric Nilcoi would run EMI's recorded music division post-buyout, while Roger Faxon will continue to run the publishing unit. (City A.M. PDF, via Silicon Alley Insider)

Posted by Glenn at 8:51 AM | Link
|EMI|

• Rumor is that Apple will release a new iPod on September 5. (Ars Technica, via Listening Post)

• An Arbitron executive talked of the relationship between employment and radio listening. People who are employed listen more than unemployed and part-time workers. Also, men are listening more than women. (Radio Ink)

• EMI band Athlete is the first chart-eligible U.K. single to be bundled with a tutorial video. "Hurricane" comes with the video, guitar tablature and a preview trailer of the band teaching consumers how to play the song. (Billboard.biz)

• HMV Canada is unilaterally dropping prices on its catalog CDs by up to 33%. (Billboard.biz)

• Classical labels' fall schedules are filled with popular works performed by popular artists. (Billboard)

• AllOfMP3.com will be back "in the foreseeable future," according to a post at the site. (AllOfMP3.com, via Tech Crunch)

• The ridiculous exaggeration of the week comes from Erik Himmelsbach's review of the book "Marooned" in the Los Angeles Times: "Satellite and the Internet and such services as iTunes are making the airwaves pretty much obsolete." Must be quite a bubble he's living in. (Los Angeles Times)

Posted by Glenn at 10:42 AM | Link
|Apple||EMI|

• The New York Post's Brian Garrity has an article today on some staffing possibilities at EMI. The company, he reported, is considering a role for Terra Firma managing director Stephen Alexander, and looking for an executive to run day-to-day operations and may look outside of the music industry. (New York Post)

• Social video site Bolt.com has ceased operations. A goodbye letter is at the site. "Please be advised that the operations of Bolt, Inc. and Bolt.com have ceased. Net Revolution, Inc. and Bolt, Inc. have executed an Assignment for the Benefit of Creditors effective as of August 14, 2007." UMG sued Grouper in October 2006 and later settled for $10 million in March 2007. (Bolt.com)

• PassAlong Networks has spun off its Speakerheart platform. PassAlong co-founders Jozef Nuyens and Brad Edmonson will head the new company. Speakerheart allows indie musicians to publish, promote and sell their music online. (Press release)

• Classic. The migration from the majors to indie Koch continues. Foxy Brown has ended her relationship with Def Jam and will move to Koch. The deal includes her own imprint, Black Rose Entertainment. An argument could b made that Brown had worn out her welcome at Def Jam, but the writing is on the wall. If you're not selling many albums, and you're a rapper, why not shoot for a lower breakeven point? (Billboard.biz, which could not be a slower website.)

• A Russian court found the head of allofMP3.com not guilty of copyright infringement. Said the judge, "The prosecution did not succeed in presenting persuasive evidence of his involvement in infringing copyright law." In response to the defense's argument that allofMP3.com had paid part of its income to ROMS, a Russian collection organization, the judge said, "Everybody who uses soundtracks has to pay a certain amount of their income to the rights holders and this company has done that. MediaServices (the owner of allofMP3.com) has paid a certain amount of money to ROMS." (Reuters)

• The Guardian asks, "Can Universal turn the tide against Apple's iTunes?" I put in a "yes" vote, but UMG does not want to hurt iTunes as much as it wants to grow the overall pie. Everybody knows iTunes is going to be the dominant force in digital music retail for many years to come. (The Guardian)

• Clear Channel restated earnings for the period 2002 through 2006. Revenues dropped 9% for each of those years. The basis for the restatement was a reclassification of the company's television business and radio stations to discontinued operations. Clear Channel announced its plans to sell 448 radio stations in November 2006. By June 30, 2007, the company had sold 26 stations and had definitive agreements to sell 374 more stations. (AP and 8-K filing)

• How much would terrestrial radio stations owe to sound recording owners if they had to pay such royalties? MusicFIRST believes about 3% of revenues would be an "equitable" rate. To put some fear into people, the National Association of Broadcasters threw out a far scarier figure of 10-35% of revenues. (Listening Post)

• Here's an interview with Ministry of Sound head of digital sales, Jim Haysom. MOS has a number of ways to push its video content. Notably, it has achieved click-through rates from 5-9% from its pre-roll video ads and banners. The typical European banner ad gets a click-through rate of just 0.19%. (E-Consultancy)

Posted by Glenn at 10:19 AM | Link
|EMI||Online Stores/Services|

About a month ago I posted a graph that showed EMI's year-to-date market shares for digital albums and CDs. The cumulative figures showed EMI's digital market share had increased in the month after the company dropped DRM at iTunes.

Over the last two months, EMI's overall market share dropped 1.7%. An encouraging sign for its digital strategy? For the most part, yes. It appears that EMI would have fared worse over the last two months without gains from its digital strategy.

To properly look at how the strategy is working, it's best to look at EMI's numbers versus the market shares of the other majors. The above graph shows EMI and Sony BMG have lost market share over the last two months while Universal Music Group and Warner Music Group have increased their market shares. The other striking thing here is that the change in digital, CD, total album and digital tracks market shares of all three of EMI's competitors go in the same direction. That is to say that if Sony BMG's CD share dropped, so did its digital album and digital track share, and if UMG's digital share increased, so did its other shares.

Let's look at album market shares. EMI has increased its digital album market share by 5% in the last two months, but its CD share has dropped 2.6%. EMI's total market share -- including all other formats -- has dropped 1.7%. Note that CD and digital are going in the opposite directions. Also note that the end result, the total change, is negative. EMI and iTunes have been able to get people to buy more digital albums, but total market share has dropped. Is this because of a CD-for-digital substitution or because EMI's releases were relatively weak compared to those of its competitors?

EMI's June/July release schedule was not strong. EMI has barely been in the Top 40 over the last two months. New releases by Interpol, Korn, Now 24 have landed in the Top 40. Most of EMI's best-selling albums are holdovers like Corrine Bailey Rae and Norah Jones below #50. The light schedule could explain a good portion of the decline in overall market share, but why didn't EMI's digital track share go up? Even after giving consumers a DRM-free option, EMI's share of digital track sales actually dropped 1.4% in June and July.

The difference in digital album and track market shares can best be explained by the differences in pricing. Album purchasers are more drawn to unprotected downloads than are track purchasers. That is probably because DRM-free tracks' higher price of $1.29. DRM-free albums cost the same as protected albums. Both have the old, standard $9.99 price tag. Consumers may view $9.99 for a DRM-free album as a better value, and so they are buying more. But $1.29 for a DRM-free track? Consumers appear not to see a similar increase in value. Given the weak release schedule, though, it's hard to read too much into the decrease in digital track share. With stronger new releases, EMI's digital track share could easily have increased. Slightly fewer tracks sold at a higher average price could lead to an increase in overall revenue, so a drop isn't all that bad.

Sony BMG has fared even worse and reflects what EMI's market shares would be in the absence of an improved digital album share. Its overall album share dropped 2.8% and its digital track share sank 1.6% When all three drop in tandem, that tells me the company's release schedule is the prime reason, not a change in strategy. Relatively weak releases will lower market share while a stronger release schedule will increase market share. Because their three shares rose in tandem, UMG and WMG market shares appear to be related to their release schedules as well.

Is EMI's increase in digital album market a short-lived burst of consumer enthusiasm, the result of shrewd marketing or an indication that its overall strategy will pay off? It's just too early to tell. The publicity surrounding EMI's DRM-free downloads has surely had a a positive impact. My gut tells me the gain in album market share is not a short-lived burst, but a good thing won't go unnoticed by EMI's competitors. A competitive advantage like this can dry up quickly.

Posted by Glenn at 1:45 PM | Link
|DRM||EMI|

• Album sales dropped 3% last week and were 14% lower than the same week last year. For the year, album sales are down 14%. Last week's #1 album was a debut, UGK's Underground Kingz (Jive). With sales of 160,000 units, it was the only album to break the 100,000 mark. Digital track sales were flat last week and were 45% higher than the same week last year. For the year, digital track sales are up 48%.

• Everyone is always looking for a sign that the Beatles' catalog will be released digitally, and we're getting warmer. John Lennon's solo catalog -- sixteen albums -- is now available at iTunes. (Sydney Morning Herald)

• A year-long EMI marketing project will be handled by Saatchi & Saatchi. Well, music is marketing. (AdWeek.com)

• Sirius Satellite Radio inked a deal with Sonos that will allow subscribers to stream Sirius at home through Sonos' home music systems. A 30-day trial will cost subscribers an additional $2.99. Only 80 Sirius channels are available, and the home streaming service will be available only to U.S. subscribers. (Hollywood Reporter)

• Here's an idea: An underage music festival held in the London. The Underage Festival was open for people aged 14 to 19 and hosted 37 bands on four stages. "Corporate sponsors have been quick to embrace the trend, and all the hard parts — staging, logistics, security — have been arranged and paid for by the likes of MySpace, Converse and BBC's Radio1. Seizing the moment, UK indie music company Mute Records has also launched a label, Irregulars, pitching new, young talent at a new, young market, with (event organizer Sam) Killcoyne on board as a talent-spotter." (Time)

• Hal Hassel is moving from CMT.com to VP, Consumer Marketing at echomusic. (