Year In Review: Music Biz Undergoes Big Changes in 2010, Only More to Come
As 2010 winds down, there is plenty of industry action to look back upon and even more still to come with a number of significant changes looming. It all adds up to an end-of-the-year full of more questions than answers, but at least it keeps things interesting…
Home on the Grainge
It was back in the beginning of the year that Lucian Grainge’s assumption of the CEO position at Universal Music Group in January of 2011 was announced, beginning a year long process of reviewing the company structures on both coasts. The fate of current UMG chief executive Doug Morris remained murky until recently as reports began to fly of his likely jump to a rival music group. But what of the new composition at UMG? Still the largest of the remaining major music groups, in both recorded music and publishing, there are no signs of slowing for the Vivendi-owned company, who is positioning itself to streamline operations with new arrangements that will see labels combining some back-office efforts, or as CFO of the French conglomerate put it recently, “a lot of fat can be taken out without hurting muscle and bones.” Looking at the various labels within Universal, it appears that most current heads will stay within the group, at either their current positions or newly created ones, as will most likely be the case with Island Def Jam ruler Antonio “L.A.” Reid. Rumors began circling back in October of an imminent firing, with many claims being made that the IDJ head was as good as out, however as others predicted, a new label imprint for Reid is now the likely outcome. There is talk of an increased dominion within UMG for Universal/Motown and label prexy Sylvia Rhone as well as Universal/Republic under the leadership of CEO Monte Lipman moving forward. And though a title for Barry Weiss, who just announced his move from RCA/Jive to Universal this past week, has yet to be announced, all signs seem to indicate that he will act as Grainge’s primary lieutenant on the East Coast while the new group chief resides in Los Angeles. What roles David Massey and Steve Bartels will take in the new structure remain unclear. Look forward to more changes to come in the new year, including word to spread of a newly inked deal between Universal and a major management firm who sold the label a significant stake in the operation…
Ghost of Epic '10
With the exit of Rolf Schmidt-Holtz from Sony Music on the horizon, talk of his successor has turned squarely on Doug Morris, with sources claiming that it’s as good as done, and that earlier contender Sony/ATV CEO Marty Bandier is uninterested in taking the position. Much has been made recently of Columbia/Epic chairman Rob Stringer’s missteps in the artist-executive hiring of Amanda Ghost, who is departing from her presidential post at Epic, and talk coming from within the building continues to forecast a murky future for the label. Will the label fold into Columbia? What will the future hold for current Epic head of A&R Mike Flynn? What is the future for the younger Stringer at Sony, and is it tied to that of Howard Stringer? The elder Stringer has denied recent reports of his interest in the chairmanship of BBC Trust, though rumors of his time coming to an end at Sony Corp continue. And will Charlie Walk find himself back in the Sony fold?… The handling of EMI by Terra Firma boss Guy Hands, has left many mystified, from the initial timing and price of the purchase, the revolving door of outside executive hires, to the recent courtroom debacle with lender Citigroup. While strong releases from Lady Antebellum and Katy Perry along with the Beatles-on-iTunes coup are all positives steps, and many have praised recent promotions in the upping of Roger Faxon to chief executive of the group and Dan McCarroll’s promotion to oversee the Capitol and Virgin labels, it strikes most as too late. Talk of a takeover of EMI by Citigroup before the year’s end ramped up this week after reports that Terra Firma investors ruled out investing more funds into the company to meet the next debt obligation to Citi. If the bank does indeed take control of EMI, the common belief is that it will sell off the recorded music and publishing divisions to the highest bidders – the two mentioned most often being Warner Music Group and BMG Rights Management… Shifting to the bunny, the company made industry waves in September with Lyor Cohen initiating some top-down restructuring, which started with naming Rob Cavallo as the new Warner Bros Records chairman and CEO, removing Tom Whalley, a move seen as a long time in the making, as Cohen and Whalley notoriously never saw eye-to-eye. The shake up also resulted in Todd Moscowitz and Liva Tortella being named Co-President/CEO and Co-President/COO, respectively. Following the executive shuffling, WBR departments underwent scrutiny, that led to more departures from creative and promotion executives. Eyes now turn to the possibility of acquiring EMI’s recorded music division, which would considerably boost Warner’s market share as well as narrow the major music group field to just three. If it goes down, it has many wondering what changes would be made to the executive team currently being assembled at EMI under McCarroll… Hartwig Masuch, CEO of BMG Rights Management, the joint venture backed by Kohlberg Kravis Roberts & Co and Bertelsmann made his intentions of being counted among the top four publishers well known, and a year of aggressive acquisitions has carried through that goal. Those in the know share that KKR, a global private equity firm specializing in leverage buyouts, is the driving force behind the quick and expansive activity. High profile purchases of independent publishing companies this year included Stage Three, Evergreen and most recently Chrysalis. If the JV is able to acquire EMI Music Publishing in the event of a sale, it would see the new publishing player competing for not only a place at the table with the other major publishers, but as a contender for the current top spot held by Universal Music Publishing…
Meanwhile, onlookers will be waiting to witness what the future holds for MySpace, as the once all-powerful social network continues to slide. Even with a redesign, progress on the mobile front and a new ad deal with Google in place, most believe the writing is on the wall, with more layoffs at the company expected to come down in the new year. And how will this effect MySpace Records? The label was all but shuttered in the first quarter of 2010, only to be resurrected, sort of, over the summer with the hiring of David Andreone and a new ill-defined partnership with Josh Deutsch’s Downtown Music… And with all the reporting and speculation surrounding new cloud-based services from the likes of Apple and Google in 2010, as well as the entrance of Spotify in the U.S., all will have to go on next year’s wish lists. Google has made its plans to launch a music service well known, with the latest reports indicating that they’re willing to pay labels massive sums to get a service off the ground, while Apple continues to remain mum on any plans for a new streaming service… IN THE MIX: Steve Moir, Sylvia Rhone, David Wolter, Sandy Roberton, John Rudolph, Josh Abraham, Foo Fighters, Andrew Brightman, Greg Hammer, Nick Gatfield, Jason Flom, AWOLNATION, Ed Pierson, Cool Hand Luke, Dan Petel, Hurley
12.9.10More Bits & Pieces… Terra Firma Investors Balk at Fresh EMI Funds, What Kind of $$ Spotify Could be Generating in the U.S. & More…
Investors weary of future
More bad news for Guy Hands, as The NY Post reports that Terra Firma investors are extremely cold on the idea of putting more funds in EMI, as the private equity firms’ next debt obligation to Citigroup comes up in March of 2011… It’s already known that Spotify won’t be landing in the U.S. before the end of the year, with no indication from CEO Daniel Ek on a new timetable, but Evolver.fm takes a look at what kind of subscriber statistics and revenue the digital music service could be generating if it were operating in the states… Speaking at the LeWeb conference yesterday MySpace CEO Mike Jones was defensive of the social network’s seriously waning status, saying, “I don’t wanna be the place that replaces iTunes. I wanna be the place where you learn about music and then take that to wherever your music consumption happens.” An admirable position, and true in the aspect that the site continues to act for the most part as an initial place one can listen to an artist, though the discovery element is lacking, with some recognition from Jones, adding “We do need to get better at surfacing the music that interests you”… Elsewhere, Howard Stern renewed his contract with Sirius XM for another five years, the sum is undisclosed at this point… Apple is beginning to roll out increased song samples in the iTunes store… And Madison Square Garden in is the process of completing a deal to purchase the L.A. Forum…
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Closing Out 2010; Change is in the Air…
Industry in Transition
Heading into the final stretch of the year, and further into a major transition period, the industry continues to be abuzz with uncertainty as questions surround the situation at all the music groups… Is the die cast for now at Warner Music Group under new chairman Rob Cavallo and co-prexies Todd Moscowitz and Livia Tortella? Many saw the courtroom defeat of Terra Firma in their lawsuit against Citigroup as the final blow to EMI Music’s future, is it now only a matter of who and for how much? Will heavy changeover proceed well into the new year at Sony Music? The recent exposé of Epic Records under Amanda Ghost had tongues wagging, but the real story is at the top. And will Universal Music Group come out relatively clean? The restructuring efforts under Lucian Grainge have already begun, but the market dominance in both recorded music and publishing continues… Stay tuned.
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More Bits & Pieces: LimeWire Pirated, Viacom Selling ‘Rock Band’, WMG Acquires Roadrunner & Faxon’s Memo
Viacom dumps Rock Band & maker Harmonix
In a response to the surfacing of pirated LimeWire software online, LimeWire LLC has issued a cease-and-desist notice in an effort to stop the spread of the illegal software. The company was recently handed a permanent injunction, forcing the end of their distribution of the file-sharing software… Viacom has announced that they are selling Harmonix and have classified the Rock Band maker as a “discontinued operation” – the decision comes in response to falling sales for the once hugely popular game… After buying nearly 75% of the label in 2007, Warner Music Group has fully acquired Roadrunner Records. The label is expected to operate as an individual brand within the WMG stable… And Roger Faxon has issued a memo to EMI staff in response to the whirlwind of forecasting and speculation surrounding the label in the wake of the recent losing verdict for Terra Firma in their case against Citigroup. Billboard has the memo in full here…
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Situation at EMI: Was Exec Shuffling Ahead of Verdict Early Signal of Break Up?
Exec cost cutting ahead of sale?
In the wake of a courtroom defeat for Guy Hands and Terra Firma in the legal action brought against Citigroup, all talk has turned to the fate of EMI. With the likelihood of more investors stumping up funds to keep the company in control of its current owners slim, and a dept-for-equity swap with Citi or even licensing content to another major music group, an avenue that was explored previously, exist in the realm of possibility, almost all signs indicate that one way or another the music company will fall into new hands (no pun intended). The list of suitors currently being thrown around includes the usual suspects who have had an eye on EMI’s recorded and publishing sectors, such as BMG Rights Management, Warner Music Group and Sony/ATV. But a look at executive movement within EMI over the past months seems to indicate that a sale or break up of the company may have been a foregone conclusion. Back in June Roger Faxon was named Group Chief Executive, moving him over from his longtime leadership at EMI Music Publishing, and soon after executive house cleaning began with Faxon ultimately tapping Dan McCarroll to take the reigns as prexy of Capitol & Virgin Label Group just last month – McCarroll was also plucked from EMI’s pubco where he was previously EVP of creative. And last week saw the news of Rob Stevenson’s exit from the label, after being installed as President of Virgin in 2008 under now departed Nick Gatfield. Names of possible replacements being rumored include more execs already planted within the EMI structure. So are all the internal moves simply a reversal in the earlier unsuccessful practice under Hands to bring in outsiders? Or as some are indicating, is it to minimize costs ahead of a sale and reduce the typically high expense of hiring outside for creative executive positions? Stay tuned…
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Terra Firma vs. Citigroup: Jury Deliberates
Label's Fate in Jurors Hands?
[UPDATE: After just 4 1/2 hours of deliberation, the jury has ruled against Terra Firma in the case it brought against Citigroup, which could possibly force Hands to relinquish control of EMI to the bank...] Yesterday the jury in the trial between Terra Firma and Citigroup over the 2007 acquisition of EMI heard closing arguments from both sides. David Boies, attorney for Terra Firma, gave an impassioned speech to the eight remaining jurors, which lasted over two hours, essentially explaining that if it were true that Citi’s David Wormsley had not mislead Guy Hands into thinking there was a rival bid for the storied music company, then he of course wouldn’t have gone through with the auction purchase, saying “If they hadn’t believed Cerberus was bidding, if they didn’t believe there was an active auction, why would they have gone ahead and submitted a bid?”. Citi attorney Ted Wells gave a very matter-of-fact argument that his client never mislead Hands, and there was no concrete evidence provided during the trial to prove otherwise. The basis of his closing argument being that Hands was brash in thinking that he could turn “tin into gold” and that he only brought the case about because he was upset over his poor investment, saying of Hands, his “magic sauce didn’t work this time.”
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Terra Firma vs. Citigroup: Cat-Fighting & Juror in Question
More Bad News for Hands
This week is expected to be the last in the trial that has Guy Hands pitted again U.S. bank Citigroup, in the well publicized disputed over Terra Firma’s 2007 acquisition of EMI. Hands received more bad news as proceedings resumed this week, with the Judge, who called the case a “cat-fight between two rich companies,” ruling that the jury will not be allowed to consider “punitive damages,” and it also looks unlikely that the Judge will allow the plaintiff to pursue “consequential damages” – the additional debt obligation funds that Hands and his investors dumped into EMI this past June. Citi lawyers have also sought to remove a juror from the panel, because her name appears in the credits for Michael Moore’s film Capitalism: A Love Story under “special thanks” – there was not an immediate ruling on the request for removal. The jury is expected to start deliberations on Wednesday…
[*UPDATE: The juror in question Donna Gianell, was in fact removed from the trial by the Judge Rakoff on Tuesday evening, though the reason given was that she lied to the court about having a conversation about the case with other jurors in an elevator... Ted Wells, lead Citi attorney said of Moore's film “This movie is so insidious,” including “You got to have a verdict at the end of the day that people will respect.”]
[**UPDATE: New York Times DealBook talks to the dismissed juror]
10.29.10Terra Firma vs. Citigroup: No Lost Profits for Hands
Yesterday Judge Jed Rakoff, who is presiding over the Terra Firma case against Citigroup, ruled that he would not allow testimony from a Terra Firma witness to demonstrate a theory of “lost profits,” essentially cutting possible damages the investment firm is seeking by 1/4 of the original $8 billion sought – it was one of three theories the plaintiff’s team had based their claims for damages on. Guy Hands lawyer David Boies also withdrew another theory that Hand’s company, if victorious in the case, would receive compensation for being “locked in” to the EMI investment while its value fell, which could have been calculated in the amount of $2 billion. The prevailing angle now is that of “fair market” which potentially could see damages awarded in the same amount, though it hinges on how market value is calculated – of course this is all presuming a victory for Hands. Two of Terra Firma’s fund directors in the EMI investment also testified yesterday, recalling two separate occasions that would support the alleged phone conversations regarding the Cerberus bid.
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Terra Firma vs. Citigroup: Big Love & Playing Games
The Worm Testifies
Yesterday saw the end of Guy Hands testimony in New York City. Facing repeated questions about the lack of evidence proving his alleged phone conversations with Citigroup’s David Wormsley took place, Hands stated that he “never kept notes. Even at university,” due to illegible handwriting from dyslexic and dyspraxic conditions… Wormsley also took the stand for the first time yesterday, though for only a short time, less than 30 minutes, primarily trying to establish his trustworthy standing with Hands and his firm, telling Terra Firma lead attorney David Boies “I would always be as truthful and honest as I could be.” Boies also provided a number of email exchanges that show Wormsley’s early focus on wooing Hands and Terra Firma, presumably in an effort to start the process of leading jurors on a path that ends with The Worm’s lack of integrity as a trusted advisor to Hands being exposed. One such exchange had Wormsley writing in an email to another (now former) Citi executive, For reasons I won’t go into, we have to show big love to Terra Firma. To that end, it would be very helpful if you had an hour in London next week to sit down and meet with the Terra Firma team and hear their story... Today Wormsley’s testimony continued, with more phone calls and emails being brought to light – one of which was a call to Wormsley from a member of the EMI deal team relaying a conversation with Hands in which he disclosed Wormsley had tipped him that a bidding price for the music company at 2.4 pounds per share would be approved. Wormsley said he was “furious” about the call, and wanted Hands to send a “written confirmation” to the EMI team declaring that conversation had not happened – this came after testifying earlier that Hands had a reputation for making “low-ball offers.” Also during his time on the stand today, he stated that Citigroup did not act as an advisor to Terra Firma on the deal, and that a majority of his correspondence with Hands dealt with financing aspects. In another email that was revealed, sent to EMI’s Eric Nicoli hours before the bidding deadline, Wormsley indicated that he had told Hands not to “play games on price.”
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Terra Firma vs. Citigroup: More Testimony On Alleged Phone Calls
All Hands on Deck
During the second day of cross examination by Citigroup attorney Ted Wells of Guy Hands, the Terra Firma boss found it difficult to provide concrete evidence of the three phone calls between May 18 and May 21 during which Hands claims Citi’s David Wormsely told him Cerberus Capital Management was also prepared to bid on EMI – phone calls upon which almost the entire case hinges. Today two Terra Firma employees had better recollections, testifying in support of Hand’s claims, with Riaz Punja, who oversaw the team in charge of due diligence for the EMI deal, codenamed Project Dice, stating “Guy called me up over the weekend and he said, ‘I’ve just had a conversation with David Wormsley and he tells me that Cerberus is in. They will be bidding tomorrow, and they will be bidding a price of 262.’” Punja, who later became financial managing director at EMI, also told jurors that the codename was in reference to the Rolling Stone’s song “Tumbling Dice.” A second Terra Firma employee testified that she had taken notes indicating “other bidders – one at 262″ during an investment advisory committee the day prior to the auction.
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