Guy Hands Resigns
And sooner or later
Everybody’s kingdom must end
And I’m so afraid your courtiers
Cannot be called best friends
"The King Must Die"
Elton John
Financiers believe they’re indomitable. They’re a strange mix of world class athlete and professional poker player. They’re all in. They live large lives. They believe they’re entitled to all the money they make.
Guy Hands famously resuscitated a string of roadside service stations in Northern Europe by cleaning up the rest rooms. A fascinating insight that delivered handsome rewards. But what insightful thinking is going to save a major label? Sign more hit acts? Stop piracy? Bring back the power of terrestrial radio? Put music videos back on MTV?
In case you missed it, Edgar Bronfman, Jr. made the Huffington Post’s walk of shame today
It’s hard to rationalize a $3 million bonus when your company lost $56 million and its already anemic stock price dropped 25%. Maybe all these CEOs got away with their high pay because the hoi polloi believed one day they too could be rich. But now Joe Sixpack is worried about his job, if he still has one, and is scrambling to preserve the meager lifestyle he’s still got.
But it’s not only the executives. Jon Bon Jovi is excising the "Wall Street Journal" article from his band’s boards, the one that stated that he scalped his own tickets. And with the "New York Daily News" breaking the story that the PNC Bank Arts Centre is charging a $6 parking fee for EVERY TICKET, whether you arrive by car or not, whether you carpool or not
the stink might presently be on Live Nation, but we know it’s the acts once again. Because this is the only way the promoter can make a profit, by adding on additional charges. If they’re part of the basic ticket price, the act commissions them. There’s a war between the promoters and the acts and not only is the customer getting screwed, soon the business will be too, when no one has the money to afford these exorbitantly-priced tickets and there are no new acts that have created enough demand to fill these buildings.
Everybody’s trying to bring the old model into the new world, preserving margins and profits. But the old model’s never going to work in the Internet era. When people have a lot of music which they probably haven’t even paid for.
Guy Hands thought the men running EMI were idiots. They might not have run a tight ship, but the problem wasn’t the executives, it was systemic. The major label model just doesn’t work anymore. One in which you sign a bunch of talent, hoping one act breaks and pays for all your losses. In an era where the dinosaurs don’t even go platinum, there aren’t enough profits to support the house of cards. It’s every band for itself.
Yes, the acts have abandoned the labels. Radiohead most famously, but Counting Crows just announced they were going it alone yesterday
And Counting Crows may not have had prodigious album sales recently, but they do a good live business and believe…they can’t do it any worse than the label, and working alone they can keep all the profits.
You can’t fix a record label by hiring an Italian from Procter & Gamble. That would be like hiring Bill Gates to run the Yankees.
You can’t run a label when no one knows who to call. EMI is so decentralized, there are so few employees, that people who WANT to sign with the label are unsure who’s in charge.
You can’t run a successful record label when more people steal your main offering than pay for it and you’ve got such tiny market share that you can’t affect industry policy enough to try and rescue your bottom line.
It’s not only Warner and EMI. Hell, Bertelsmann sacrificed BMG for almost nothing to Sony, exculpating the conglomerate from a dying business. We’re left with Universal, which believes its market share will insure its survival.
But Smith-Corona’s dominance in dorm rooms did not prevent the typewriter company’s slide into oblivion.
Universal is akin to a king, raising taxes on his subjects in order to pay his bills. Doug Morris keeps trying to extract humongous license fees from tech entrepreneurs, all in an effort to preserve his bottom line. But even those companies that have paid have not yet figured out how to make money. And you can’t profit if your partners are bankrupt, or close to it.
Guy Hands had to step down because his investors were pissed off. Not only had they lost a fortune already, not only had Terra Firma written down $1.7 billion on its EMI investment, they’d had to pony up cash in September to avoid defaulting on the Citigroup loan, and chances are they’ll have to do so again in the near future.
No man’s a jester playing Shakespeare
Round your throne room floor
While the juggler’s act is danced upon
The crown that you once wore
The public has been dancing on the record industry’s crown for a decade now. The lunatics have taken over the asylum. We’re entering a new era, calling for a new model. One that requires the CEO of the company to relinquish the lion’s share of the profits to the act and be compensated commensurate with his performance. It was a good run. But all good things come to an end.
True, Guy Hands knew little of the music industry. But we shouldn’t be laughing as he’s run out of town. For he was the record industry’s best hope. If someone with a ton of cash who’s not beholden to the past can’t make it work, who can?
No one.
Major labels are now just repositories of copyrights, to be traded at cents on the dollar, their upside to be revealed as smoke and mirrors. The new music business is fraught with holes, it’s damn near impossible to make money when you can’t break an act, and when you do everybody steals the product and forgets about your charges moments after their peak, which is akin to a mountain in Minnesota than a Teton.
Music will not die. People will not stop listening. But who is able to earn a living making it and who is able to earn a living selling it will be different. We’re experiencing a changing of the guard. Just like George W. Bush broke our country and the populace did the heretofore unthinkable, elected a black man to the Presidency, the savior of the music business won’t be a usual suspect, not a financier but an outsider, not burdened by decades of baggage, one who specializes in saying yes rather than no. The darkness will lift. But the old era must end first. Guy Hands relinquishing his duties, being punished for poor performance, is a good first step.
