EMI deal

The likely takeover of EMI by Terra Firma has been widely reported. At the offer price of 265p, the market is obviously anticipating contested bids based on the current (higher) trading price.

Guy Hands is far smarter than I and hence must see how to squeeze much more out of this business, something which I confess I'm struggling with. This is because I think recorded music is quickly establishing itself as having a perceived price of "zero".

Illegal downloads and music file sharing services are not to be condoned but they are having a dramatic effect on many people's perceptions of the price that they attach to music. Moreover, increasing numbers of online music services are enabling many people to consume the sorts of music they want at a very low cost (often zero).

An added factor in my view is the entry of Amazon into the music space. I recently met the Head of Corporate PR at EMI at an event. As a consequence of my "City" label, I was immediately deemed to be on the side of evil given EMI's poor showing in the City (to which I retorted it wasn't the City's fault that the company was performing poorly, nor was it responsible for the screw up over announcing results).

Anyway, she was praising their deal with Amazon (few days ahead of announcement) saying that it would help introduce greater competition into the music retail space. DUH!

As I pointed out to her, greater competition in the supply of a commodity/homogenous item will usually drive prices down, which I couldn't believe EMI wanted. Sure, it may temporarily help increase download volumes but it seemed inevitable to me that big distributors like Apple and Amazon would soon be returning to EMI to "kindly request" that EMI reduces its' wholesale prices for music downloads. It was therefore unclear to me that any increased volume would offset for lower prices. Moreover, if EMI's view was contrary to mine, it would have made sense for them to have lowered prices themselves to benefit from this tradeoff.

At the same time, what would this "transformational" entry do to their existing retail relationships both online and on the high street? You can imagine HMV jumping for joy. NOT.

If the Terra Firma deal does go through, it's going to be fascinating to see the nature of the transformation measures that will be applied. Their analysts will have been crawling over this deal for some time, so expect change.

It will also be interesting to see what impact operating under the cover of (demanding) private ownership will have versus living in the gaze of public markets.

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posted by John Wilson @ 2:27 PM Permanent Link newsvine reddit


At 10:04 AM, Blogger Hawkeye said...

Whilst I agree that the perceived price of music is approaching zero today, I think that this does bring some important issues into question. Musicians cannot continue to make music if not compensated for their efforts (The It Costs Money to Live principle). If not compensated then musicians would have to abandon that career to find some other means of support, making the world a poorer place. Some might even see this as a step in the right direction. The problems is, where does this stop. Are authors next because Google is putting books online already. Admittedly this is for books beyond copyright, but it can only be a matter of time for literature to also have a perceived price of zero. So we have now put authors out of work. Artists next ("Particularly those who don't change the bedclothes", I hear you say)? Where would this trend stop?

Where would this trend stop? Why should this trend stop? Are we looking at a change in the paradigm? I have always wanted to use that word in a sentence to make it look as though I know what it means. The point is that things are changing rapidly and economic theory has not really caught up. After all who would have predicted 20 years ago that real world enterprise (such as music makers) would have their perceived value as being zero, while people who are operating in imaginary digital worlds such as Second Life are able to do create digital representations of things that don't exist except in digital form and get paid for it. Economics is going to have to change to cope with these changes. In much the same way as economies had to adapt to the Industrial revolution.

At 9:11 AM, Blogger John Wilson said...

Hawkeye, I believe that musician revenues are actually going to switch to live performance. This form of entertainment can't be digitally replicated and already a few supergroups like Rolling Stones are getting the bulk of their income from tours. Likewise, I saw recently that a smaller band was giving their album away free to promote their live events from where they anticipated generating their revenues.

Of course, live events can't provide the scale benefits of recorded i.e. record once and generate revenues thereafter. However, the "experience" of live is something people will pay considerably more for than recorded ie ticket prices are £30+ typically and usually prompt additional revenues from merchandising and the like.

Book authors clearly have a different problem!

At 9:31 AM, Blogger Hawkeye said...

You make a valid point about live performances and from that point of view the logical choice for authors would be the Harry Potter trail. A series that is filmable and that offers merchandising opportunities in the form of toys and games etc. Clearly some authors already do this, but I am quite sure that I do not want to live in a world where the only 'literature' is something that is also 'filmable', not that I am taking any lofty stance on 'good' literature as opposed to 'bad'. I am happy to read the next Harry Potter just as I am also keen to read the next Ian Ma cEwan. Another thought suggests that in the way you see things like this developing where would the space be for poets because they can't all be the next Bob Dylan. Do we lose the next Ted Hughes because he cannot even make a meagre living from writing poetry because it has a perceived zero value? It is questions such as these that keep me awake at night and not global warming, though I will confess that April and early May gave me many sleepless nights over the fate of my football team.

At 10:52 PM, Blogger Neil Good said...


Could you give us an idea of your vision for the Music Industry.

Hawkeye has a point that Musicians needs to eat but it depends how many are doing it as their sole source of income.

The music industry is littered with tales of young naive musicians and bands signing very one-sided deals with record companies.

The general march of technology and Internet have made it very much cheaper to make recordings and distribute them to a wider public with a direct connection
between buyer and seller. It will be very interesting to see how much people donate to artists (will people realise that they should make a donation so their favourite artist is incentivised to make other recording for them and at what price they would and the general talent level available) and how artists approach the market (i.e. will some say I will not release another track until I get £10K in donations...)

I think there is still a very strong role for radio stations - FM radios are very cheap terminal devices and not to be dismissed as a way of reaching the masses and can provide a sample channel to many other merchandising opportunities (Virgin and co already offer albums and downloads).

People still value someone else choosing music for them and a radio station is still the cheapest way to do this to cover all social groups (i.e. include those who cannot afford laptop PCs and broadband and have the patience/ability to work MySpace/FaceBook).

So the only losers seem to be the record companies......it is rather interesting to watch the industry gently twist and turn on the gallows as they try to keep control in a market which is making them less relevant every day.

Overall, I do not think anyone will shed a tear that a few executives and hyperactive marketing types will have to find another industry to fund their expensive lunches.

Not my best written stuff, not got the same turn of phrase as you.....

Best wishes,

Neil Good.


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