Since becoming the sole ruler of Universal Music Group at the beginning of 2011, Lucian Grainge has been diligently remaking the company according to a clearly defined set of priorities, starting with the building of a strong and aggressive A&R force dedicated to attracting and developing top talent. When EMI’s recorded-music assets became available earlier this year, Grainge saw an opportunity to exponentially increase UMG’s talent cache while also substantially enriching its catalog holdings, and though he wound up having to give up more than he would have liked, the respected English veteran scored a historic, landscape-shifting victory when the EU formally approved the $1.9 billion deal on Sept. 28.

During his first in-depth post-merger interview, an elated and affable Grainge laid out his vision for the combined UMG-EMI, point by point. What he didn’t (and couldn’t) reveal was that he’d been engaged in secret talks with Columbia Co-Chairman/COO Steve Barnett about the latter becoming the head of the new EMI—talks that were about to come to fruition. Every other topic was on the table.

When Citigroup first put EMI on the block, everyone assumed that Warner Music was going to get it, and Universal was merely thought to be on a list of other possible bidders. So there was a certain amount of surprise when you guys snatched the prize. Were you interested all along, or did something occur during that process that exponentially increased your desire to get that company?
We had always been interested. Nothing changed; I just keep my cards close to my vest. There’s a variety of things that get discussed in the village of the music industry. And I think that we made a bold move, and it came off.

Read the rest of the interview after the jump! [HitsDailyDouble] [expand title=”More” swaptitle=”Less” trigpos=”below”]

Did you anticipate the amount of sacrifice that would be demanded by the European Commission?
We had built into various scenarios what divestments could have been stipulated in Europe, where our marketshares were more substantial in terms of our own repertoire. We’ve ended up having to divest more than we had hoped, but having acquired two-thirds of EMI on a global basis, we feel very good about it in terms of our creative, commercial and strategic goals.

The biggest sacrifice would appear to be Parlophone, which has been described as the flagship EMI label in the U.K.
Around 15 or 16 years ago, EMI started to move Parlophone forward as a brand and to sign artists to it, Coldplay, Kylie and so on. If you actually look at the successes of Virgin over these last years and how Virgin became an improved proposition, it started to balance out more. But Parlophone as a label has achieved a great deal and we’re sorry to have lost it.

What happened at Virgin in the last three or four years that gives you the feeling that Virgin has such an upside?
They delivered Emeli Sandé, who is the biggest-selling artist in the U.K. at this time. And I think that just gives a taste of what their accomplishments have been, and also an example of what the opportunity is within the market. I’ve always felt that the quality of a roster does between 50% and 75% of its talent scouting. The amount of artists that Coldplay helped Parlophone sign [by the band’s presence on the label] is quite significant. I’m a great believer in the quality of rosters.

Do Virgin and Parlophone have separate A&R teams in the U.K.?
Yes, but we will also build on what Virgin Records has accomplished and, at the same time, create a Capitol Records in the U.K., complete with its own creative team.

So Capitol will replace Parlophone as the other EMI U.K. label?
That’s right. You heard it here first. EMI has a different meaning depending on which continent you are speaking about. I’m learning this and trying to better understand it as we go along. The United States is about Capitol, and the U.K. and Europe are about EMI and Virgin. It is my ambition that we take advantage of the strengths that these identities have globally and geographically to where it can make the most difference. And I also see a great opportunity for us to really create an arc between Capitol Records in the United States and in the U.K. And that will be done with new artists, and we may even add resources that we have internally into Capitol to give it a leg up and to get it started. Capitol Records, West Coast music, that’s an important brand. It’s also a big part of West Coast American culture, and is a focus of my strategy and my investment choices.

In terms of the conditions of approval from the EC regarding Parlophone, could you conceivably wind up distributing Parlophone, or picking up some of its executives or acts at a later date?
No, we’ve been excluded from that and from that process as part of the agreement on the divestments with the European Union.

You can’t offer any of them a job. That’s the bottom line.
Correct.

And you can’t try to sign any of their artists.
Correct.

While this process was going on over the last few months, you quietly made contact with certain indies and persuaded them to come over to your side. However, Martin Mills and Impala continued to resist based on this notion of greater consolidation. How do you respond to that challenge?
It’s really too soon to debate what happened, because it’s only a matter of months ago. But I think history will look back and show that the independent community and the entrepreneurs within it had a tremendous opportunity which a lot of them seized with excitement at what the industry could look like, not only in Europe, but in the United States. And I think that was an exciting opportunity for the music industry, for the future of music, about how the industry is organized, about how it fights the real challenges, which are not within the industry. The issues of piracy, about how we monetize—digital distribution, about our relationship with technology, and how we share information in terms of what other industries are doing or what the opportunities are for music and for the people that we’re responsible to—the artists. That’s what the opportunity was, but it wasn’t to be. However, I will work tirelessly for what the industry couldlook like, and in my opinion, what the industry should look like. But there are groups of people that were about the status quo and wanted things to stay how they were. I’ve never done that. I’m obsessed with the future and its opportunities; about what ambition we have for our artists, for our company, and for our industry.

The opportunity for the independents to benefit from the disposal of assets now doesn’t appear to be a reality. You talk about how you’d like the industry to be in better shape over a period of time. What do you have on your agenda to make that happen?
I think that it is not for today, but for tomorrow. How the industry is organized between entrepreneurs, independents and the major companies could be addressed in a different way. I think that the squabbling, the propaganda within the industry against competing interests, is prehistoric. It’s old-fashioned, it’s not helpful, and the industry has an opportunity to actually lead itself with the leaders within it, whether they’re independents or entrepreneurs. I think that it needs to be led from the front, and we need to address technology, how we are perceived alongside other industries in the content chain—books, films, games; the relationship with its trade body, what the trade body is actually there for. When I hear people in organizations say that “piracy has had little or no impact in the music industry,” that makes me furious and it makes me despair that no one within the industry responded. And that’s where we have to grow up and to actually debate about what the future of the industry can look like. As leaders in the music industry, we have a responsibility to behave properly to the outside so that those around us can understand what we contribute economically, culturally, politically and creatively.

From what you’ve said, you do believe that a strong independent record label structure is an important part of the business.
Look at the structure of what PolyGram was, of what Universal became. Look at entrepreneurs like Jimmy Iovine, Berry Gordy, Russell Simmons, Chris Blackwell, Herb Alpert and Jerry Moss, and David Geffen. Look at our relationship with Slim and Baby [Cash Money], withScott Borchetta and Scooter Braun. The music industry has always sat alongside entrepreneurs. And I believe that entrepreneurs like these form part of that entire broad ecosystem of what we know as the music business. I’m proud of my relationships with them. I’m proud of the work that we’ve all done together. And in some ways, I’m more excited about the work that we’re going to be able to do in the future, because I see them at the heart of everything that we do. It is vital that the entrepreneurs and independents are successful, and it’s vital for them that we are successful alongside them as well. And I think that technology partners, consumers, artists and even politicians have to be absolutely vested in our future.

The music business is still buttressed by the major label CEOs, and there are only three now, one of whom may or may not be around long-term. But as for the other two, you have a long-standing relationship with Doug Morris.
You’re right, but that’s not the point. If I’m able to execute this, I don’t see it as four to three, I see it as three to five or three to six. I see it as a healthy, profitable well-run, best-in-class music company that actually funds, supports and enhances entrepreneurs and independents alike in the same way that it did once before, in multiple genres. And that is my ambition. I’d like the two other CEOs to join me in some of this, so that we can as an industry return to growth.

It’s been speculated that BMG is among the potential buyers for the package of divestments. Where do you see BMG in this scenario?
We have had robust interest from both inside and outside of the industry. At the end of the day, we have a sales strategy, we’ve appointed Goldman Sachs, we have advisors and I am absolutely committed to getting the best prices and the best homes for these divestments. Nothing else. It’s an auction.

Given Warner’s vocal opposition to this merger, can you imagine a scenario in which you accept their bid for Parlophone?
We are very open-minded about where Parlophone goes. I just want to make sure it goes to an investor that will be responsible. And at the same time, the balance is between our satisfaction on price, and also my shareholders’ satisfaction on the value of the divestment. You know, the good news about this divestment process is that they are really good divestments. There’s great quality there. And it is our responsibility as a team to make sure that we materialize the best possible package for ourselves.

Is there a ticking clock, or do you have the ability to wait them out?
There is a ticking clock in any sales process, and we plan to get on with it.

Can we talk about the value of Parlophone?
Yeah. Five billion. [laughter]

What part of the earnings did Parlophone generate of the total EMI earnings, approximately?
I can’t get into the details. If HITS would like to join the bidding process, then we’ll probably be able to share it… [laughter]

We would love it.
I bet you would. And I’d love you to own it.

How does the new world order solve the piracy issue?
It sits alongside it. Wherever I was, I’ve always been outspoken against piracy. I’ve always seen carrots and sticks. I’ve always seen that there have to be legitimate and sexy offers for the consumer and platforms alongside antipiracy measures. I’ve tried to do things in Germany and I couldn’t do them because of data-protection control. Combating piracy is one of the things that sits alongside an agnostic technological approach—licensing your music as widely as possible—and having a well-run business. That is an absolutely fundamental part of what we do, and I’ve taken this on; I’ve always been vocal about what we have to do about piracy in all forms, whether it’s physical or online. There have been laws in France, the U.K., Ireland and Sweden. There was the whole debate in the United States. I hope that we’ve been right in the mix of that. But the entire industry has to come together within that mix, and it can’t be spearheaded by one person or one trade body.

It seems like the piracy issue in the United States over the last 10 years has been led by Sony BMG and Universal. And the RIAA is run by Sony and Universal, basically, correct?
No, that’s an amusing misconception. Warners has a huge part to play in the RIAA as well. If you are talking about the strategy of suing people, that is in the past. I’m talking about new strategies for the future.

You now have these two iconic logos. Is this still Universal Music Group, or is it Universal/EMI now?
It is Universal Music Group.

What are Capitol and Virgin going to look like in the United States?
It is my ambition that we are going to develop and invest in Capitol and Virgin. They will be separate creative staffs on the A&R side. There will be a new level of ambition. We are looking at some opportunities to add to repertoire within the current EMI structure by putting things together alongside some of the Universal Music Group assets. It’s too early for me to go into detail. But I can tell you that we will join Capitol Nashville and UMG Nashville together. And then, we can take it a step further by putting the upstreaming potential of the combined UMG Nashville into Capitol Records. So for instance, the new Shania Twain album could be released on Capitol, as opposed to Mercury Nashville.

What about headcount reduction?
As I have said, unfortunately, there will be job losses, but it will be in the areas of duplication. Our focus is to expand the creative parts of the company and to release more music.

So if you’re an A&R guy, you might feel a little safer than if you are a back-office person.
If you’re a good A&R guy. [laughter]

Is it true that Dan McCarroll and Greg Thompson will be part of the new EMI?
Let me just say about Dan and Greg for the record. I think very highly of both of them. I’m looking forward to working with Dan. He’s exactly my kind of A&R guy. As we know, he’s been a musician, he’s worked in the studio. I’m looking forward to working with him, and I’m really glad that he’s part of the team. And exactly the same with Greg. The work that he’s done, how he’s kept his team together, has been remarkable—and you can see what the results are.

Let’s shift the focus to UMG in the States. The revamping that you’ve done within UMG since you’ve been in charge has been primarily on the East Coast. What led you to put your initial focus there, bringing in Barry Weiss, etc.?
Well, it’s happened on both coasts, actually. John Janick joined us at Interscope; David Foster joined us at Verve; and Mike Dungan joined us in Nashville. I’ve made a huge structural change in our publishing company over this last period, with new leadership and an expansion of its creative staff. And strategically, we’ve acquired all of EMI U.S., and the breadth and the impact that this will have on the West Coast in terms of options and creativity and the choice for artists is quite significant. So I would argue that I have two beautiful daughters. One’s called the East Coast and the other the West Coast; and I love them both.

What led you to put UMG world headquarters here in L.A. rather than New York or London?
You have to remember that Universal over the last 15 years was a coming together of the old PolyGram and MCA structures. The music publishing business was always globally L.A. All of our administration, our sales, our key accounts, our business affairs, legal, distribution, all were West Coast-based. And I just saw as the business was evolving, how important the future of technology and how we sit in and alongside technology, and what that learning process is, and what that ideas process is, and the delivery-execution process is—so I wanted to be 45 minutes away from all of this. And I am, and the opportunities that has allowed me, and I think symbolically within the company, in terms of what our relationship is with technology and Silicon Valley, is something different. For instance—and you heard it here first—UMG will open an office in Silicon Valley to work more directly with entrepreneurs and tech companies there. So I’ve been very satisfied with the move here. And in terms of our cost savings and our synergies, our requirements are to globalize UMG. We historically had three structures: London, New York and L.A., and now we have one. So we’re leaner, we’re flatter, we’re more efficient, we’re better disciplined, and we have a real global outlook, and I’m very proud of that.

Let’s talk about Interscope. This is the first major change that’s happened at Interscope in years. Why did you choose John Janick?
Jimmy [Iovine] chose John. I had met John. And I was incredibly impressed with him. John joining is something that Jimmy is very excited about, and it’s something you’re going to have to talk with Jimmy about.

Is Jimmy going to continue with the label?
Of course.

But he’ll be freed up to do these other things that he does, to a greater degree—American Idol, Beats Audio.
He has some very exciting ideas for the new subscription service, as well. Jimmy, like me, is interested in tomorrow, and it’s to his great credit that he does not accept the declines within the music industry. And it also comes back to the part of my raison d’être for the acquisition of EMI. I don’t accept declines, either. I think that we are in control. If we are clever, creative, disciplined business people, we can reverse decline and accelerate forward. And once again, that’s what Jimmy has done. If you look at the strategic courage of John Janick’s appointment, which is also intended to grow Interscope creatively, and to continue to improve and become, I suppose in some ways, potentially the entrepreneurial structural model of what a record company can look like within a major organization. If you think about what is actually executed, as opposed to just listen to bullshit, the track record is quite extraordinary.

Monte Lipman is on fire right now, and I would think the biggest change that has occurred is you’ve beefed up the A&R department.
That’s right. We separated out Republic. When I arrived here, Republic didn’t have its own P&L. It’s easy to say, “Monte’s on fire. Monte’s got a hot streak. He’s got lots of hit records.” Let’s be more sophisticated than that when we say these things. He has grown his business, he outlined the strategy, expressed his ambitions for what the business can look like and he’s created an incredible portfolio approach to music and to repertoire. Look at his relationship with Cash Money, his perseverance with them, how he’s delivered their releases, how they’re structured and integrated, and they work together, and how everybody covers everybody’s back. And exactly the same applies to his relationships with Scott and Big Machine, and the opportunity and the hunger that there is not just for Taylor Swift, but the larger strategic ambition for what we’ve done in Nashville and how they set that up. Monte’s ability to deliver from artists likeFlorence + the Machine, to take records from Scooter. Talk to Rick Rubin about how he’s working with their team, to have an organic-meets-surgical-strike label with Tom Whalley—the breadth of that. I was very upset that Rob [Stevenson] left originally. Max [Hole] and I tried to keep him. It wasn’t to be. He went to Virgin, ironically, which we know didn’t work. Monte asked me to advocate and support him bringing Rob back in. We did, and look at the success that Rob’s having with his new artists. So it’s multi-generational, multi-entrepreneurial, and I think that, rather than just say, “Oh, it’s all about hits, and Monte’s on fire,” there’s got to be strategic and intellectual reasons for that, and I’m delighted with how he and his brother Avery are doing.

One of the really major things that they’ve accomplished this year is repeating with Justin Bieber. He seems to be gaining credibility now, maybe even moving toward a future Justin Timberlake-type career as he grows. I think this album is way better than his earlier ones—it’s more sophisticated and shows growth. The stars have to align between the artist having the intelligence, the right management—which, obviously, we have with both Justin and Scooter—and the right degree of intellect and open-mindedness about that change within the label. And that’s not only A&R, its promotion and publicity.

And what I think is the artist of the year in Frank Ocean, who’s probably among the favorites for Grammy night.
Both my 12-year-old daughter and 19-year old son count Frank as their favorite artist. I think that the accomplishments Barry and his team have been able to achieve on the East Coast add up to a complete turnaround when you’re looking at profitability and opportunity. What Barry has done with IDJ and Motown in particular is actually taken all three structures of the business back to substantial profits while still investing in new music.
So we’ve synergized. We’ve removed duplication. We had 250,000 square feet in Worldwide Plaza that we don’t have anymore. Look at Island Def Jam, Steve Bartels; and with Joie Manda coming in. You look at the relationship between promotion and marketing. Def Jam is alive. Def Jam is not just a logo anymore, it’s a label. And touching back to what I said earlier about how rosters need to do and can do an enormous amount as a talent scout in A&R. With Frank Ocean and Nas, you know, we’re talking about names that roll off the tongue, and we hadn’t had that for some time. I believe that the artists, the management… Look where we are with Rick Ross. Look where we are with Kanye’s label, G.O.O.D. Music. I mean, it’s fantastic stuff.

You were saying that the industry has shrunk in the last decade. Can you see an opportunity for it to come back?
I’m working tirelessly to create more music and to run a better music company so that we stop the declines, because declines aren’t acceptable.

Do you feel that we need a social revolution of some kind? Bob Dylan was part of a movement. The Beatles were a cultural change. They dared a whole generation. So did punk and so did Nirvana. Here’s an analogy: When Tiger Woods came along, golf was a secondary sport, then everybody moved to golf. We really don’t have our Tiger Woods. Adele wasn’t really a social phenomenon.
It’s a good question. I think that the consumer has so much more now in terms of choices. I think that Nirvana, and possibly the Beatles and certainly punk were the equivalent of social networking without the technology. And I’m not sure that that can be repeated because there’s so much technology for filling the emotional algorithm of need itself.

That brings us to Apple. We have a retail system now that is totally dominated by iTunes, more and more every day. What’s selling on iTunes is controlling what’s played on radio more than we’ve ever seen before. The 12- and 13-year-old girls are now controlling the dial and pretty much everything that’s going on at iTunes. Is this a problem? Do you think there’s going to be a competitor for Apple, or will they just keep getting bigger and become 90% of the market?
Excellence motivates me. While Apple doesn’t have a global patent on excellence, on design, on execution—that opportunity is there for any newcomer or any current incumbent in any sector to improve—they are just really good at what they do. And Apple has worked extremely well with us as a content company.