Ministry of Sound Chairman James Palumbo’s Telegraph U.K. Editorial Supports Merger

Ministry of Sound Chairman James Palumbo, another member of IMPALA, weighed in on why he believes UMG’s deal for EMI is good for the music industry in yesterday’s U.K. Telegraph. Here’s the complete text of his remarks:

The deal to sell EMI promises to rebuild the record company, but the infighting over the sale is in danger of distracting everyone from finding a viable future for the label.‬‪ When I started Ministry of Sound 20 years ago, the music industry was riding high. Everyone from teenagers to housewives had something that rang their bell. They’d loyally pop into the local record store as part of their Saturday morning shopping expedition.‬‪

Then came a metaphorical meteor the Internet. We music people were slap bang in its path. We weren’t prepared, we didn’t understand it; we couldn’t predict its impact. Music became the first industry to be attacked by this new technology. Thriving businesses saw their sales destroyed by online piracy. Like the dinosaurs, record companies faced extinction.‬‪

Over the past decade, as global sales have collapsed from about $13bn to $6.5bn, the industry has been engaged in a vicious fight for survival, often characterised by internecine warfare among its top people.‬‪

The latest spat to break out is over the fate of EMI, Britain’s only major record company and home to the Beatles and Katy Perry.‬‪

After five unhappy years as the plaything of private equity owners, EMI is being split: its publishing assets sold to Sony and its famous recorded music labels due to be acquired by Universal Music. As usual with any music industry transaction, an almighty row has broken out among recorded music labels about consolidation, distribution rights and competition.‬‪

Regulators on both sides of the Atlantic are right now trying to decide amid the claims and counter-claims on whether Universal is a suitable parent for EMI’s troubled offspring.‬‪The regulatory reviews have not been helped by the music industry’s internal squabbling. The infighting is in danger of distracting everyone from the two real issues: finding a viable future for EMI in a fast-changing digital environment, and recognizing that such a future lies with proven music industry owners, not with financial engineers.‬‪

EMI’s recent history is a stark lesson in how to undermine a creative business. As the scale of the digital upheaval became clear, the money men smelt blood. They believed they could capitalize on a sector ripe for consolidation. I met executives from Terra Firma, the private equity firm, in 2007 and begged them not to buy EMI, something they were then thinking about. Financial engineering and the record industry just don’t mix, and not just at EMI.‬‪

They didn’t listen.

Management consultants were parachuted in, experienced staff ignored or fired, investment in talent halted and artists portrayed as profligate drug-taking lunatics. It was like hiring a decorator to restore the Sistine Chapel, broad clumsy brush strokes with absolutely no sense of the art and talent that lay beneath.‬‪

This trend was not confined to EMI. Warner Music, another of the great recording houses, was sold to private equity by Time Warner, brutally re­-structured, listed on the New York stock exchange where its share price tumbled and eventually sold to a Russian-controlled financial holding group.‬‪

EMI also struggled with financiers at the helm. Terra Firma failed to generate sufficient revenues to meet its debt obligations. Citigroup repossessed the business. The deal cost Terra Firma investors a staggering $2.8bn and the great British music powerhouse suffered the ultimate ignominy it fell into the hands of bankers. Pink Floyd and Coldplay were now the property of an American financial institution with zero interest in an a cappella or bass line.‬‪

I worked in the City for seven years before starting Ministry of Sound and so have an unusual perspective on the music industry. Because music is essentially a subjective business it depends at its core on the creative judgment of musical tastemakers it is virtually impossible to apply the same objective rules as in other areas of business. Particular skills are needed to run a music company; an understanding of the genre, technical music ability, competence with numbers and, most of all, the capacity to deal with hypersensitive artists and their rapacious managers and lawyers.‬‪

Given these variables, climbing to the top of the music industry pole is a particularly greasy ascent. The titans of the business have historically been from America, the world’s largest market, famed for bequeathing rock and soul music. Among the majors, there is only one Briton in the driving seat: Lucian Grainge, the chief executive of Universal Music. To survive in a shark-pool of U.S. executives is an achievement in itself. To build the world’s most successful music company when the entire industry is threatened is a greater accolade. Grainge is as passionate about music as Sir Alex Ferguson is about football. He reveres his artists in particular his greatest ward Amy Winehouse as much as the bottom line. Music is the beat of his heart.‬‪

As EMI began to implode, its artists, including the Rolling Stones, Queen and Robbie Williams, got out of their contracts and ran for the safe cover of Grainge’s Universal, a business that genuinely understood them.‬‪

When the whole company became available, it was unsurprising that Grainge stepped up to the mark.‬‪ Now we are facing a backlash to a deal that promises to rebuild EMI. Universal will be gaining market share, enjoy benefits of scale, be able to negotiate better deals, they protest. Yes, by a few degrees in an industry overshadowed by piracy and the digital fragmentation. But so what? The music ship is in choppy seas. Fighting on deck won’t help navigate the storm.‬‪

The capacity for people in the music business to battle against each other rather than deal with the challenges appears to be never-ending. Instead of combining to create a digital platform in the early 2000s, the industry allowed Steve Jobs’ Apple to become the world’s dominant music retailer. Now shrill voices want to stop the rescue of EMI by Universal, better for us all to go down together.‬‪

Amid a barrage of complaints, Universal has offered multiple concessions to get the deal through. So let’s get around the table, resolve our differences, divest what needs to be divested and get on with life. Rather than scrapping in the dirt over the entrails of EMI, let’s focus on what’s important for our industry: our artists, our talent and our future. –Hits Daily Double