EXT. A MOUNTAIN CLIFF DAY
OUR HERO hangs on the precipice, clutching at the rocky ground.
PULL BACK TO REVEAL:
It’s worse than we thought. OUR HERO is dangling from the edge of a cliff—
—- twisting in the air, arms extended, hands clawing at the ground to keep his grip. HE looks down to see:
A RUSHING RIVER, hundreds of feet below…
OUR HERO’S HANDS, covered with dust. His fingers are slipping off the rocky edge, as his hold starts to give way…
HIS RIGHT HAND pulls off as the rocks and ground begin to crumble. Now it’s only the LEFT HAND still hanging on… but his strength is fading… one finger slips off the ledge… then another…
EXT. THE MUSIC BUSINESS TODAY
We’ve all seen that scene in the movie– now we get to live it in real life. You know, the inevitable scene where the action hero is hanging on the ledge, fighting for his life. Unfortunately, there are no stunt-men to call in this time around, as we prepare to take a very big plunge. These next several months in the music biz look to be a moment of reckoning, when the illusion of business as usual can no longer be sustained.
What’s got everyone in the industry on the edge of their seats, quite literally, is the imploding debt situation with EMI Music, one of the four major multi-national corporations in the business. EMI, which was purchased (inexplicably) by the investment firm Terra Firma for $4.7 billion dollars two years ago, is in a genuine and highly publicized liquidity crisis, from which it might not escape. And it’s primary creditor, Citibank, which financed much of the Terra Firma takeover, is in no position or mood to renegotiate the financing terms.
With a debt load of nearly $5 billion dollars, EMI has found itself repeatedly unable to make the required loan payments to Citibank, and in grave danger of defaulting. With severe cash problems of its own, Citibank has shown itself to be very unwilling these days to take the usual measures of re-negotiating the terms of such loans. Insiders are speculating that Citibank’s willingness to force Escada, the German fashion house, into bankruptcy last month, as well as its current hard line with Valentino, the Italian fashion company, indicates that Citibank may likely opt to force EMI Music into bankruptcy if the British music company can’t meet the debt payments it has missed, and the new ones looming ahead.
That’s scary stuff. In more than twenty years in the music industry, I’ve seen plenty of bankruptcies– over-extended indie labels, individual musicians or writers with life-savings that went up their nose or into the pocket of their business manager, indie record distributors who left dozens of labels and artists with no payment for records already pressed, shipped and sold. But I’ve never seen a major multi-national music company go bankrupt, or ever really contemplated it. Nor have most people in this industry. This is genuinely unchartered territory. In the worst case scenario, what happens?
If I had to guess, I would predict a marriage– of the shotgun variety. EMI Music has long been the target of Warner Music, who may finally have the old girl right where they want her– tied to the railroad tracks with the train bearing down. The question is whether another major music company, most likely Warner or Universal, would have the means to buy EMI– given that none of the music powerhouses are looking very powerful these days. It’s questionable whether someone in the industry, already struggling with their own business, seeing clearly the structural problems that will continue to drag down earnings, and being of somewhat sound mind, would want to acquire another record company. Almost certainly, anyone who did buy the company would shutter the label, save the valuable catalog of masters, and focus on the music publishing division, which is the only thing still making money.
More frightening than that, it is possible that EMI could simply go bankrupt. If that were to happen, it would not only spell the end of one of the most important historical legacies in the music industry (particularly for the United Kingdom), but it would drag the lives and finances of hundreds of artists, producers, publishers, independent labels, recording studios, and songwriters right off the cliff. Anyone who was owed royalties or production fees, anyone who had distribution arrangements with Caroline, anyone who had outstanding invoices could find themselves in a very long line, somewhere behind the Beatles, Coldplay, Robbie Williams and of course, good old Citibank. In such a situation, it’s hard to know if the small players, like songwriters, producers and publishers, would ever get paid. It certainly would be a disaster that would take years to resolve.
This is not a situation for which I can offer up much brilliant advice. It’s not something for which there’s much precedent, nor are there any sure-fire solutions. But given that this is the way our world looks in the music business of 2009, with once-invincible companies sliding quickly into oblivion, I will offer up a few lessons that can be learned from our predicament:
1. Patience is not always a virtue. This is not a time to let things linger. If you are owed money by any label, distribution company, publisher, production company, etc., go out and get it. Fast. A bankruptcy by a company like EMI will have massive repercussions for everyone in the music industry, from Harry Fox Agency to small independent labels to individual session musicians. If you’ve ever tried to collect a debt in the music business, even if it was only a simple studio invoice, you know that it can mean months of collection efforts. You’ve also probably learned that whoever screams loudest (particularly if the words being screamed include “lawyer”, “lawsuit”, or “Suge Knight”), usually gets paid first. Make sure your paperwork (song registrations, billing info, payment addresses, etc.) is in order, then start calling and don’t let up until you get a check. Don’t let anyone hold onto your money for any longer than a contract allows.
2. Don’t talk to strangers. Make sure you know who you’re doing business with. If you’ve got a contract on the table, or a distribution offer, or any kind of long-term agreement in front of you, you need to do your homework–not only on the individuals with whom you’ll be working, but on the company that will be paying the bill. EMI’s problems have been well-publicized since the Terra Firma purchase, as were BMG’s, prior to their exit of the music industry a year ago. Ignorance is not bliss in times like these. You need to be reading Billboard, Variety, and watching the financial pages of the newspaper, and thinking through the implications of today’s news on those with whom you’re doing business.
3. When cash is king, sometimes it makes cents to take the money and run. It’s always been a maxim of the major players in the music business that you don’t sell copyrights. Publishers and labels have always resisted the idea of selling catalogs, even in the toughest economic situations, believing that the business was built on acquisition and ownership of more and more copyrights. For many years it’s proved a profitable philosophy, as the value of most hit songs or master recordings continued to climb. Until now.
The lesson of the past five years is that there is a time for buying, and also a time for taking your profits. The songwriters and publishers (and there were many of them) who sold their catalogs three years ago, at the height of the flood of investment money into the music publishing industry, made a killing.Those prices would be far lower today, and probably will remain so for at least the next five years. If corporations like Sony or EMI had sold off their recorded music divisions five or six years ago, they could have still received a reasonably favorable price. Today, they would have a hard time finding any takers at all.
As Kenny Rogers put it, you have to know when to hold ‘em, and know when to fold ‘em. If you think your songs, recordings, studio, music publishing business, or independent label is at the top of its value in the market, that’s usually a good time to make an exit, smiling all the way.
4. Don’t mistake size for security. It’s always easy to feel safer when you’re dealing with a company that everyone knows, with a big office building and a CEO who shows up on the front page of Billboard. It’s all a sham. These days, there are small, lean, smart independent labels who are far more secure than any of the Big Four. In fact, if you’ve set up an effective business model for yourself, you may be better off putting out your own recordings, managing your own publishing and booking a steady calendar of live dates than being signed to a major label. Better to collect your own money and manage your own affairs than to find yourself a pawn in a game that is out of your control.
Don’t be fooled by music industry glitz. If the EMI death-watch teaches us anything, it should be that the bigger they are, the harder they fall, and the more people they take with them. Clearly, Terra Firma, despite the reassuring name, is on very shaky ground. Don’t stand too close to the edge…