Page last updated at 15:06 GMT, Thursday, 11 December 2008

Will EMI prosper under its new boss?

By Damian Reece
Head of Business, Telegraph Media Group

Robbie Williams
Mr Williams was said to be worried about the restructuring plans

Enter the pink neon lobby of EMI Group's west London headquarters and you enter an endangered habitat.

The big beasts of the music industry, from Coldplay to Robbie Williams, still stalk its corridors, still ride the glass elevator to the executive floor, but the future of this most famous of name in the British music industry is as uncertain as the inspiration behind the next big hit.

Its Abbey Road studios were immortalised by the Beatles, its corporate culture demonised by the Sex Pistols.

EMI has had a colourful history.

But perhaps its most dramatic chapter has only just begun.

Private takeover

It's a tale of how a company based on the best of British music talent is struggling to overcome huge losses in the face of mounting recession and multi-billion pound debts resulting from its takeover by a private equity firm.

Kylie Minogue accepts a Brit award
EMI is keen to get more value from its back catalogue

In 2007 the company, already struggling to come to terms with declining CD sales and rising piracy through illegal digital downloads, was taken over by Terra Firma and its chief executive, Guy Hands.

After recently disclosing huge losses of 757m, Mr Hands and his team are now struggling to turn the business round and meet the enormous cost of debts worth 2.6bn borrowed from the now deeply troubled bank Citigroup.

In his first extended broadcast interview since completing the acquisition just over a year ago, Mr Hands, probably Europe's best-known dealmaker, gives a thorough and candid account of one of the most difficult deals of his life.

"I thought it was appropriate to put myself in the firing line, and I've got some brickbats, and it's been very painful, but frankly that's what a good businessman should do, they shouldn't go and hide," he says.

Artists upset

But it's not just the finances of this deal that have proved challenging.

The recording stars and their managers have also been outspoken in their criticism of Guy Hands and his private equity style of doing things.

Jazz Summers, manager to star acts such as the Verve, was not alone in feeling Mr Hands was the wrong man for the job of fixing EMI.

"I think what he's done in the past is he's gone in and said, 'Here are whatever pubs he's bought, this is how we're going to turn them round.'

"And here's a load of service stations in Germany and we've sorted out the toilets and now everything is working right, and it was really badly run before.

"And he started to do that in the music industry but what it did was it de-motivated everybody you would ever want to meet, because none of them knew whether they were going to get a job.

"And then he went out, unfortunately for him, and said artists were taking big advances and not working very hard and that got under all our skins."

Meatloaf fan

But Mr Hands vigorously defends his approach, and explains how he believes his new management team are going to return EMI to long term profitability.

He also reveals a penchant for Meatloaf - the recording artist, not the food.

He says there is a lot of value in the group.

"Firstly it has what is the best publishing business in the world, which is about 80% per cent of its value, and secondly it has the most extraordinary historical catalogue of artists and music.

"The catalogue was actually better than we expected. There was an awful lot that was not being exploited; we saw that with time, care, attention and frankly money, that catalogue could be brought to life.

"Where we were disappointed was where we were with new music, where the results were actually quite a lot worse than we were expecting," he says.

"We have to make the very difficult decision of deciding who we think can bring the business forward and who won't.

"Making those decisions is not pleasant, but the reality was, the EMI that we purchased was not working, and it needed change."

Peace breaking out

But while City of London financiers, beset by a fearful credit crunch, worry about more fall-out from EMI's financial struggle, peace seems to be breaking out in at least some parts of Rock 'n' Roll land.

EMI has recently signed Depeche Mode on a new worldwide contract and gained the backing of their manager Jonathan Kessler.

As for Guy Hands, the possibility of failure does not figure.

"I think EMI will end up being profitable, I passionately believe that," he says.

"I think it will take us longer than we expected, and clearly our commitment to it in terms of money is bigger than we expected it to be, but we've been totally determined all the way through to do the best for the company in our belief that we will succeed."

The EMI Story is broadcast on BBC Radio 4 on 13 December at 1030 GMT.

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