FIXING A HOLE
As everyone knows, the recorded-music industry is in very troubled times. Thanks to the internet, music lovers no longer have to run to Sam the Record Man to buy their favorite beats. And so-called file-sharing websites allow users to download songs without paying for them.
That’s why Guy Hands has a big problem on his hands.
In August 2007, Hands and his buyout firm, Terra Firma Capital Partners, paid almost $4.7 billion to acquire E.M.I., the storied label that has been home to the Beatles and the Rolling Stones.
Hands had previously made a fortune developing a successful chain of pubs in Great Britain and remaking rest stops on the German autobahn. But his initial moves at E.M.I. to reduce costs and make it clear to artists that the label’s not going to overpay for talent have been unpopular, to say the least.
Despite the backlash, the question is whether Hands actually has the answer to turning around a record company in an industry that is desperately trying to reinvent itself. Music, after all, is a talent-driven business not unlike sports, movies, and publishing.
Many times in the National Hockey League, where I worked for 28 years, new owners, especially those that made their bones in other industries, have sought radically different approaches to running their hockey franchises. Most of the time they end up having to go back to the traditional model, but there have been exceptions. In late 2007, Dallas Stars owner and private-equity billionaire Tom Hicks fired his general manager and replaced him with two inexperienced “co-G.M.’s”. In the short run, at least, the move paid off—Dallas had a tremendous finish to their season and made it all the way to the conference finals.
Another team, the Tampa Bay Lightning, is being operated by new owners, Oren Koulis and Len Barrie, former minor-league hockey players who made a ton of money in the movie and golf-course businesses, respectively. They’ve already made some extremely aggressive and non-traditional moves, such as hiring head coach Barry Melrose after a 13-year absence from the N.H.L., and signing franchise player Vincent Lecavalier to a lengthy 11-year contract. It’s far too early to judge whether the Lightning will be successful on the ice and at the ticket window, but the rest of the league, myself included, is skeptical.
At E.M.I., Guy Hands has his hands full. As one observer said in an interview with Bloomberg News, “If he gets it right, it’s another deal where he saw the opportunity others didn’t; if he gets it wrong, everyone will say, ‘I told you so.’”
Hands is probably taking the wrong approach. In talent-driven ventures like sports and music, the competition is fierce and loyalty to a logo or label is short-lived. You compete for the talent to put on the ice, field, floor, or in the recording studio. In July, the Rolling Stones left E.M.I. after many years to sign a deal with rival Universal because they were unimpressed with the new owners. Wayne Gretzky skated away from the St. Louis Blues in the summer of 1996 because he wanted to play in New York for my Rangers. In businesses like these, if the talent doesn’t believe in the management or doesn’t think they’re being treated properly, they can find a way to leave, having a devastating effect on your product and your bottom line.
Hands could get it right by thinking unconventionally the way Stanley Jaffe, the C.E.O. of Paramount, which owned the Rangers when I was G.M., got it right back in 1991. Stanley’s background was in movies, where he produced hits such as Fatal Attraction, but when it came to hockey, he entrusted the Rangers to me with a mandate to get the best team possible, win the Stanley Cup, and let the bottom line take care of itself.
As a result, we pursued Mark Messier in an expensive trade-plus-cash deal with the Edmonton Oilers, despite the fact that there were concerns about Messier’s age and durability. Because of this move and others like it, we wound up winning the Stanley Cup in 1994 after a 54-year drought.
There is no denying the success that Hands and Terra Firma have had in acquiring firms and finding ways to better utilize their existing assets to make money. But it’s also true that E.M.I. is probably unlike any other business he’s tried to turn around.
Perhaps one good sign is that Hands has recently hired former Island Def Jam exec Rob Stevenson to handle A&R for Virgin Records in the U.S. Stevenson is known for having signed breakout acts like the Killers and Fall Out Boy, and maybe he can apply some of his innovative thinking on Hands’ behalf, much like I was able to do for Stanley Jaffe.
Like the Rangers of the ‘80s, the music business is in need of a major overhaul. Perhaps this innovation can come successfully from the outside as it did then.
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“Neil Smith was able to do what no other general manager could in 54 years for the New York Rangers-win the Stanley Cup! It was Neil's bold approach to changing the culture that allowed the team to galvanize into champions.”
