Music Business and Trend Mongering

It’s been widely reported that Touch and Go, a seminal independent record label (as well as a distributor of other fantastic indie labels), is cutting back its label operations and discontinuing its manufacturing and distribution operations completely. Here’s the message from Touch and Go’s Corey Rusk:

It is with great sadness that we are reporting some major changes here at Touch and Go Records. Many of you may not be aware, but for nearly 2 decades, Touch and Go has provided manufacturing and distribution services for a select yet diverse group of other important independent record labels. Titles from these other labels populate the shelves of our warehouse alongside the titles on our own two labels, Touch and Go Records, and Quarterstick Records.

Touch and Go will be returning to its roots and focusing solely on being an independent record label. We’ll be busy for a few months working closely with the departing labels and scaling our company to an appropriate smaller size after their departure. It is the end of a grand chapter in Touch and Go’s history, but we also know that good things can come from new beginnings.

It’s sad to see a label so artist friendly (the handshake deals that Touch and Go does with bands pays them 50 percent of the net profit on their records–about four times the industry’s standard royalty rate) in this situation. Physical distribution is a tough business (as is physical retail), and as Rusk mentions in the last sentence of his note, good things can come from new beginnings. Innovative thinkers (like Terry McBride from Nettwerk) are forging a new direction with music companies that are based less on the reliance of income generated from distribution and sales of physical product. I hope Corey Rusk can do the same with Touch and Go.

Terra Firma is the private equity firm that purchased EMI, one of the remaining four major labels (the others being Sony BMG, Universal and Warner), last August. A friend passed on a letter that the Chairman of Terra Firma, Guy Hands, recently sent to artists signed to EMI and its subsidiary labels (Capital, Virgin, Astralwerks, Blue Note, among others). Take a look:
***

Dear colleague,

Last Friday, I was on a panel on embracing change at the UK’s annual
major convention on broadcasting at which all the industry’s major
players were represented and which received some press coverage.

I made the point that Terra Firma’s biggest successes over the years
had been when we had bought those businesses in need of the most
change and in sectors facing the biggest challenges and that EMI fits
that model perfectly. I went on to say that Terra Firma’s model
transforms companies that have been in the past poorly managed and
have lost their direction and EMI had to date not disappointed in its
potential for transformation. However, this is not just an EMI issue
as the recorded music industry as a whole has not positioned itself
well for the changing environment over the last ten years and has
failed to anticipate or adapt to the new market place.

With regard to EMI specifically, I believe that there has been too
much management focus over the last seven years on a potential merger
with Warner and on a continuous cost cutting programme which has
failed to deliver a new business model and sadly has led to the loss
of many talented people from the business. Terra Firma has inherited
EMI past management’s business plan which is currently being executed.
However our future focus is to develop a plan that ensures that EMI’s
Recorded Music business, as an independent company (i.e. without a
merger with Warner), can best serve its artists, the music industry,
its customers and employees. Put simply, focusing alone on the
production of multi-million selling albums cannot produce a
sustainable business model. In developing the business plan for EMI
Recorded Music, we intend initially to look at these areas:

* the relationship between EMI and its artists and what contractual
relationship best serves those artists;

* digitalization and how EMI’s recorded music business can embrace and
benefit from it;

* how EMI can be the most efficient partner in recorded music for
artists who are likely to sell less than 200,000 copies of their
albums;

* how EMI can develop a closer and more valuable relationship with its
customers;

* what services and products EMI should be developing and delivering
to its artists and customers; and

* how EMI can provide multi-million selling artiists with a top
quality service internationally.

In short, how EMI can be big enough to serve anyone but small enough
to truly care.

So far, we have not spent a huge amount of time on analyzing what
might be done with EMI’s publishing business. As I said at the
broadcaster’s convention “if it ain’t broke, don’t fix it.” However,
Roger Faxon has a number of new initiatives which he is intending to
roll out to ensure that EMI Publishing will continue to grow and
prosper which Terra Firma supports.

In the near term, I am embarking on a roadshow over the next month in
which I intend to meet as many of EMI’s employees as possible. At
those meetings, I will be happy to answer your questions.
Additionally, feel free to email me in confidence on the following
email () any ideas as to how we can make the business work better to
the benefit of EMI, its staff and its artists.

In spite of a lack of clear direction and an extremely challenging
market, EMI’s artists and employees have delivered a huge number of
successes in recent years and have much to be proud of. I continue to
be impressed by your commitment and creativity and would simply ask
that you continue to be focused on the work you are doing for EMI and
its artists. Terra Firma’s commitment to EMI is total and we have
invested more financially, both personally as individuals and as an
organisation, in EMI than any other company in our history. We are
absolutely committed to making EMI the world’s most innovative and
consumer-focused music company and the best home for musical talent. I
look forward to working with you in order to achieve just that.

Guy Hands

Chairman

***

This is a much more succinct and realistic outline from a major label chairman than things I have read from other folks (LA Reid’s quote being the most egregious as of late). Still broad strokes, but nothing in here strikes me as being completely outrageous.

I like:
* Focusing on artists that sell less than 200k (200k would have been a
major label failure back in the day). Realistic expectations in changing
environment.
* Developing a closer relationship with it’s customers (instead of an
adversarial relationship). I also like that the label realizes that
relationships with customers should come before their relationship with
radio, retail, and other outdated gatekeepers.

Questions:
* “Top quality service.” Moving the label from manufacturing, promotion and distribution entity to “360″ merch, management, publishing, marketing entity?
* “What contractual relationship best serves artists.” Label perhaps looking to move into non-traditional contracts involving other revenue streams with artist? Cut of merch, touring proceeds?