Guy Hands: EMI must dump artists to survive

Guy Hands wants to save the music business - but his slash-and-burn plans are anathema to the
pampered rock stars who are threatening to quit his EMI record label. Adam Sweeting and
Juliette Garside hear his defence

Rolling Stones to join bands quitting EMI

The model of Nipper, the gramophone-fixated dog, remains in the chairman's office - but that is
about the only piece of EMI's 77-year history that looks likely to survive under the ownership of
Guy Hands.

Since Hands, a titan of the private equity world, paid 3.2 billion for the record company last
summer, the former bell-wether of the British music industry has been rocked by an artists'
revolt, with Paul McCartney and Radiohead already gone and Robbie Williams, Coldplay, Kylie,
Snow Patrol, Damon Albarn's Gorillaz and The Verve threatening to follow suit.

The press has resounded with lurid tales of excess, after Terra Firma, Hands's company,
unearthed a supposed 200,000-a-year slush fund to buy sex and drugs for artists (disguised as
"fruits and flowers" in the company accounts), bizarre bills of 20,000 for candles, and
revelations of a 5 million company house in Mayfair for the use of senior executives.

This week, Hands stunned staffers with proposals to slash 2,000 jobs worldwide, bulldoze the
management and turn a blowtorch on the sprawling roster. EMI has more than 14,000 acts
under contract, an absurd total, and one that no company could hope to promote effectively.

In an interview with The Daily Telegraph, the new owner reiterates the point: "About a third of
the artists who sign with EMI never make an album," he says. "We're going to drop a fair number
of them. You've got to get them to a level where you can provide a super service."

Hands's operations are usually only reported in the business pages, but the intoxicating mix of
big money, outraged superstars and internecine warfare has guaranteed him front page
headlines.

When he presented his job-cutting proposals to employees this week, he was surrounded by
minders to protect him from the paparazzi. Terra Firma finds itself cast as a villainous asset-
stripper, ram-raiding the family jewels and crushing delicate artistes underfoot.

But when the smoke clears, it has to be acknowledged that Hands has faced the facts that EMI
had tried to hide from.

The firm paid lip service to the new era of digital downloading without ever giving up hope that
CDs could somehow be made profitable again. Instead, the pace of technological change has
cruelly exposed the company's wastefulness and sluggishness.

One bright spot had been its 80 million "multi-streamed" deal with Robbie Williams in 2002.
Hailed as a daring innovation, it covered not just album sales, but also tours and merchandising.
But now, as the news trickles out that a million surplus copies of Williams's last album, Rudebox,
are being shipped to China to be recycled for use in road surfacing, the artist is threatening to go
on strike, and his manager, Tim Clark, has accused Hands of behaving like a "plantation owner".

The refusal of the best-selling band Radiohead to sign a new deal last year has also been seized
upon as a symbol of the short-sightedness of the new regime. But the most significant
comments came from Paul McCartney.

When a sixtysomething knight of the realm complains that working for his record label has
become "mind-numbing" and "a treadmill", it is clearly time for radical surgery.

The 48-year-old Hands has no music industry experience, but he tells the Telegraph that he
shares more of the innovative spirit that helped build the record business than his detractors
would allow.

"I've always been an entrepreneur," he says, "and I invest my money alongside that of others,
rather than being a fund manager. I will continue to use my money to invest in businesses where
I can make a positive difference to how they are run."

Even when he was a student at Oxford, Hands showed his flair.

"If you were a student and you needed a few pounds, you went to Guy and he would give you an
opportunity to sell paintings door to door, that had been bought directly from the artist. That
was partly how we got through university financially," recalls his close friend William Hague, who
was best man at Hands's wedding in 1984.

"By the end of it, he owned the house and the shop down the street."

Today, Hands owns houses in Hawaii, California and Spain, along with his estate and vineyard in
Tuscany. This is thanks to a gift for buying poorly run companies, replacing management, and
extracting underlying value.

Analysts gasped when he paid British Rail 700 million for the Angel Trains rolling stock company
during the Nineties, but he sold it for a 390 million profit, and has since added the Odeon and
UCI cinema chains to his portfolio. However, he still appreciates the scale of the EMI challenge.

"It's probably the most difficult thing I've done in my life, from a business perspective," he
admitted after his presentation to staff on Tuesday. "People were excited about a new vision for
EMI, and a number of people said this should have been done years ago, but clearly they were
nervous for their own jobs. They clapped and applauded, which was very nice of them."

One of the chief obstacles, apart from the artists' managers lined up against him, under the
sobriquet of The Black Hand Gang, is the perception that people like Hands don't belong in the
business.

There's still a sense that it ought to be populated by free-thinking bohemians who value artistic
adventure over profit. Surely a rapacious venture capitalist, even a Bunterish and dishevelled
one like Hands, shouldn't be allowed?
"No disrespect, but the question's irrelevant," says Ed Bicknell, the former manager of Dire
Straits and Bryan Ferry and a founder of the Music Managers Forum.

"Record companies are just like anything else - everything's for sale. Whether it's a Saudi prince
or Guy Hands, it's just a matter of who's got enough money to buy a majority of the voting
shares. It's very rare these days that I hear anybody in the business talk about music - they're all
talking about 'synergy', 'branding' and '360-degree business models'."

Hands insists that "unless the industry finds a way to provide something that the consumer is
willing to pay for, there is not going to be any music. If the industry doesn't want to move, it will
die."

Some EMI insiders have been outraged by his claims of waste and inefficiency, but Bicknell
suspects he's right. "When I dealt with them, which was before the era of Tony Wadsworth [the
ex-chief executive], EMI was like the Civil Service of the record business.

"It was uninspired and uninspiring. It was so much like a government department that a tea lady
would come round with a trolley every afternoon."

Hands sees the industry as an entrepreneurial opportunity rather than a calling. When he
expresses admiration for Mick Jagger, it is not for musical reasons: "He is creative, very
intelligent, realistic and focused. He is a real gentleman and would make a super chairman of a
FTSE company."

Unfortunately, Sir Mick has repaid the compliment by turning his back on EMI to sign a one-off
deal with Universal for the next Rolling Stones album, the soundtrack to Martin Scorsese's
documentary Shine a Light. A

lthough Hands is scheming to bring him back, his most pressing problem is to persuade
managers like Tim Clark that swingeing cuts won't damage their artists' releases.

"Whenever you restructure something, you have a lapse before the new model hits its groove,"
says Bicknell. "It could take him two years to get this where he wants it, and Tim and everybody
are concerned about falling into that void."

There are signs, though, that Hands' message is not falling on deaf ears. After a meeting with the
Black Hand Gang, The Verve's handler Jazz Summers felt Hands was "beginning to understand
the industry".

Jonathan Shalit, who manages Jamelia, was almost euphoric: "The way the record industry has
been going in recent years is to bury their heads in the sand. EMI was going nowhere, and EMI
has now got the balls to make changes."

Even if his plans fail - and much of the responsibility will fall on Roger Ames, one of the industry's
smartest executives and now in charge of signing artists in Britain and the US - observers suspect
that Hands's long-term goal may be to keep the highly profitable music publishing part, and sell
the troublesome recording bit.
Hands's bid for Chrysalis, which includes the publisher Chrysalis Music, supports the theory that
he's building a publishing empire.

"If Terra Firma was just thinking about making a profit, they should dump all new releases,
reduce overheads to a minimum and just resell back catalogue," says Bicknell. "It wouldn't be
exciting, but it would be much more profitable."

It's not exactly a rock'n'roll attitude, but it might have got the thumbs-up from the Beatles, when
in 1963 they sang: "The best things in life are free/But you can keep them for the birds and
bees/Now give me money."

Thirty-five years later, the man who owns their record company could find himself singing along.