EMI deal can't be good for UK creativity
It is a duet that seems destined never to happen. The combination of EMI and Warner Music has been prevented by overblown regulation, stock market turmoil and hot-headed executives each time it has been attempted. Now, as Warner owner Len Blavatnik walks away from the auction of EMI's recorded music arm, it is remarkable to note how overdue this deal is. And, what a great shame that it will never happen the other way round - with EMI buying Warner to reinforce a British global player in an industry where we excel.
Much has changed since EMI - home to Kylie and Coldplay - first tried to merge with Warner (whose artists include James Blunt and Red Hot Chili Peppers), in 2000. Back then, the CD was all-powerful, even though a quarter of sales were still in cassette form. Single sales were being hit by file sharing but the industry wasn't overly concerned.
It should have been. Piracy has been a key contributor to the collapse of world music sales from $37 billion then to $16 billion last year. For the executives who grew used to unbroken growth in the Eighties and Nineties, it has been a painful decade. As HMV wobbles on, even one of their core routes to market is under threat. Apple's iTunes is calling the shots.
However, some things do not change. Britain remains an exceptional music talent. We are one of only three net song-writing exporters along with America and Sweden. Adele's efforts show that a foreign love affair with British stars that stretches back to The Beatles shows no sign of letting up.
Music sits within the creative industries sector which account for a higher share of gross domestic product in Britain than in any other developed country. Yet such sustained success has produced very few global businesses based here. It would be hard for a British film to make a splash at the box office without one of the American distributors behind it, for example. In TV, our formats play well but it is hard to see beyond the BBC to identify a global player.
What EMI has is the unique ability to spot someone playing in a back-street pub and propel him or her to the top of the charts without tapping Uncle Sam for help. The company is happy to capitalise on its musical legacy - just look at how many times it has repackaged The Beatles albums. To its detriment, it rarely flaunts its 80-year corporate legacy.
Is there an alternative ending to the EMI story? It is hard to see one. Competitive pressures mean that three music majors make more sense than four and £200 million of costs can be squeezed from Warner plus EMI.
There is no reason why Blavatnik shouldn't be coaxed back to the table. He is offering less than Citigroup, EMI's owner, was hoping for, but more than Ron Perelman, the American buyout investor. Citi knows it must conclude the sale now rather than try again in a year when uncertainty will have weakened the firm's hand in signing new artists. The only route it can't take is to refloat EMI on the Stock Exchange.
Music is too unpredictable to sustain a listed company dedicated to it. Even the industry leaders, Universal and Sony, are packaged up in broader based groups.
Guy Hands's idea to strip cost and complexity out of the company was the right one when his Terra Firma vehicle bought it in 2007. Where he went wrong was loading EMI with debt that enabled Citi to seize it from him when things went wrong.
Warner has hardly been a great financial success either. Chairman Edgar Bronfman Jr just found a white knight in Blavatnik, a Ukrainian-born industrialist, whose business interests span oil, chemicals and media.
Of course, an industry that has three music majors, with none of them headquartered here, is hardly going to stop scouring Britain for talent. Nor was EMI necessarily the best at nurturing tomorrow's stars.
But the experience of any takeover in any sector suggests a gradual drift of influence to where the powerbrokers sit - in this case, New York or Los Angeles. And that can't be good for Britain's creativity.