Change of tune at EMI

Guy Hands' Terra Firma has endured a torrid time since its acquisition of EMI. Now it is changing its management. Nick Clark reports

EMI Music's chief executive has shocked the market by quitting weeks before the group was due to draw up a growth plan critical to its future. The beleaguered music label has appointed the former ITV chief executive Charles Allen to replace him.

Sources close to the situation denied there had been a "bust-up" leading to Elio Leoni-Sceti's departure from the label whose acts include Lily Allen, Coldplay and Robbie Williams. "EMI needs a chief executive who is committed to the business in the long term. Elio thought he had done his bit. He leaves by mutual agreement," one source said.

Mr Allen, who has been non-executive chairman of EMI Music since January last year, will become executive chairman when Mr Leoni-Sceti leaves on 31 March. The group insider said Mr Allen was the "obvious appointment. He understands the media and was already a fairly active chairman".

EMI announced that Mr Leoni-Sceti was leaving the company after 18 months, saying he "successfully led EMI Music through the first phase of operational turnaround". Mr Leoni-Sceti called the label a "wonderful business with a great team and new creative and operational momentum," adding: "My job here is now done and it is time for me to move on."

Yet the news left analysts scratching their heads. "This has come out of the blue. Something must have triggered it," one said, adding that Mr Leoni-Sceti was unlikely to want to tie his reputation to the company long term. Only this month, the former European president of Reckitt Benckiser had said in an interview: "I'm very dedicated to EMI."

Keith Jopling, a director with Truth Consulting who specialises in the music industry, said: "Leoni-Sceti was given an almost impossible job, but he did fantastically well. It is a notoriously difficult business for outsiders to come in and change."

The company said that on an operational level it had trebled profits in three years, and was still signing up artists. Yet this has been clouded by the company's levels of debt and its legal battle with the investment bank Citi. Mr Leoni-Sceti sent a letter to Guy Hands in October, saying its legal issues made it difficult to sign new acts, and staff morale had fallen to an all-time low.

EMI lifted operating profits to £163m for recorded music in its last financial year, up from £51m before Mr Leoni-Sceti joined. Yet pre-tax losses hit £1.7bn for the year to the end of March 2009, last month, including £1bn in writedowns.

"Under his stewardship revenues and profits have grown, but these struggled to service the debt covenants that EMI needs to meet every quarter. He hasn't been able to address EMI's long-term strategic issues," Mr Jopling added.

The EMI deal was done at the height of the bubble for leveraged deals carried out by private equity, when the Terra Firm chief Mr Hands masterminded the £4.2bn buyout in the summer of 2007.

The group is locked in a legal dispute with Citi. The US bank, which provided £2.5bn in debt for Terra Firma to buy EMI, also advised the music label on its defence against Terra Firma. Mr Hands alleges that the US bank led Terra Firma to believe other bidders were interested, pushing up the price. Citigroup denies the claims. The case is currently with a judge in New York, who is set to rule by the end of the month whether it will stay in the US or be heard in London as Citi requested.

The first job Mr Allen will oversee is presenting Terra Firma with a business plan for long-term growth at EMI. If the plan is approved, Mr Hands will then use it to persuade investors to inject £120m. He has until 14 June to raise the sum before defaulting on its loans, which could see Citigroup take ownership of the company and potentially break it up. There have been strong rumours that Warners is interested in a deal. EMI is also involved in a court case with an act that has been signed to its label for 40 years. Pink Floyd took EMI to court related to royalties from digital downloads of its tracks. It also emerged that the group is thinking of leaving EMI, along with Queen, over concerns on the state of the company's finances.

Radiohead quit the label shortly after Terra Firma's takeover, saying the group did not negotiate seriously.

A source close to the label said: "You will always find artists ready to slag off the record labels. Some didn't like the idea of private equity when EMI was taken over, but really it's about money. Most top artists are more money-conscious than bankers."

The survivor: Allen back in the big time

Charles Allen's new role at EMI Music marks his first return to an executive role since he quit ITV more than three years ago. A source who has worked closely with Mr Allen backed him to make a positive impact at EMI following Elio Leoni-Sceti's surprise departure, saying: "If you want someone to come in and knock a company together fast, you would struggle to find a better candidate. He has done it, and more than once."

As the chief executive of Granada, a post he held from 2001, he oversaw the merger with Carlton Communications, creating ITV in its current form and taking on the role as chief executive. He slashed costs by reducing headcount and disposing non-core assets and outlined an ambitious strategy for modernisation. Yet he was faced with a declining market share in the onset of the multi-channel digital revolution and criticism that programming was on the decline.

Towards the end of his reign at ITV, the pressure from investors as the share price fell, defence against potential suitors – including a private equity vehicle fronted by Greg Dyke – and the increasing criticism over his strategy prompted Mr Allen, right, to step down . The former ITV insider said: "Even he recognised that he had been at the helm for so long he had become a talisman, and so stepped down. His record stands up better now in hindsight than it did then."

Mr Allen was brought up in Hamilton, Scotland, and after his father died of a heart attack when he was 14, university was out of the question. Initially he trained as an accountant while at British Steel before moving to Compass – which later prompted John Cleese to refer to him as the "upstart caterer". He joined Granada in 1991. "He gets numbers. Commercially he knows how to drive costs out of the business but he does understand how to run and develop the creative side," his former colleague said, pointing out that X-Factor and Pop Idol were commissioned under his watch.

At EMI, keeping hold of the talent will be critical, but he also has to come up with a business plan that will convince investors to inject more capital. Claire Enders, the founder of Enders Analysis, said Mr Allen was used to complicated deals. "He has a lot of financial experience, which is what is required for EMI. He's a good negotiator and the financial situation with the company means this will go down to the wire." She added: "It will be a hard-sell anyway, whoever is doing the selling."

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before