EMI: No background music

EMI chairman Guy Hands has turned to a marketing expert with no experience of the music industry to help him turn round the record company's fortunes. But can Elio Leoni-Sceti win over the artists? Sarah Arnott reports

The appointment of a little-known Italian marketing executive to run EMI's recorded music division is the latest step in the reinvention of the beleaguered label by Guy Hands, its private equity backer.

Elio Leoni-Sceti was recruited from Reckitt Benckiser, the consumer products giant responsible for Cillit Bang and Airwick, and is one of a series of non-music industry appointments that are central to plans to separate EMI's creative and business roles.

Mr Leoni-Sceti's appointment will also see Mr Hands step back from president to non-executive chairman of the company. "Elio's career achievements and outstanding leadership qualities are ideally suited to ensuring that EMI is a successful business," Mr Hands said. "He has the passion, drive and belief in the future of the music industry to realise the ambitions we all have."

Mr Hands' group Terra Firma paid £3.2bn for the company last August, after a string of profits warnings sent the stock price plummeting. In May 2007 the company announced a £264m loss, as its share of the UK album market slipped from 16 per cent to 9 per cent and digital downloads ate into sales and margins.

The problem is affecting the whole industry. Sales of physical products are declining, as digital players such as iPods take over the consumer market. In 2007, recorded music sales dropped 8 per cent globally, including 9 per cent in the US and 13 per cent in the UK, according to the International Federation of the Phonographic Industry. The labels are also fighting a rearguard action against digital piracy, particularly file sharing over the internet, and although legal digital music is growing at a phenomenal rate – up 40 per cent between 2006 and 2007 and worth $2.9bn (£1.5bn) last year – it is not enough to fill the gap.

Mr Hands' plan is to streamline the business, cutting back on marketing and administration costs, and looking carefully at artists' advances. In January, EMI announced redundancies of 2,000 out of a worldwide staff of 5,500 to help meet a target of £200m of annual savings. But the most significant change is the separation of the artists and repertoire (A&R) role – which includes finding and developing the label's artists – from other responsibilities such as marketing, promotional agreements or digital strategy.

Traditionally, music company senior executives are drawn either from those who have risen up through the creative ranks, or lawyers or accountants who have specialised in the music business. But the proposal at EMI is for creative specialists to concentrate on finding the next big thing, and leave the label's newly created Music Services division to handle negotiations with retailers or merchandisers.

In such a context, and at a time when the launch of an album includes up to 200 different products, only one of which is the music itself, Mr Leoni-Sceti's background in marketing and branding could be a considerable asset. "It used to be that the big labels were only about having the most popular bands, because that is what people were buying, but now the attitude is that the company is selling an 'entertainment experience', and it will give away music for free if can make money another way, from live gigs or merchandising," Adam Daum, a media analyst at Gartner, said. "Bringing in someone unconnected with the music industry, but who understands branding and marketing, could be better, because they are more likely to have lots of examples of ways to make money."

The problem is how far the "creatives" – be they artists or A&R people – baulk at the changes. Paul McCartney had already left EMI by the time the Terra Firma deal went through, claiming that the company had become "boring" and "symbolic of the treadmill". But he was not the only high-profile defection. Radiohead quit the label in artistic disgust in December. Thom Yorke, the lead singer, told Radio 4's Front Row: "Companies buying and selling themselves and seeing the artists' work as simply part of their stock are devaluing music." Robbie Williams has also threatened to leave. The Rolling Stones, an EMI stalwart, released their recent Shine a Light album with Universal.

The stream of top executives moving on has been even more striking, if less headline-friendly. The only big name from the old guard who has survived is Roger Faxon, head of the label's music publishing division. Eric Nicoli, the chief executive, stepped down in September, before the company was formally delisted from the Stock Exchange. Martin Stewart, finance director, was also a swift departure. Tony Wadsworth, head of the UK business, quit in January after 26 years, and last week, Jean-Francois Cecillon, head of EMI's international business, announced plans to leave.

After the takeover, top roles were taken by Chris Roling, a former ICI executive, Ashley Unwin, from Deloitte Consulting, and Julie Williamson, who has a long history with Terra Firma. Most notable was Mike Clasper, a former BAA chief executive, brought on to Terra Firma's investor board in November to oversee a global review, who was leading the Music Services division until he was poached last month to be chairman of HM Revenue & Customs.

Mr Hands' transformation may be causing ructions, but the separation of technical expertise and general management duties is a trend across the board, according to Mick Holbrook, head of organisational change at PricewaterhouseCoopers. "The age-old problem, particularly in the creative and scientific industries, is that a great technical expert promoted to general manager means losing twice: the creative impact is lost, and the business rarely gets a great general manager," Mr Holbrook said.

The difficulty is to manage the cultural change, as the recent problems at EMI illustrate. "There are a number of cultural questions, not least how adaptable the person coming in is, because they will have to reach out to a group of people that don't trust them," Mr Holbrook said. "The danger is that the changes happen too much, too fast, and the creative people all leave, so the process has to be carefully handled."

How well EMI's new management, including Mr Leoni-Sceti, can manage such challenges remains to be seen. But they do not have long to prove the validity of Mr Hands' vision of a 21st century music business. "This is a company that has been acquired by someone who wants to radically alter the way it operates, and there have been lots of grievances raised," a City analyst said. "The proof will come in a couple of years."

Meanwhile, EMI must be doing something right. It clocked up number ones on both sides of the Atlantic last month with Coldplay's Viva la Vida album and Katy Perry's "I Kissed a Girl" single.