By Juliette Garside
Last Updated: 11:00pm BST 06/10/2007
The new owner of EMI, Britain's largest music group, has warned that the industry will not survive if it continues to rely on CD sales alone.
Guy Hands, the financier whose private equity group, Terra Firma, bought EMI in August, told staff in a confidential e-mail last week that the industry had been too slow to embrace the digital revolution.
Hands' letter was in response to the decision by Radiohead, one of the biggest bands nurtured by EMI but now out of contract with the label, to release their latest album via the internet and at a price decided by fans.
In the e-mail, sent to staff on Friday, Hands described Radiohead's action as "a wake-up call which we should all welcome and respond to with creativity and energy".
"The recorded music industry... has for too long been dependent on how many CDs can be sold," he wrote. "Rather than embracing digitalisation and the opportunities it brings for promotion of product and distribution through multiple channels, the industry has stuck its head in the sand."
Many record label bosses believe it is the duty of successful bands to stick with the companies that nurtured them so that their earnings can subsidise new talent. However, bands complain that too much of their money is used to subsidise lavish lifestyles for label bosses.
Hands is understood to have been surprised at the size of salaries paid to second-tier executives. On Friday he warned that unless there was a major cultural change, more established bands could follow Radiohead's lead, choosing to cut the label out of the loop and distribute their music directly to consumers.
EMI's biggest names include Robbie Williams, Joss Stone and David Bowie, all of whom are established enough to adopt the Radiohead model. With bands' revenues from playing concerts and festivals overtaking their income from CD sales, the decision to break free has become less risky.
"Why should they subsidise their label's new talent roster – or for that matter their record company's excessive expenditures and advances?" asks Hands.
Radiohead's decision came in the same week that indy -legends The Charlatans decided to give away their new album over the web, also without help from a record label. Tim Burgess, the Charlatans' lead signer, told The Sunday Telegraph: "I want the people to own the music and the artists to own the copyright. Why let a record company get in the way of the music?"
Hands suggests moving away from the model of paying large advances – Robbie Williams signed an £80m deal with EMI in 2002 – in exchange for the label's right to keep the majority of the takings from new releases. Instead, labels could simply subsidise the making of an album or the beginning of a tour in exchange for a share in the profits – or losses.
Hands is understood to have been impressed by the inventiveness of EMI's music publishing division, which owns the copyright to songs, in making money from new sources. It has licensed lyrics to be printed on jeans and posters and music videos to be played on YouTube.