Apple-EMI DRM-free music deal threatened by Terra Firma’s EMI takeover?

Apple iTunes“You could almost hear the sighs of relief among music downloaders when EMI agreed to be bought by private equity firm Terra Firma Capital Partners and not Warner Music Group,” Philip Elmer-DeWitt blogs for Business 2.0.

“After all, Warner Music, which has been trying to buy EMI for seven long years, is a staunch advocate of Digital Rights Management (DRM) to prevent music piracy. And EMI famously broke ranks with the other big music labels in April and signed a deal with Apple to provide DRM-free music on the iTunes Music Store — a deal duplicated last week in a separate agreement with Amazon,” Elmer-DeWitt writes.

“The assumption was that if Warner got hold of EMI’s huge back list — which includes everyone from Nora Jones to the Beatles — you could kiss those DRM-free downloads goodbye,” Elmer-DeWitt writes. “But the sighs of relieve may have been premature.”

Full article here.
It’s too late to affect the DRM-free deal, isn’t it? The DRM-free EMI music is set to start being sold in May and, while the music is not yet available via Apple’s iTunes Store, there are only 9 days left in May. We’ve heard nothing from Apple (or Amazon, for that matter) that would lead us to believe that the DRM-free EMI music sales aren’t coming as promised. Once it happens, as we assume it will very soon, the toothpaste will be out of the tube.

13 Comments

  1. No it is not… Even amazon is cutting a deal with EMI to open a store and seel EMI-DRM-Free music by the end of summer. These deals should be proof that this is not going to hurt the Apple/iTunes Deal.

  2. Or maybe EMI knew that they were about to be bought up and wanted to up their own price by threatening to offer DRM-free music. How much do you think Warner would pay to keep them off the market?

  3. I don’t think this deal will stop the EMI DRM free downloads from happening. If Warner bought them it would have been different story but they did not so I think everything is to go on as scheduled. Amazon also has a deal which they announced already as well.

  4. Yet another “analysis” article written by someone who wanted to get some notoriety by including a negative iTunes spin in their hit-piece.

    Let’s apply some logic to the Terra Firma purchase of EMI and the likely effects.

    1) Terra Firma is a private-equity group, similar to KKR, Texas-Pacific or any number of similar organisations. It is run by Guy Hands, who formerly ran Nomura’s PE group in London through the Nineties.

    2) Private-equity exists to buy companies and sweat the assets aggressively, perhaps even divesting assets that are not seen to be capable of being “sweated”.

    3) If you accept the truth of the previous statement, I would be surprised if TF’s management – who are bean-counters – have any desire to back out of the DRM-free market: If the asset is earning more money as a DRM-free asset than with DRM, Terra Firma will be happy little bunnies.

    4) Again, if you accept the second statement, you are more likely to see EMI withdraw from physical product than digital download: physical product means atoms which means production and transport costs; digital product means bits which means a one-off mastering cost and next to no incremental costs for distribution and delivery.

    5) If you accept the second statement and the fourth statement ,you are more likely to see a TF-led EMI aggressively pursue the digital world.

    What this would mean in reality is that EMI’s A&R functions will likely be tasked with acquiring permission for digital distribution for the “hold-out” artists in EMI’s stable. An asset that cannot be exploited for the maximum return is anathema to an outfit like TF – so expect to see artists who don’t agree to co-operate “sidelined” by having their product “temporarily” deleted for “repackaging”.

    6) In a private-equity world, everything is up for grabs and that means EVERYTHING. Expect to see EMI’s video portfolio shamelessly exploited, either a BluRay discs or as video downloads.

    7) Whilst you’re waiting, you may spare a thought for EMI’s music publishing interests – if TF can’t find a way to sweat that asset (like making multi-channel MIDI files available for download), that part of the business is likely to find itself up for sale in pretty short order. If you listen closely, you’ll hear UMG’s music publishing operations sharpening the cutlery for yet another acquisition.

    8) One of the downsides of this purchase is that, as nothing succeeds like success, you can expect to see a reduction in musical diversity and an increase in homogeneous pap. However, this is actually a good thing in the long run: “serious” artists who effectively become licensed repertoire and retain the rights in their own music are more free to enjoy the commercial benefits of digital download thus removing the “music industry” as the middle-man/pimp over time.

  5. IANAL, but the contract has been signed. A contract remains valid even though a company change its ownership. Therefore, Terra Firma must honor the contract that allows Apple to sell DRM-less music. If TF dismantles EMI and sells the music publishing part to Warner, I think Warner must honor it too and allow Apple to sell songs previously owned by EMI as DRMless tracks.

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