From the FT.
The late 20th century was a very good time to run a studio or a label in a media company. Apart from having a lot of freedom and being paid a lot of money, executives and producers could hang out with artists and feel creative themselves.
Things are now tougher for studio executives and A&R (artists and repertoire) people at music labels. The digital revolution and the end of the DVD boom and the CD era means that there is less money to throw around. They are being thrown out of their jobs instead.
Time Warner is folding New Line, the studio that made the Lord of the Rings trilogy, into its Warner Brothers arm and Bob Shaye and Michael Lynne, New Line’s co-heads, are leaving, along with many of their 600 staff. Guy Hands, whose Terra Firma private equity group now owns EMI Group, caused a ruckus last week by castigating EMI’s 260 A&R people for laziness and profligacy.
Mr Hands told the SuperReturn private equity conference in Munich: “The power and the decision has sat with the A&R man, who is someone who gets up late in the day, listens to lots of music, goes to clubs, spends his time with artists and has a knack of knowing what would sell. They were committing money with no sign-off, no nothing.”
Such sacrilege has led to complaints that the “suits” who run media conglomerates – in the case of Time Warner, Jeffrey Bewkes, its new chief executive – do not understand how to handle creativity. Curbing the autonomy of talent-spotters will lead to these companies losing creative energy, the critics say.
The critics include a bevy of stars who like to have their egos stroked by people who understand their craving for praise and support as well as multi-million dollar contracts. Thom Yorke of Radiohead, the EMI band that sold its latest album online for as much as its fans would pay, described Mr Hands and EMI as “confused bulls in a china shop”.
Through the haze of self-indulgence and self-regard, fans of the traditional ways of A&R and film-making are correct about two things.
First, creativity flourishes in small groups rather than big organisations. There are sound reasons why media companies maintain labels, studios and, in the case of book publishers, imprints. It is why GlaxoSmithKline, for example, groups its drug discovery work in specialist centres rather than making its scientists work in big, amorphous laboratories.
Second, talent spotters and producers have skills that someone who works in finance does not possess. Mr Hands and EMI’s suits would probably be lousy A&R people. They would not be able to spot promising but inexperienced bands, get them to sign and guide them through the maze.
But neither fact justifies the high costs and low productivity of studios and labels that have become what Hollywood calls “mini-majors”. Nor does it prove that A&R people should earn enough (in the case of a few) to live in Beverly Hills mansions.
Although A&R people and producers insist that their profession is about creativity rather than cash, they still demand control of the purse-strings. They want to run their own shows inside conglomerates rather than being held to account.
Labels and studios have built up their own infrastructures although it would be cheaper to share with others. They also enjoy an incentive to spend money freely because they prosper when their projects do well, while losses are absorbed by the parent company.
A&R people at EMI were given an incentive to waste money by an accounting system that wrote off their multi-million dollar advances to new signings as capital investments and were awarded bonuses on the number of CDs the bands they signed shipped rather than actually sold. It is hardly any wonder that only 3 per cent of EMI’s artists are estimated to turn a profit for the company.
New Line, which was founded by Mr Shaye in his Greenwich Village apartment in 1967, expanded into a separate studio inside Time Warner, with its own head office and marketing and distribution operations separate from those of Warner Brothers, the main studio.
The next shoe to drop is likely to be DreamWorks, the studio founded by Jeffrey Katzenberg, David Geffen and Steven Spielberg, which is not large enough to survive independently. It chafes under the control of Paramount and may bolt to Universal.
Talent-spotting and production will always be hit and miss affairs, like early-stage drug discovery. But the optical disc boom encouraged costs to inflate and financial disciplines to erode in a way that was silly in the first place and is unsustainable now. Media companies have no choice but to address this reality.
The solution is not that suits take over A&R or film production. But it does make sense for them to impose rational financial targets on those who spend the money and to reclaim control over operations such as marketing and distribution.
Other media businesses split power and financial responsibility between their creative executives and account managers more sensibly.
Advertising maintains a balance between the two sides in a way that (despite tensions) compromises neither creative inspiration nor financial oversight. Book publishing operates through imprints – which, like the music industry, hand out advances with a low hit rate – yet it rewards imprint editors modestly.
That is the future for the music and film businesses too. The age when A&R people and film executives could insist on both creative and financial freedom, and big bonuses on top of that, is waning. Creativity will have to be its own reward.