The MT Interview: Elio Leoni-Sceti of EMI Music

EMI's new boss has a plan that could revolutionise the iconic company. But can he convince investors?

by Chris Blackhurst
Last Updated: 09 Oct 2013

It's the morning after the day before, and Elio Leoni-Sceti looks like he hasn't got a care in the world. Remarkable, when you think that only 24 hours before we meet, it was revealed that EMI, the music group he helps run, made a loss of £1.8bn last year and needs an injection of up to £120m in cash to keep it out of the clutches of the bankers. He's in charge of EMI Music, the recorded music business and the company's most high-profile and biggest division - home of Robbie Williams, Coldplay, Lily Allen and Madonna.

Incredible, really. Because earlier in the week, Leoni-Sceti was also the host at a star-studded party in Hollywood after the Grammy Awards. If it had been me, I would still be getting over the jet-lag, and God knows how I'd cope with the parlous situation that EMI now finds itself in.

How are you? I ask him. 'I'm feeling good,' says Leoni-Sceti, 44, nodding his head vigorously and smiling, showing a gleaming, perfect set of teeth. When I say I'm scanning his hair for signs of anxious grey, he leans forward. 'Look, there is none,' he says, laughing.

His face is serious now. 'Yesterday was, shall we say, an interesting day - but we prepared for it.' Interesting! More like a terrible, never-to-be-forgotten day and certainly never to be repeated - one in which EMI's deficit dominated headlines and, in the time-honoured ritual that accompanies major corporate disasters, TV cameras were set up outside the front door of the group's Kensington headquarters.

The giveaway that EMI is at a critical juncture is when Leoni-Sceti lets slip that he is soon to address the staff - in person in the building and by video-link elsewhere - to explain the company's predicament and to take questions. 'They can ask me anything they want,' he says.

He's armed with a pile of scribbled notes that suggest that whatever is thrown at him, he will have an answer. 'The key things people want to know are: how will their business move forward, and that their creativity and hard work are not going to be wasted in the future.

'I will tell them this business can beat the competition, it can grow market share, and that we will attract and retain the best talent.'

This is a far cry from a letter that he sent in October to his ultimate boss, Guy Hands, controller of Terra Firma, the private-equity house and EMI's owner. In the letter, which has been disclosed as part of the evidence in the legal dispute between Hands and Citigroup (Terra Firma's lender on the purchase), the CEO of EMI Music warns Hands of the difficulties he is facing. In particular, that negative speculation surrounding the company has made it difficult to sign new artists and persuade existing artists to record new albums. Staff morale at the 155-year-old company, reported Leoni-Sceti, was at an all-time low.

As well it might be: for the truth is that unless he can encourage Hands' clients to pump in more money, EMI could be broken up and the parts sold, as the banks try to recoup their loans. Everything hinges on their belief in the business plan Leoni-Sceti is preparing and in his ability to deliver what he promises. The weight of expectation on him must be intolerable.

Yet here he is, in his fourth-floor office, grinning broadly. Perhaps he knows EMI's plight is not down to him. None of it is Leoni-Sceti's fault. Indeed, the perception is that he's doing a good job under exceptionally trying circumstances. If he fails in his quest for extra capital, that will be because Terra Firma's investors have had enough of throwing good money after bad. The blame rests four-square with Hands - now hunkered down in his Guernsey tax haven - for paying so much for EMI.

When we look back at the crazy years before the financial world received an almighty reality check and spectacular deals were fuelled by massive lending, one acquisition surely sums up the madness of it all: Terra Firma's decision in the summer of 2007 to part with £4.2bn for EMI, just weeks before the credit crunch took hold.

Just writing the number makes you tremble: £4.2bn for a business that had lost £260m the previous year, and - thanks to the surge in free internet downloading - was in an industry fighting for its survival.

Hands says he paid too much because Citigroup led him to believe that other bidders for EMI were circling - a claim that the bank denies. There weren't any rivals: Cerberus Capital Management had withdrawn from the auction, leaving Terra Firm on its own. But, putting the fine points of the lawsuit to one side, the fact is that Hands paid way over the odds for the company, a move that has left EMI struggling under the mountain of debt used to finance the bid.

At first, Hands ran the business himself - what is now Leoni-Sceti's office was his. He came across as the rich, suited financier marching into the business with his entourage and telling the world how it was. Stories emerged of EMI's alleged profligacy - how favoured artists had received 'candles and flowers' (code for drugs and hookers), and how some acts were on the roster even though they hadn't produced anything sellable for years. EMI's previous management dismisses the claims.

Large cuts in the workforce and talent list followed, accompanied by the defection of star names Radiohead and the Rolling Stones. EMI, it seemed, was heading for oblivion and was going to take Hands down with it.

The news that he had appointed a little-known Italian from Reckitt Benckiser, the household products maker (Air Wick, Dettol, Vanish), to run EMI Music (the other division is EMI Music Publishing) seemed par for the course: Hands didn't know what he was doing.

Leoni-Sceti was born in Rome to a mother who was a classical composer and a father who was a property developer. He went to a private boarding school in Switzerland and studied economics at Luiss university in Rome. 'I always wanted to be in finance. For a short period, I went into the stock market, but I felt the absence of material goods - it was all about numbers, and numbers alone are not for me.'

Stockbroking was junked for the marketing department of Procter & Gamble. At the suggestion of Maria, his American girlfriend and later his wife (they live in Surrey and have four children), he sought a move abroad.

Then came Reckitts, where he spent 16 years, rising to European president. 'Five to 10 times a year, headhunters were calling me. Then I got one from someone working for EMI. They said Guy was looking for a person with international experience who knew business, who had been places and had a depth of understanding of the consumer and how the consumer behaves.'

He went for it. 'I'd grown up with music because of my mother. The transformational challenge of the industry and the company was a huge attraction. So many CEO jobs I'd been approached about weren't transformational and just weren't exciting. And I had a very good series of meetings with the people and with Guy.'

Yes, but even so ...? 'It's true, what I read was all bad. There were big red flags, but they were offset by talking to the people in the business.'

And £4.2bn? The price, he says, 'is best dealt with by Guy. But one thing I would say is that Guy and Terra Firma had a history of deal-making that was second to none and they decided the price was right at that time.'

Nevertheless, some thought Hands must have discovered a secret stash of the candles we'd been hearing about. He'd appointed a music industry novice to run one of its best-known brands, a 'Big Four' label (alongside Universal, Warner and Sony) that faced huge changes in the industry and had to meet colossal debt obligations.

Leoni-Sceti, too, was suspected of taking leave of his senses in quitting a successful, well-run fast-moving consumer goods operator for the bear-pit of EMI.

But in looking to the FMCG sector, Hands was not alone. When Morrison's was searching for someone to run its supermarkets, it went for Marc Bolland, COO at Heineken. Those in FMCG are taught the importance of knowing the customer. Theirs is an intensely competitive arena, where they must keep adapting and progressing. 'At Reckitts, 40% of their revenue had to come from demonstrable innovation. Every three years, a product had to be renewed in some form.' That, he says, is how it should be at EMI.

'You have to identify consumer behaviour, their needs and motivations. Then you set about getting products out there that fill the gap. Consumption of music is growing more than any industry I'm aware of. But 10% is paid for and 90% is pirated.' Rather than moan about it, he sees it as an opportunity: 'We're aiming for 90% paid and 10% pirated.'

Likewise, he says, 'the issue for the music industry is not the decline of CD sales but the lack of monetisation of digital downloads'. The customer is sending a signal that they don't want CDs, so it's pointless trying to sell them something they don't want. His FMCG experience taught him the value of finding out what the consumer wants. So the great challenge, he says, is making money from downloading, not exploring new ways of boosting CD sales.

It's this focus on meeting customer needs that explains why employers in other sectors have gone outside the box in choosing CEOs. The reasoning behind Adam Crozier's move from Royal Mail to run ITV is perhaps the same - he doesn't know how to make a television programme, but ITV chairman Archie Norman believes Crozier knows how to change organisations and how to provide advertisers and viewers with a product they want.

Leoni-Sceti's induction into EMI Music in September 2008 was aided by the contrast with Hands' own spell of running the company. The latter's approach had been confrontational and outspoken: he thought he knew best how to structure a music label and said so. He claimed to have discovered waste on a grand scale and did not hold back: he slashed staff and offices, most notably the company's centre in Hammersmith, not far from the Kensington HQ.

By the time the smooth-talking, more conciliatory Leoni-Sceti came along, EMI was reeling - Hands, the bull let loose in a china shop, had seen to that. Says the Italian diplomatically: 'It was a shock that helped people open their eyes. When their eyes were opened, I stepped in.'

For the last full year before Leoni-Sceti joined, EMI Music's ebitda (earnings before interest, tax, depreciation and amortisation) was £51m. Then, in the year to the end of March 2009, it was £163m.

Healthy numbers - not least in a recession and against a backdrop of industry decline. But that was before a £1.04bn impairment charge, including a £661m write-down in the value of the music catalogues (reflecting the recession and fall in CD sales), a £135m restructuring cost and £722m of financing charges, did their worst.

Those things, Leoni-Sceti says, were nothing to do with him. 'There's a clear separation between the business and the capital structure of the business.'

Even so, isn't there a dirty great black cloud looming over the company? He shakes his head. 'I disagree. If you judge this business from the sustainability of the model, there is no black cloud hanging over it, because we're growing in a declining market, we're gaining share and we've worked out a way to bring creative momentum back. We've got four artists in the current US album Top Ten. There is no black cloud over this business.'

The figures that were released and caused such consternation, he stresses, were for Maltby Capital, Terra Firma's EMI vehicle. But even so, if there is no more money, EMI goes down ...

'That's not how I like to see it. More money should be put in, because the investors are confident the business is strong enough. Should that not happen, then there will be issues of ownership. It's not an easy position to be in, of course.'

The beam fades briefly, but he shrugs and the ebullience returns. 'The business itself has enormous integrity. It's important that it is able to move on. I'm very proud of what I've brought to this business, and the staff should be proud.'

What of the crucial business plan; can I see it? 'No,' he says, laughing, 'you can't. It's being worked on. Within EMI, we have a team of 12 people working on it.'

Those honest toilers 'are preparing a business case to put to the shareholder, which is Terra Firma. If the shareholder decides that this case is strong enough, it will go to its investors.'

He won't go into detail, but the plan must surely involve more cost-cutting and the sale of non-core operations. On the positive side, he will say it 'explains how the strategic direction we've taken can be accelerated. It sets out the components for revenue growth, the most important of which is digital. It sets out a case for further investment in technology that will make our digital revenues grow even faster.'

And not just digital. 'Another element of our revenue growth is "non-recorded music", such as merchandising and clothing. We've taken a 360-degree look at what we do. Now we're much more involved in live music, not just recorded, and how we can develop revenue streams from that. So two months ago, EMI acquired Loudclothing.com, which distributes T-shirts for bands and is the second-largest music merchandising company in the world.'

That purchase, he says, plus new signings - 'We've made 200 globally over the last 18 months, and on many of them we make sure we participate in the non-recorded income' - points to a different, healthy future.

What about artists quitting - is he worried about that? His face darkens. 'Sure, we're always worried about that happening, but that's also normal. If we're not paying care and attention to people, they will leave. I reach out to them, I speak to them, I will answer any of their questions.' That, he says, is his job as CEO - 'to say where the company is going and making sure we preserve value'.

Since taking charge, he has installed 'a strong management team, which we didn't have before. We've got two COOs - one, Ronn Werre, covering Namex (North America and Mexico) and the other, David Kassler, overseeing Europe and the rest of the world. In Nick Gatfield and Billy Mann we've got two outstanding heads of A&R, who - as I say - have made 200 signings.'

He also claims to have instilled a stronger commercial drive. 'It's about marrying creativity to innovation, to product development and consumer understanding. For a long time at EMI, the missing piece of the puzzle was: how do you complement creativity? That's about innovation, it's about product development and understanding the consumer. It sits next to creativity - it's insight next to instinct.'

That's where his previous career helps. His office is full of EMI products. They're all packaged differently, so some are in premium-priced boxed sets and collectors' packs, others in normal albums. Some, like the Beatles, have their own computer game.

He says it's about how you can take the same product and cut it various ways. So one fan buys the £9.99 CD and another pays 99p for a single track. There's also the dedicated follower who pays extra to be first - which is why, for the new Depeche Mode album, EMI offered a premium subscription service through which, for £16.99, fans could get the downloads before anyone else, and they received extra tracks. 'It's about them feeling special, making them feel closer to the artist and the band.'

For last year's Blur concerts, fans were able to buy CDs or USB sticks of the gigs immediately after they occurred.

But when it came to promoting the Beatles Remastered, Leoni-Sceti and his team were aware that many older Beatles followers might not want to buy the albums over the internet or download them, so they sold them over the QVC shopping station on television as well. 'It's about understanding the consumer and being prepared to look at different marketing channels,' he explains. 'For Queen, we're doing The Absolute Best of ..., and we will have seven or eight different products, ranging in price from £6.99 to £100. There will be a T-shirt containing the downloading code at one end and gift CDs and DVDs at the other.'

The Beatles, Queen ... isn't EMI living on past glories, merely dicing and slicing them for a modern audience? 'Absolutely not. We've got new artists. We've taken David Guetta, a French DJ, and turned him into a global phenomenon and a Grammy winner. Lady Antebellum was a US country band. Now they've crossed over into the mainstream and they're number one on the main US chart.'

He rattles off other new and up-and-coming acts. But, I venture, isn't it also about making savings? He nods. 'Every company has to look for efficiencies. Is there any fat left in EMI? No. Are there any efficiencies to be found? Yes.'

EMI's travails have come, ironically, just as the industry seems to have turned a corner in its battle with free downloading. More and more people are ready and willing to pay, and governments are moving to outlaw piracy.

He doesn't believe CDs will disappear. He predicts that the inflexion point - when global downloading revenues exceed earnings from CDs - will come in 2014. 'We're not there yet with monetisation of digital, but we are getting there - through innovation and legislation.'

It must be immensely frustrating, with so much to look forward to, to have a major question mark over EMI's future. He smiles again. 'If I bang my head on the wall, it's not when there's a journalist in the room.'

Look, he says, 'if I was an investor, I would carefully scrutinise the business case for EMI. I would look at where the music industry is and look at the risk. I would assess how we propose to deal with that risk. In the end, it depends on how risk-prone (investors) are.'

Is he confident of getting the backing he needs? 'I'm confident the business plan we present will be a good plan. I can only do my job. I'm staying focused on delivering a vision for this business - I'm very dedicated to EMI.'

Which is probably all he can say. It can't be easy. But then, as he also says, it's not as if EMI's problems have just emerged. 'The price Terra Firma paid was known when I joined.'

FOUR CHALLENGES FACING LEONI-SCETI

1. To convince Terra Firma investors to pump more money into EMI

2. To persuade major artists and staff to stick with the label

3. To recruit creative and managerial talent to EMI

4; To make digital downloading pay

LEONI-SCETI IN A MINUTE

1966: Born Rome, educated at a private boarding school in Switzerland and at Luiss private university, Rome

1988: Joins Procter & Gamble as a brand manager

1992: Moves to Reckitt Benckiser as a category manager

2001: Appointed executive VP and made head of category development, leading Reckitt's innovation, product pipeline, global marketing and media

2005: Head of Europe for Reckitt Benckiser

2008: Appointed CEO of EMI Music.

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