A leveraged buyout’s financial discipline can drive away an artist roster.

Evidence

Another major record label became subject to financial engineering in 2007, when venerable British music company EMI was taken over by PE firm Terra Firma Capital Partners. Typical of a PE firm, Terra Firma used debt financing to acquire EMI in a 4.7 billion deal, with the intent of extracting value by selling off its revenue streams to investors. However, the then roiling financial crisis limited any potential buyers. Terra Firma then opted for dramatic restructuring: it fired the existing management and two thousand employees (45 percent of the workforce), while relentlessly focusing on maximizing profits and minimizing losses. Its strategy was characterized as seeking to “disempower the irresponsible 'creatives', and impose financial discipline.” Many of those so-called irresponsible creatives decided to take their business elsewhere, including Paul McCartney, the Rolling Stones, Robbie Williams, and Radiohead. Unable to restore revenues in an industry struggling with the digital transition and unable to make payments on its loans, Terra Firma forfeited control of EMI to its primary lender, Citigroup, in 2011. Its losses on the investment totaled 2.7 billion, considered the largest known PE investment write-off in history. — Andrew deWaard, Derivative Media, 192

Categorization

• XREF: Connects to the reader’s larger thesis question: ownership structure leaving fingerprints on artistic form — here the EMI artists leaving en masse over PE discipline is a finance-to-creation channel worth tracing downstream.
• QUESTION: When Radiohead, McCartney et al. left EMI in response to Terra Firma, did the catalogs they left behind get carved up and securitized — and did that change what the label could invest in going forward?