EMI restructuring faces contractual obstacles

NEW YORK (Billboard) - Record label EMI has faced some unexpected challenges executing the bold restructuring plan it announced in January, sources say.

EMI artist Chris Martin of Coldplay performs in Singapore, July 10, 2006 . Record label EMI has faced some unexpected challenges executing the bold restructuring plan it announced in January, sources say. REUTERS/Tim Chong

EMI, now owned by private equity firm Terra Firma, wants to lay off 2,000 employees as part of a plan to tear down label walls and international boundaries, and focus more on finding new talent.

But sources say some obstacles have cropped up at the home of Coldplay and Lenny Kravitz: issues concerning “key man” clauses in artists’ contracts; clauses in executive contracts that allow top staffers to leave if their responsibilities change or the company comes under new ownership or management; and challenges meeting deadlines by certain sectors of the company.

An EMI representative called all three assessments “wrong,” and noted that “as announced on January 15, EMI’s reorganization is on plan.”

EMI is clearly making strides to complete its restructuring. An April 16 internal memo announced the appointment of a chairman’s board, an operating board and a restructuring board.

The company also made its first moves in presenting a new face with the hiring of Universal Music U.K. president Nick Gatfield as president of A&R (artists and repertoire) for North America and the United Kingdom. His predecessor, Roger Ames, will leave the operational side of EMI’s business and work with Terra Firma on strategic acquisitions.

Earlier this month, EMI began the layoff process when the Nashville-based EMI Christian Music Group cut an unspecified number of employees. The New York Post reported last week that restrictive labor laws are slowing down the process in Europe.

As for the overall restructuring, it is “slow because some people are missing their deadlines,” an EMI executive says.

But two other issues affecting the restructuring still need to be resolved, sources say. In the case of key man clauses -- provisions that allow superstar artists to leave a label if a “key man” such as a label president or A&R executive who signed the act leaves or is fired -- sources say Terra Firma may not have realized the extent to which they existed within EMI.

Meanwhile, sources say a number of top current EMI executives want to leave, claiming breach of contract due to impending changes in title or responsibilities, but that EMI is fighting executives in instances where it believes it is in the right, senior executives at the company say.