How EMI and the music industry learned to stop worrying and love the digital download
When Seagram bought Polygram in 1998 for $10.6 billion, the French-born ceo Alain Levy found himself out of a job. Not for bad performance: Levy had turned PolyGram into the world's largest music company by a combination of organic growth and strategic acquisitions at a time when CD sales were booming. After the company was sold, Levy, then aged 51, spent several years consulting and pondering the state of a changing industry, and quickly concluded that old models for growth were gone. CD sales peaked in 2000, damaging companies bedeviled by piracy and the online trading of free music. Levy realized that the industry had to figure out how to make money from digital music. If he could run another company, he told colleagues, he'd do things differently.
That opportunity came in the autumn of 2001, when Eric Nicoli, chairman of EMI Group — the iconic British company whose superstars have ranged from the Beatles to Coldplay — offered him the top job at EMI Music. EMI was then a listing ship that had jettisoned more than 40% of its market value in one year, and had just issued an entirely unexpected warning, admitting that profits would slide 20%. One of Levy's first hires was a McKinsey & Co. consultant, John Rose, in January 2002, whose remit was to figure out how to make digital pay. "He knew digital wasn't going to go away," Rose recalls. "That was a large part of his hiring me." But Levy's decision to embrace digital bucked industry notions. "The prevailing feeling was, 'This isn't going to work because people are going to steal and not buy.'"
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