Patrick Zelnik, founder and CEO of French independent label and distributor Naïve and co-President (for now) of Impala, the independent label association, has made international headlines over the last few days: On Monday a surprising op-ed he wrote for the Financial Times in favor of the Universal Music Group-EMI merger caught many off-guard. For the first time in the UMG-EMI merger process, disunity was seen among the independents who up until this week seemed in lockstep in their views again st the deal.
The following day news broke that Sir Richard Branson was interested in buying back his former label Virgin Music if UMG-EMI was forced to shed assets. And who did Branson say he may be partnering with him on the deal? Zelnick, who originally launched Virgin in France in 1980. And today, news comes from Zelnik may now be resigning from the board of Impala.
Zelnick is a respected music industry figure in France and beyond. In 1997, he launched his own record company and book publisher Naïve, based in Paris. He served as both president and co-president of Impala and in 2009 was appointed by former French President Nicolas Sarkozy to lead a "Creation and Internet" mission to help find solutions to enhance a viable digital economy for cultural goods. Zelnik, in the past, has fought fiercely against merger projects such as EMI and Warner (which never happened) and Sony and BMG (which did), but as he told Billboard in this exclusive interview, "Only fools never change their mind! My feeling is that everything has changed in the past 12 years."
Billboard.Biz: What a shock: Patrick Zelnik is advocating a merger between two major record companies? Did Impala know about your article before you sent it?
Patrick Zelnik: Impala knew and had asked me to wait before I published it, which I did. Impala itself is quite divided regarding the merger of Universal with EMI: 58% of the board voted in favor of it, while our rules state the two third majority is required to reject it. You cannot speak about a refusal when you have such a majority of votes in favor of the agreement. Martin Mills is still opposing the merger, with very good arguments, as I have been using myself for 12 years. We have a different perspective in this case.
What led you to give your support to the deal?
Only fools never change their mind! My feeling is that everything has changed in the past 12 years. The market will become 90% digital soon and if digital platforms are the new record stores, then we need to avoid the mistakes that were made with record stores. We need more platforms, especially in Europe, and a deeper catalog in each of them. Pop repertoire is generally well represented, but there is still a lot to do with classical, jazz and other repertoires. For all this, negotiations with rights holders have to be facilitated, as it is still a jungle.
Have you resigned from the board of Impala?
I said to the board I would resign, but I haven't done it yet, I can still change my mind.
Why would you resign?
They disagree [with Zelnik's article], but they disagree between themselves too! 58% of the board is in favor of my views, but the rule says we need a two-thirds majority. I did not co-found Impala for it to become a bureaucratic organization. It will all get fixed when they realize they got it wrong on how the European Commission works. Some people on Impala's board apparently still lack experience.
You said there is no conflict of interest between your article and your intention to buy Virgin, perhaps some people at Impala think differently?
They have known about it for years.
Majors like Universal have been accused of asphyxiating digital platforms by demanding very high fees. How do you think an even bigger major could facilitate negotiations with these platforms?
Universal is already powerful anyway. The EC did not listen to us regarding the Sony-BMG merger. The project ended up with 1 +1 equal 1.2! At first I could not believe Universal was trying to buy EMI. But since the EC is generally quite reluctant to block a merger -- especially when a European champion is concerned -- we need to focus on remedies. And since this merger is extravagant, we need extravagant remedies. One of them is that Universal would cease with old practices that have slowed the market.
And you support the idea of having a buyer for EMI that is from the music sector?
The shareholder is key. I might be wrong, but I am not sure that people from Access Industries [who bought Warner Music in 2011] are that different from those from Terra Firma [whose ownership of EMI was not successful]. Vivendi is a good shareholder; see how, despite Jean-Bernard Levy's departure, they are focusing on content rather than telecom. They have understood that owning masters have lot of value. You can't replace an artist with another, while you can replace a phone subscription with another.
You also recommended Universal should make targeted, surgical divestitures to independents. In that regard, do you have concrete plans to buy Virgin along with Richard Branson, as widely reported?
Yes, but we are still at very early stages. I wish that, if Virgin is to be sold, it will not be bought by an investment fund, which will not know how to handle it.
Who would buy Virgin, Zelnik and Branson or Naïve and Branson?
It would be Naïve and Branson, but I have an 80% share in Naïve, so it is almost the same.
When you wrote your article for the Financial Times, did you already have the Virgin plan in mind?
Yes I did, but there is no conflict of interest. Anyway my article might influence the EC's decision, but it won't change it! It is still a hypothetical project, the merger between Universal and EMI can fail.
Have you talked with Universal about buying Virgin and do they agree?
Of course I did and I have their agreement, as I had Warner's on the same topic in 2007 [when Warner and EMI last attempted to merge]. It is my third attempt to buy Virgin, only this time we made it more concrete with Branson. We both believe Virgin has lost a large part of its seductive power after its merger with EMI. We have not made any offer at this point though.
Are you targeting Virgin worldwide, even in the territories where the brand is no longer in use?
Yes. Even in the US, Virgin has contracts with artists. Anyway, artists and their managers would be able to chose between going with Universal or Virgin.
What would happen with your label Naïve?
It would merge with Virgin.
Can you tell us about your company? There are rumors of Naïve being in bad economic shape.
There have been rumors forever and we are still here. We resist cash flow problems like any company. We own over 1,700 record masters and Naïve is an international brand. We have our own distribution system. We had a 30% growth in digital music, which is more than then the average rate. We have 30 million euros ($39 million) turnover, 25% of which coming from classical music. What we have not reached is a critical size: we are too big to be able to adapt and react as fast as a small indie label would, and yet we do not have the means to invest as a major company would. For example, I have not been able to keep Muse's contract after three albums, as Warner made a financial offer that was out of my league.
Are you optimistic for the future of the recording industry?
I have personally invested one more million euros in Naïve in 2012, which I would not have done if I did not believe strongly in the company. I am very confident for the future of the sector, investors need to get back to financing music, and they are starting to -- enabling us to buy Virgin!