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The Dark Side of The Ego Investment: Terra Firma Sued By Pink Floyd

Further proof that finance and rock music shouldn’t mix: Pink Floyd is suing music label EMI and Terra Firma, its private equity backer.

Terra Firma’s ownership has been blamed for the departure of such acts of Radiohead and Paul McCartney from EMI’s stable of artists. Now Pink Floyd, its second-best-selling artist (topped only by the Beatles), claims EMI miscalculated its royalty payments.

EMI has certainly proven to be a nightmare for Terra Firma and perhaps the biggest misstep of its former leader Guy Hands’ career. (Remember the attempted Music-Backed Securities?)

He stepped down as CEO after the company was written down by half, causing the firm to take a €1.39bn loss in 2008. The move was regarded as largely symbolic, though, since he remains the firm’s Chief Investment Officer and Chairman.

Even with the PR move, I think Hands has a losing battle of public approval on his hands. Any investment that relies on celebrities or artists is bad news for private equity if you ask me. When things go wrong, who will the public sympathize with, Paul McCartney or some rich banker-type that wants to leech money from Paul’s talent?

Obviously it’s not that simple, but how can Terra Firma compete with comments like this from Paul McCartney:

Everybody at EMI had become part of the furniture. I’d be a couch; Coldplay are an armchair.

Versus ones like this from “an adviser to Guy Hands:”

They think there are people with ‘magic ears!’ (guffaws) They believe they have people who can spot talent. They don’t know how to use market research or anything like that…All I can tell you is that Guy will be cutting a lot more cost out of that business than has so far been indicated publicly…

Artists, and therefore, their fans, do not want to hear that, even if it’s the ugly truth of how private equity saves a failing business. On second thought, maybe more transparency is a bad thing.

But really, it’s just another brick in the wall (ha) that should separate private equity from these types of investments. Owning a record label is just shades away from other failing ego-type investments by high net worth individuals. I’m talking about sports teams and media plays. So often the property is purchased more on pride than the specter of making money or growing the business, so when things go poorly, the buyer gets villainized more than usual for meddling with something dear to the public’s hearts.

(Still not convinced finance and rock music don’t mix? Case In Point.)