Why Sanctuary's Really in a Spin; with Artists like Beyonce, Morrissey and Elton John on Its Books, Britain's Top Music Management Group Should Be Booming. but Sales and Profits Are Falling and the City Has Lost Confidence

The Evening Standard (London, England), June 30, 2005 | Go to article overview

Why Sanctuary's Really in a Spin; with Artists like Beyonce, Morrissey and Elton John on Its Books, Britain's Top Music Management Group Should Be Booming. but Sales and Profits Are Falling and the City Has Lost Confidence


Byline: SARAH MARKS

IN May 1969, Andy Taylor booked the Bonzo Dog Doo-Dah Band for the college ball. Two months ago, he signed Sir Elton John to the stable of 130 artists that forms the backbone of Sanctuary Group, the quoted music management firm and the world's largest independent record label.

But instead of celebrating his success, Taylor is fighting to restore the credibility of his company in the City and will almost certainly have to sell off bits and pieces of his music empire to keep the banks at bay.

Earlier this week, the 54-year-old Sanctuary boss told shareholders that lower-than-expected music sales had knocked [pounds sterling]9.3 million off sales forecasts.

Half-year profits had fallen 81% to [pounds sterling]1.3 million and Sanctuary confessed it would not meet full-year expectations. The City, once staunch supporters of the company that includes artists as diverse as Iron Maiden, Morrissey and Beyonce Knowles, began to sell the stock.

The shares, already hit by an earlier profit warning, dropped to a new low of 181/2p against a 20p float in 1998.

Taylor blamed the lost sales on delayed album releases - slippage - and pointed a finger at the newly established Sanctuary Urban, the US hip-hop, R&B and urban music arm run by Matthew Knowles, singer Beyonce's father. He claimed the slippages were a one-off, caused in part by its lack of knowledge of the US music scene. Its mainstay for the past 27 years has been ageing - some might say has-been - rockers.

Slippage is a problem for any music business - after all, musicians are unpredictable, creative people whose output cannot be mapped ahead like that of a widget factory. Even EMI put out a profit warning in February due to a delay in the new Coldplay album.

But the City has another issue with Sanctuary - debt. Its rapidly growing roster of artists has been achieved through a costly buying spree funded by bank borrowing and loan notes.

This week, Taylor admitted to some misgivings about the [pounds sterling]117.5 million of debt. He said "group indebtedness was at a higher level than the board is comfortable with going forward". But some question whether a few million pounds for the books and classical music division - the most likely candidates for sale - will make a sufficient dent in the debt. After all, interest charges alone have topped [pounds sterling]4 million in the past six months.

Investec analyst Malcolm Morgan said he would like to see a more substantial part of the business sold.

Many in the City are nervous about its US division. Some of the UK's most successful companies have stumbled in America, and some shareholders are unhappy about the amount of money spent chasing growth there.

In 2003, Sanctuary paid Matthew Knowles [pounds sterling]6.1 million for his Houston management company Music World Entertainment in a deal costing some [pounds sterling]14 million. MWE's main jewel was his daughter Beyonce and her band Destiny's Child. It was an attempt to take on the young urban America market, where R&B and hip-hop make up 25% of recorded music sales.

To secure the deal and ensure its smooth running, Beyonce's dad was appointed president of the newly created music division, Sanctuary Urban. At the time, Taylor said: "This is a groundbreaking move directly into the management of acts involved in Urban music."

The group will not reveal figures but it is clear Sanctuary Urban has been costly. To attract new artists, Taylor has had to offer large cash advances.

Sources suggest up to [pounds sterling]18 million has been spent on record and merchandising advances. …

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