A revitalized Capitol Records forges a new path forward

"We see ourselves as an artist development company," Capitol Music Group President Steve Barnett said. "We had to differentiate ourselves from the rest" of Universal Music Group.

Feb. 3, 2015 5 AM PT

One of the first things Steve Barnett did when he took the helm at Capitol Records in 2012 was to pull down all the framed and platinum records that had long adorned the lobby of the landmark Capitol Tower offices in Hollywood. The cheap cardboard cutout of the Beatles that used to greet visitors, also gone.

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FOR THE RECORD

Feb. 3, 10:45 a.m.: An earlier version of this article incorrectly described parent company Vivendi as privately held. It is publicly traded in France. The story also said EMI Music had been acquired by the Terra Firma private equity group in 2004. That acquisition was in 2007.

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“They were so burdened by the past they couldn’t think about the future,” said Barnett, 62, who was president of Columbia Records, the No. 1 record label in the U.S., before joining Capitol.

A little more than two years into Barnett’s stewardship as chairman and chief executive, Capitol Music Group finished 2014 as the No. 2 label group, tallying 8% of recorded music sales in the U.S. That was up sharply from its No. 5 ranking, with a 6.6% market share, just two years earlier.

The label group comprises Capitol Records, Blue Note, Harvest, Virgin, Motown, the Capitol Christian Music Group, Caroline, Astralwerks, Capitol Studios, I.R.S. Nashville and Priority.

A key part of that improvement has been Barnett’s eye toward the future, as Capitol scored two of the biggest breakout artists of the year: British singer-songwriter Sam Smith and Australian boy band 5 Seconds of Summer.

Smith and another Brit signing to Capitol, synth-pop group Bastille, are nominated for best new artist going into Sunday’s 2015 Grammy Awards ceremony. Smith is among the nomination leaders with six nods for his debut album, including the rare feat for a freshman artist of picking up nods in all four top categories: best record, album, song and new artist.

In fact, the Capitol group labels have 46 nominations in the 2015 Grammys, another indicator of its renewed potency in the business.

Vivendi’s Universal Music Group acquired Capitol’s parent company, EMI Music, for $1.9 billion a little more than two years ago. At the time, Universal Music Group Chairman and CEO Lucian Grainge announced that one of his priorities would be the revitalization of Capitol, the first major record label based on the West Coast.

The company had suffered during the previous decade from the technological shifts — from physical CDs to digital downloads to music streaming services — that other music companies also were grappling with. There were also bad management decisions after EMI was purchased in 2007 by British private-equity firm Terra Firma, according to analysts.

“Capitol as a brand was something that stood for creativity and culture, but that it had lost its way and was underinvested in,” Grainge said. “We had the commitment and the support of our shareholder [Vivendi] to invest in it, to rebuild it into something meaningful again.

“Move No. 1,” Grainge said, “was hiring the right CEO to actually execute that.”

That led Grainge to offer the post to Barnett. Early in his career Barnett was a talent manager for AC/DC, Cyndi Lauper and other acts, and most recently spent three years running Columbia, where he presided over runaway successes of British soul singer-songwriter Adele, boy band One Direction and L.A. indie-rock group Foster the People among others.

Like Grainge, Barnett said he always had a sweet spot for the Capitol and EMI names as a kid growing up in central England. He was big fans of some of their signature acts such as the Beatles, the Beach Boys and the Band.

The move back to Los Angeles from New York required uprooting nearly 30 employees and their families and moving them 3,000 miles west. Once there, Barnett quickly set about sprucing up the landmark 13-story Capitol Tower itself, and repopulating many then-vacant offices by allotting space to other Universal labels including Motown and Astralwerks.

He also made a priority of identifying and establishing new artists that might one day join Capitol’s marquee acts of long standing.

“We see ourselves as an artist development company,” he said. “We had to differentiate ourselves from the rest” of Universal Music Group.

Barnett said: “I felt strongly that Sam was someone we should bet the house on,” a hunch that proved astute.

Smith’s album “In the Lonely Hour” ranked third in SoundScan’s overall top 10 sales tally for 2014, behind only Taylor Swift’s blockbuster “1989” album and continued strong sales of Disney’s “Frozen” soundtrack released at the end of 2013. “In the Lonely Hour” has sold more than 1.3 million copies in the U.S., according to SoundScan, and Barnett said the global total has topped 5 million.

Katy Perry’s “Prism” album was another strong contributor to Capitol’s bottom line for the year, adding 1.5 million units in SoundScan’s revised calculation that now factors together album and song sales with on-demand audio streams over services such as Spotify and Rhapsody.

For Smith, the decision to sign with Capitol in the U.S. and Britain for his debut album came down to one thing.

“I based everything on passion,” Smith told The Times. “I did auditions for labels — they all came into a room and I sang two songs for them. Nick Raphael, the head of Capitol in the U.K., his passion for the songs I sang was second to none.

“And Steve Barnett in America — as soon as I met him it was a done deal,” Smith said. “There was such a warmth, a passion and a respect for what I did.... I had my first manager when I was 12 years old.… Steve Barnett and Nick Raphael have done everything they ever said they would do, and more.”

Richard Griffiths manages One Direction and 5 Seconds of Summer, and said Barnett’s instincts about both acts’ career prospects in the U.S. persuaded him to align with Columbia for One Direction during Barnett’s watch, and then Capitol for 5 Seconds.

“Steve came over to see [One Direction] very early on at one of their first headline shows. He got it immediately.”

Grainge declined to specify how much Vivendi has invested in reviving Capitol. Overall record-industry revenue figures for 2014 haven’t been finalized, but if U.S. music sales remain close to the $5.6 billion posted in 2013, the Capitol group’s share would translate to gross revenue of $450 million to $500 million.

Barnett likewise declined to discuss the cost of revitalizing Capitol, but said, “You can walk around the building and you can figure it out,” pointing to the extensive use of glass in redesigned offices, fresh paint, new equipment in Capitol’s three recordings studios and other physical upgrades.

Grainge characterizes the changes he and Barnett have instituted less as hard-line corporate restructuring than nurturing existing personnel and material assets, and bringing on new staff where needed.

“I said at the time of the acquisition that we would cuddle it back to success,” Grainge said. “The investment was in people…. Like quicksand, once you’re in it down to your knees, you can’t get out. The people at EMI and Capitol, those people had real skills, real talent and real dedication. Hopefully we’ve cuddled them [and] helped bring their swagger back, and strategically [brought in] some new fresh blood.”

And a new, or at least more focused, company identity.

“We’ve had to make a path for ourselves,” Barnett said. “And two years in, I think we’ve done that…. I think we’re in the game.”