It was only after Tom Newman had left Virgin that his friend Mike Oldfield began to look again at the contract he had signed with Richard Branson. Talking to other artists, Oldfield discovered that the five per cent royalty, standard though it had been at the time of signature, was by now hardly fitting to his enhanced status. Double that figure would have been more commensurate with how commercially important an artist he had become; and some artists in the same position might even have had the gall to demand a royalty of 17 or 20 per cent. Even the modest five per cent he was receiving, however, was not what it seemed, for Branson was deducting a fifth of it as commission for his services as Oldfield’s manager.
Oldfield telephoned Tom Newman one day, miserably depressed, and asked the former studio manager to come around to his house. When Newman arrived, he heard the whole story; and, to compound the dilemma, Oldfield also told him that he felt in a weak moral position to complain, since Branson had taken on Tubular Bells when almost every other record company in the country had turned it down. Newman reminded Oldfield abruptly that it was not only Branson who had shown faith in him. He had done the same himself; so had Simon Draper. Oldfield should not therefore consider the debt to Branson so great that it ruled out any change in their business dealings. In any case, his contract with Virgin was now up for negotiation. ‘If you don’t do it now,’ he said, ‘it’ll never happen.’
A few weeks later, Oldfield bit the bullet. He hired a new lawyer to renegotiate the terms of his contract with Virgin, and came out at a royalty rate of almost 12 per cent. As a gesture of thanks to the friend who had helped him summon up the courage to face Richard Branson across the table, Oldfield gave Tom Newman from that day onwards a share of his royalties equivalent to one percentage point. By 1994, more than twenty years after its first release, Tubular Bells was still selling so well that Newman’s one per cent brought in almost £10,000 a year. Had Oldfield dared to demand a higher royalty earlier on, however, he might have been well over £1m richer.
THREE (#ulink_7e6ad015-73f2-5f75-86e8-fe1a36c45305)
Broken Bottles (#ulink_7e6ad015-73f2-5f75-86e8-fe1a36c45305)
BY 1975, when Mike Oldfield’s third album reached number four in the charts, Virgin Records had become the hottest company to work for in the music business. In common with other small and avant-garde record labels, Virgin could claim to have ‘integrity’ in its choice of artists for its roster; like those of the giants of the industry, its choices seemed always to make money. There was only one other company that could make a similar claim: Island Records, the label founded by the Jamaican-born public schoolboy Chris Blackwell, which brought to stardom many of the world’s most famous Caribbean artists, most notably Bob Marley in 1972.
‘I was doctrinaire,’ remembered Simon Draper. ‘I wanted to sign original and worthwhile talent.’ His philosophy was that Virgin should be trying to produce great records that happened also to be commercially successful. This brought him into occasional conflict with Richard Branson, who was keen to sign musicians who would make money for him, but less interested in the sort of music they played. When faced with a potentially profitable addition to the roster that he knew would be unacceptable to the trend-setters of the industry and the music press, Draper had to explain to Branson why an act that might make money could nevertheless not be the sort of act that Virgin Records should sign.
Uncommercial it may have seemed; but this attitude helped to attract to Virgin, and to keep in its ranks, a group of young and fashionably talented employees. An extraordinary number of the company’s staff of the time recall that period as the most exciting of their working lives. One reason for this was that Virgin was willing to hire people who had enthusiasm and a love for music, but no formal experience in other record companies. Once inside, they would find themselves given important jobs to do – and left to get on with them. Unsupervised, they would put in long hours and great effort, and in the end would achieve far more than they had believed themselves capable of.
The days of equal pay for all at Virgin had long gone. Yet it was routine for members of the record company’s staff to turn down offers of double their current salaries or even more from other companies. There were few complaints about the cramped and unpleasant working conditions in the Vernon Yard offices to which the company had by now moved. Perhaps this was because life at Virgin was fun. Everyone seemed to be friends. And although people took their jobs seriously, they did so as they would take seriously a game of tennis that they passionately wanted to win, rather than as a career. Pensions were not a matter that was often discussed.
John Varnom served for a while as the public face of the company – writing its press releases, drafting its advertisements in Melody Maker, and answering questions from journalists. He set the tone by telling a series of whoppers to anyone who telephoned that were so outrageous that they were impossible to believe. Branson, meanwhile, indulged his love of practical jokes to the full; he had a brilliant knack for mimicking voices, and would often call his colleagues at the office and engage them in long, increasingly implausible conversations before they realized who was speaking.
But it was the company’s weekends abroad that did most to cement its team spirit. Starting on a Friday and ending on a Sunday night, the entire staff of the record company, publishing company and studio management team would decamp to a country house hotel. Attendance was in theory optional, but those who did not come were told jokingly that they were expected to spend the weekend working in the office. At the hotel, other record companies might fill the days with talk of sales targets or new products. At Virgin, business was banned. Instead, the guests would spend the weekend playing tennis or golf, swimming and sunning themselves, eating and drinking with great gusto, and taking a few drugs and sleeping with each other in the evenings.
Men who worked at Virgin looked back on those weekends as idyllic. The corporate women – who certainly had better opportunities to do well at Virgin than they would have had in other record companies – were a little more cynical. ‘Open marriages were fashionable,’ said one. ‘You were uncool if you didn’t have lots of partners. Men were getting what they’d always wanted, to get to screw lots of women apart from their wives. Women were getting screwed by lots of men, and were not very happy about it.’ But even those who disapproved of the weekend atmosphere conceded that they had thought of Virgin almost as a feminist company in the early days. It was only later that the cynical thought crossed their minds that Branson might actually have been so keen to employ women because they were cheaper than men and worked twice as hard. ‘It was manipulative, but with Richard it was instinctive,’ said another ex-employee of Branson’s uncanny ability to motivate people to work hard for him. ‘He had an instinctive way of handling people that got this reaction from them.’
The core element in Virgin’s successful mixture was the talent of Simon Draper. As an ‘A&R’ man, a specialist in artists and repertoire who decided which new acts the record company ought to sign, he was beyond compare. Draper seemed to have an uncanny touch for artists who were not yet famous but would soon become so; and it was on this touch that the Virgin Records empire was built. Branson never claimed to have any musical discernment; when he tried to hide his ignorance, the results were apt to be embarrassing. On one occasion, when Simon Draper was trying to sign Elvis Costello and the Attractions, Branson opened the conversation over a negotiating lunch on his boat by saying how much he had loved their last album. The band’s manager, who was intensely suspicious of Branson and was trying to persuade the band that it would be better to sign with a record company which made no pretence of being young and fashionable, saw his chance.
‘Name me your two favourite tracks,’ he said.
Branson was embarrassed to have his ignorance exposed, and stayed silent. Dessert was not served.
But there was more to Virgin’s success than Simon Draper’s ears. Only slightly less important was the quiet talent of Ken Berry, the clerk whom Branson had plucked from the accounts department above the Notting Hill Gate shop to sit in an office next to him at Vernon Yard. ‘Kenny’, as Draper and Branson called him, had won his promotion because Branson noticed that whenever he or Nik Powell telephoned the department for a piece of information, it was always Berry who provided the answer – and Berry’s answers were always right. A pattern soon emerged in which Draper would make the artistic decisions about which acts to sign, Branson would knock out the broad agreement in his office up a flight of spiral stairs from Draper; and then Berry would be left to tie up the details in a formal contract. Later on, as Branson was to withdraw from daily involvement in the label, it would be Berry himself who carried out the negotiations in all but the biggest deals.
In the mid-1970s, Virgin was just one of a number of fashionable independent labels that had succeeded in reaching the general record-buying public. It was still smaller than Island Records, and roughly the same size as companies such as Chrysalis and Charisma. Branson’s talent, without which Virgin might have stayed a small but politically correct name under the leadership of Simon Draper, was to put in place the policies that would turn Virgin into one of the ‘majors’.
His approach had two prongs. One was to take breathtaking risks that others shrank from. When Draper told him that the rock group 10cc were going to be big, for instance, Branson was willing to bet a huge sum on a group that would have sunk Virgin if its next record had not been a hit. The group had already had a couple of light but successful pop singles when Simon Draper was played a tape of The Original Soundtrack, their latest album. Branson flew to New York and struck a provision deal on American rights to the record with Ahmet Ertegun at Atlantic (who had bought the Tubular Bells package for $750,000).
In the event, the £350,000 offer that Branson then made for the group was insufficient; their manager, Harvey Lisberg, signed the group to a rival label while the two members who were most keen to sign with Virgin were on their way to a holiday in the Caribbean. But the story got around the British music business, and demonstrated just how serious a competitor Branson was. Richard Williams, who was Island’s A&R man at the time, was dumbstruck. ‘At Island, we weren’t dealing in big sums,’ he remembered. ‘We’d sign people for £20,000. I remember being in competition with Simon and Richard [for 10cc], and realizing that they were prepared to pay major-label money for this act. That was quite a shock: to realize that Richard, who was on a level with us and perhaps slightly junior, was prepared to compete with the EMIs and the Phonograms and the Warner Brothers.’ The point became still clearer a year later, when Branson just failed to sign the Rolling Stones for $3.5m.
But it was not only by offering larger sums than he could afford that Richard Branson succeeded in raising the profile of his record label. He also paid attention to an aspect of the business that most of the other British independents had neglected: foreign distribution. While A&M Records were modestly established in America, almost all Virgin’s other competitors were entirely domestic companies. When they had records to sell abroad, they relied on licensing deals. Branson was not happy with that idea. He knew that licensing a record to another record company overseas brought with it an advance, and required no managerial effort. But in the long term, a record company that relied on foreign licensees was putting itself in a similar position to the musician: instead of making the bulk of the profits on a successful record, it was taking only a modest commission.
Richard Branson therefore devoted much of his time from the end of the 1970s onwards to establishing a network of record companies across continental Europe. On every trip to France, Italy or Germany, he would have his eyes open not only for licensing deals, but for the key people whom he would be able to hire in future to run a Virgin company in that territory. At first it took time to win over Ken Berry and Simon Draper to the idea. But by the end of the decade, the structure was in place and the strategy was agreed. With Luigi Mantovani in Rome, Patrick Zelnik in Paris, and Udo Lange in Frankfurt, Virgin was now able to sign up artists and guarantee them not only good distribution in Britain, but also entry into the most important European markets. This made Virgin a more attractive business prospect to top-ranking musicians than the other independent labels. Despite the combined efforts of Branson, Draper and Berry, however, one thing was holding the record label back. Having failed to win 10cc, there was now no really exciting new act for Virgin to acquire. That was to change in 1977, when Richard Branson signed the Sex Pistols.
Malcolm McLaren, the eccentric and unstable talent who was responsible for the Sex Pistols, never liked Richard Branson. In fact that was an understatement; he hated him, with a loathing that was incomprehensible to others. Years after the Pistols had broken up, he would paint a series of fascinating but wildly improbably stream-of-consciousness pictures of his dealings with Virgin. The first concerned how he had taken his demo tape of the Pistols to Virgin’s offices in Vernon Yard early in 1976, and had rudely refused when Simon Draper suggested that he leave it for Branson to listen to. ‘No,’ said McLaren. ‘He either listens to it now or forget it.’
‘I didn’t trust Richard,’ said McLaren. ‘I looked into his eyes and didn’t even want to leave without my demo cassette with me. I was thinking: this is a guy who could bootleg me tomorrow morning and have it on a stall in the Portobello Road … I didn’t like the feel of the place. The chairs were so uncomfortable … I was asking for £15,000 for a couple of singles, and see how we go … I thought creative accountancy is definitely going to be a problem with this company.’
McLaren was by no means a professional manager. He had spent eight years at different art schools before opening a shop in the King’s Road selling rubber and leather bondage gear. His principal experience of the record business was of managing an unsuccessful New York rock group in 1974; and the package that he brought to Simon Draper that day in 1976 was hardly the sort to appeal to an A&R man known for the sensitivity of his ears.
The Sex Pistols were, to put it bluntly, a band of yobs. Their sole musical talent, Glen Matlock, had been dropped as bass guitarist in favour of the more startlingly thuggish Sid Vicious. Johnny Rotten, a misanthropic teenager whose complexion and posture had been ruined by a bout of childhood meningitis, was the lead singer. The prime talent for which the band’s other two members were famous, and which they had displayed to disastrous effect at pubs across London, was to belch, spit and swear at their audiences.
Simon Draper hated the music. ‘It was all style and all aggression,’ he recalled. ‘To me, coming from a musical perspective, it just seemed like a great big noise. I went to see them at the 100 Club. [When we] came back after the gig, it was very exciting. There was such an air; it was so aggressive.’ In the car on the way home, Draper commented that they couldn’t sing – and then remembered, with a sinking realization, that people had made the same complaint of Mick Jagger when they had first heard the Rolling Stones. One magazine had described Jagger’s voice as being like broken bottles. With the Pistols, however, the shards of glass was a literal rather than a metaphorical part of the act.
Rejected by Virgin, McLaren signed the band he was managing to EMI. Their first single, ‘Anarchy in the UK’, convinced Draper as soon as he heard it that he had been wrong. There was an energy and a directness in the Sex Pistols’ music that was lacking in any other pop music of the time. More importantly, the group were packaged brilliantly. Jamie Reid, an art school friend of McLaren’s, produced album-cover designs that were revolutionary in their mixture of passport-sized photographs and letters cut from tabloid newspapers, in the style of an anonymous letter.
McLaren himself, meanwhile, contrived a series of incidents that were designed in equal measure to offend the old and the middle class, and to attract the young, disgruntled and unemployed. The greatest of them was to have the Pistols invited to appear on ‘Today’, Bill Grundy’s afternoon magazine programme on Thames Television. A few ‘fucks’ and ‘shits’ from the boys in spiked haircuts and ripped jeans, and punk rock was promoted from something unpleasant that happened in private music clubs to a national controversy.
Branson did not need to be alerted by Draper to the commercial possibilities of the Pistols’ ability to shock. The very day of their appearance on Grundy’s show, he had telephoned the managing director of EMI to offer to take this turbulent band off his hands. Since the EMI executive would not take his call, Branson left a message; the following morning, he was called to a meeting at EMI’s offices.
Branson was ready to make a deal there and then; McLaren was determined to play cat and mouse. He shook hands on a deal with Branson that day, earning £50,000 in compensation from EMI for the record company’s decision to assuage public anger by pulling the single from record shops. But McLaren then signed the Pistols to A&M Records, in a public ceremony outside the gates of Buckingham Palace. A&M paid £200,000 for the group, but had second thoughts when the group trashed its offices after a signing party. It took several more months, and five telephone calls a day from Richard Branson himself, before McLaren would condescend to accept a second compensation payment, this time from A&M, and sign his boys with Virgin Records.
Virgin entered into the spirit of things with enthusiasm. The group’s next single, ‘God Save The Queen’, was given a loudspeaker performance from a boat on the Thames just outside the Houses of Parliament during the week of Queen Elizabeth II’s Silver Jubilee. The police and the popular press obediently played their parts in the publicity stunt: McLaren was arrested, and the name of the group was all over the papers for a week. The record reached number two in the charts (some saying that only chart manipulation denied it the triumph of becoming number one), and sold over 100,000 copies in that week. Further success followed with the predictable controversy surrounding the Pistols’ album, Never Mind the Bollocks, and the unsuccessful prosecution for obscenity that followed its release.
By the end of 1978, however, the phenomenon of the Sex Pistols had worked itself out. McLaren had made a revolutionary film about the group and its handling, The Great Rock ’n’ Roll Swindle. He had briefly appointed Ronnie Biggs, a former train robber resident in Brazil, as the group’s lead singer; and the group itself had begun to fall apart. Sid Vicious died two months later of a drugs overdose, before he could be tried for stabbing his girlfriend to death with a knife. And Johnny Rotten, reverting to the name of John Lydon with which he had been born, repudiated McLaren as a manager and began an action in the High Court to have his company’s assets liquidated.
For Branson, Sid’s death was a disaster, but Virgin managed to salvage some return on the contract. There was now no longer any hope that the group would become a serious money-spinner for Virgin; but the label still had the rights to the records the Pistols had already made. Draper also went on to release a posthumous album of Sid Vicious songs. More important, however, its association with the Sex Pistols and with punk rock had once again made Virgin a label that young artists would be willing to sign to. Richard Branson had been looking for a hit act that would ‘put Virgin on the map’. Now he had found one. The five years after the end of the Sex Pistols would prove to be the record label’s most creatively successful period. In that single half-decade, Virgin would break and develop into stardom such acts as Phil Collins, Culture Club, Simple Minds, Human League, Heaven 17, China Crisis and Japan – a set of achievements that few independent labels could equal over their entire lifetimes.
While Virgin’s credibility among the professionals of the music industry was rising, however, wider trends outside were pointing worryingly downwards. Inflation, which had been falling under James Callaghan’s Labour government, began once again to look threatening. Economic growth slowed down, and the government suffered a bruising succession of confrontations with the trade unions. Matters came to a head in the ‘winter of discontent’ at the end of 1978, which saw strikes and power cuts. The record industry, as a supplier of a non-essential product, was particularly hard hit. Album sales in Britain dropped by more than 15 per cent in the course of 1978; the industry as a whole began to turn from profit into deep loss.
Virgin, which now had a disparate rag-bag of interests ranging from the record label, management and studios to retail, restaurants and a private island, was forced to look for economies. A quarter of the record label’s fifty-strong staff were sacked, starting with Arnold Frollows, the firm’s respected head of A&R. It was Virgin’s first ever round of compulsory redundancies. The artists’ roster was purged of acts that were making insufficient money. Valuers were sent around the various properties owned by the company – ranging from the Manor in Oxfordshire to the houses dotted around Notting Hill Gate in which the company directors were living – in an attempt to add some extra weight to the group’s balance sheet. An ambitious attempt to build on Virgin’s European success by opening up shops in the United States was abandoned: Ken Berry, originally sent out to build an empire in America, was asked to wind down gracefully the company’s interests there and come home.
The election of a Conservative government in the summer of 1979 made little immediate difference. Margaret Thatcher, the new prime minister, saw her first priority as conquering Labour’s inflationary legacy. It was more than a year before she could begin to claim success, for inflation actually rose from just over 13 per cent in 1979 to 18 per cent in 1980; but the price of lower inflation was sharp cuts in public spending, a rise in interest rates, and a sudden increase in the number of unemployed. The Tories owed their election victory in part to a powerful series of posters, showing hundreds of ostensibly unemployed people queuing up above the slogan ‘Labour isn’t working’. That now became a bitter joke. The only consolation for Virgin was that as times became tougher, other companies were in worse straits.
The task for Branson and Powell in 1980 was to prune back the unwieldy plant they had created. At one point they even resorted to the expedient of inviting in a firm of management consultants to advise them on what to do. None of these reforms, however, had any significant effect on Coutts & Co, the company’s blue-blooded bankers. Coutts flady refused to increase the company’s overdraft; and Virgin’s bank manager began to ask instead when he could expect to be repaid some of what he had already lent.
It was fortunate, therefore, that a significant nest-egg had been set aside in case of bad times. Seven years ealier, before the record label had even been established, Branson and Powell had registered the trademark that would appear on its first few albums – a drawing of a pair of women – in the name of an offshore trust. When overseas record companies or subsidiaries later paid for the rights to Virgin albums, the royalties they were charged could therefore be split into two: a royalty for the record itself, which could be sent to Virgin in Britain; and a fee for the use of the Virgin trademark, which went directly to the trust overseas without incurring the attention of the UK taxman. Branson took advice from Harbottle & Lewis, the company lawyers, so that the trust was set up correctly. Apart from that firm, no outsiders – either companies or people – were consulted on the trust or its affairs.
Such an arrangement might have raised eyebrows at the Inland Revenue, particularly when put into effect by a pair of young businessmen who were still both under twenty-three at the time that the trust was established, and one of whom had already admitted to attempting to defraud the Customs & Excise. Yet this kind of trust arrangement was expressly allowed under British tax law; without it, Britain’s high income and capital gains taxes were too much of a disincentive to foreign entities who were considering doing business in Britain.
There was, however, a proviso. In order to avoid any liability to tax, it was important that the trust’s beneficiaries should all live overseas. Under UK tax laws, beneficiaries who lived in Britain could be taxed on their share of any capital gains that the trust made – even if they received no money from the trust. Their status as a potential or a future beneficiary could land them with a thumping tax bill. So the trust had to be set up either so that Branson and Powell and their families were not its beneficiaries, or so that no capital gains were actually made. The first of these conditions was hard to achieve, since the two men wanted to benefit from whatever financial success Virgin might achieve. The second condition was easier: as long as the trust simply held on to the income from the trademark it already owned, and did nothing that would ‘crystallize’ its capital gains, it could remain legally safe from tax.
The trust had discreetly accumulated substantial sums of money between the 1973 launch of the record company and the later decision to change Virgin’s trade mark from the twins to the handwritten logo with the big capital ‘V’ that the group uses to this day. When Coutts pulled the plug on Virgin, therefore, Branson suddenly suggested to one of the company’s financial people that they should approach the Bank of Nova Scotia. BNS, he said, held deposits in the Cayman Islands which Branson himself controlled. The bank would be willing to allow the company in London to borrow over £1m using those overseas deposits as security. That loan helped Virgin survive the recession.
FOUR (#ulink_7e3cf28d-8a90-549f-b5fd-2a4786574872)
Media Mogul (#ulink_7e3cf28d-8a90-549f-b5fd-2a4786574872)
BY THE SPRING OF 1981 it was almost ten years since Richard Branson had closed down Student magazine to concentrate on selling records by mail-order. A great deal had happened since then. Virgin had established a record label, a studio business, a chain of shops, a music publishing house; and although 1980 had been a miserably difficult year, the company was clearly beginning to prosper. Yet Branson had never conquered his early ambition to be a newspaper proprietor. For a man whose attention span was as short as his, there was something alluringly immediate about a business whose product was made one day, sold the day after, and discarded the next. The newspaper industry had a further attraction, too: newspaper proprietors had influence and respectability that would always be denied to the owner of a mere record company.
Branson would not have described himself as a friend of Tony Elliott, the founder and publisher of Time Out, the London listings magazine. But the two men were roughly contemporaries, and came from the same public school. They had the same unconventional approach to business, the same ability to guide and motivate young people, the same roots in the counterculture of the 1960s. Elliott had once even approached Branson, suggesting that the two should collaborate to launch a new magazine in New York. But the discussions had come to nothing when Branson realized that Elliott was trying to do to him what he himself had done to so many others: the publisher had no money, but was trying to persuade Branson that the two companies should establish a fifty-fifty joint venture.
By the turn of the 1980s, Elliott’s magazine had clearly become a successful and thriving business. Despite the handicap of a palpable left-wing militancy among its journalists, Time Out was the information source of choice for young, fashionable Londoners who wanted to know which films to see, where to eat, where to shop, and which exhibitions to visit. Its classified section was the place to look for meditation classes, for friendly people to sand the floors of your house, and for cheap flights to south-east Asia. The magazine also did a roaring trade in gay lonely hearts.
The idea of owning a listings magazine with a pronounced political bent would never have occurred to Branson had it not been for the strike that hit the magazine in May 1981. Like his counterpart at Virgin, Tony Elliott had soon learned to distinguish between the political ideals of his staff and the practicalities of running a business. But Elliott had made a damaging error in 1973, when his magazine was still small enough for a minor negotiating concession to seem unimportant. At that time, most of his staff were paid £25 a week; the editors of the sections received £30. When the local chapel of the National Union of Journalists demanded an increase in the rank-and-file wages to £35, Elliott had conceded the principle of a weekly wage of £32.50 – equal pay for all his staff, no matter what jobs they did. As Time Out continued to grow, the system became untenable; the standard company wage was at once too high for Elliott to be able to diversify into other publishing ventures, and too low for him to be able to attract talented writers into the magazine from outside. By the end of the 1970s, Elliott had made a firm decision: cost what it may, he would win back the right to pay some staff more than others. ‘I was pretty confident that we would in the end have either a Pyrrhic victory, in which the whole business would disappear,’ he recalled later, ‘or we would win.’
Initially, the former outcome seemed more likely. As soon as Elliott had insisted on changing the company’s wage structures, the staff struck in protest. The management locked them out, with the help of a court order; and some dismissed Time Out employees established a picket line outside the magazine’s Covent Garden offices. But the magazine itself had to cease publication.
A week after the publication of the last pre-strike Time Out, Branson telephoned Elliott at home.
‘Look,’ he said. ‘I’ve been thinking about your problem. What would you say to the following scenario?’ And Branson then outlined a plan that he would set up a new magazine called SteppingOut, or something like it, and would get it established quickly as a successor to the old Time Out. That would give Elliott the time he needed to outlast the patience of the pickets outside his office door. ‘Then,’ said Branson, ‘when you’ve sorted that situation out to the satisfactory conclusion that you want, I’ll close down Stepping Out and we’ll become the joint owners of the new Time Out.’
