Virgin King (Text Only)

The irony was that Kristen’s relationship with Kevin Ayers was doomed not to last. After bearing his baby, she began to feel that he had laid siege to her mostly because it was a challenge to steal from Richard Branson his most prized possession. She was only to find happiness in marriage many years later. But as the wounds healed, Branson and his former wife were able to restore some of the old brother-sister relationship that they had had in the earliest days. Kristen and her German husband Axel Ball would be invited to spend holidays with their family on Branson’s private island. By the end of the 1980s, the two families were even in business together: Branson bought a controlling interest in a luxury hotel that they had opened in Majorca, and a new hotel was being planned in Hydra for which Kristen and her second husband would provide the architectural and managerial talent, and her first husband the money.

A matter of months after Richard Branson married Kristen Tomassi, his business partner Nik Powell married Kristen’s younger sister Merrill. A matter of months after the failure of Richard and Kristen’s marriage, the marriage of Nik and Merrill failed also.

But the twin marriages, at which Richard and Nik served as each other’s best man, said as much about the two founders of Virgin as about their wives. Nicholas Powell had been Branson’s earliest real friend; they had met at the local private school at Shamley Green at the age of four. They were, as the closest of friends can sometimes be, almost opposites. Richard was fair-haired, gregarious and rudely healthy. Nik was dark, shy and epileptic. Richard was an indifferent student; Nik was more academic. When Richard went to Stowe, whose foundation in 1923 made it a parvenu among public schools, Nik was sent north to Yorkshire to be educated in the gloomy tradition of Ampleforth College, founded by Benedictine monks before the Reformation. Richard was the leader, Nik the follower; it was not clear who needed whom more.

Powell had lived at Albion Street in the gap between school and university, and had helped out on Student. But it was only when he gave up his place at Sussex, returning to London to become Branson’s partner in the mail-order business, that the structure of their relationship was formalized in a business agreement. Powell was given 40 per cent of Virgin. As the venture grew, the two slipped into complementary roles. Powell would produce financial figures for the bank; Branson would take the figures to the meeting and persuade the bank manager to lend another few tens of thousands of pounds. Branson would decide suddenly that Virgin needed to open more record shops, and would galvanize everyone with the enthusiasm necessary to get the job done swiftly; Powell would do the stocktaking. Branson would rush off on one implausible scheme after another; Powell would provide the voice, sometimes gentle and sometimes not so gentle, telling him not to be such a damned fool. It was Branson whose gusto for life persuaded people that working for Virgin would be fun; it was Powell who stopped the biscuits in the coffee cupboard when times became hard. One did not need to know about the 60–40 split to know which was the senior partner and which the junior.

But there were other junior partners, too, who were given shares in the businesses they worked for because Powell thought that equity was the best possible incentive for hard work. One was Simon Draper, who was given a 20 per cent stake in the record company. Another was Tom Newman, who had 20 per cent of the studio business. A third was Steve Lewis, who received 20 per cent of Virgin’s management company. In common with the share split between Branson and Powell, these minority holdings were not negotiated. None of the three was asked to pay a penny for their shareholdings, nor to accept any financial risk on their own heads. Branson was prepared to take all the risks and to find all the money; the shareholdings were simply a reward, an expression of confidence in the future and a gesture of thanks for useful advice already given and work already done.

At first, this approach threw up no problems. In common with almost everybody else working for Virgin, Draper, Lewis and Newman were not much bothered by money. They were young and without responsibilities. Their salaries were perfectly adequate to cover the cost of renting a flat in London, going out for meals with friends, buying tickets to the movies, and, if they wished, smoking the occasional joint. Many of their living costs were paid by the company in any case. At the big communal dinners they all went out to, Richard would slip away and pay the bill before anyone had even noticed that he had gone. The fleet of company Volvos provided free transport for the trusted insiders. Perhaps most important of all, all three of the minority shareholders were doing what they wanted to do. Music was the passion of their lives; to be able to spend their days doing something they enjoyed, when many of their contemporaries were dressing up in drab suits and doing dull jobs in old-fashioned offices, seemed the greatest privilege of all. Who would be ungracious enough to start quibbling about equity?

Simon Draper was the first. In 1975 he went back to South Africa for a holiday and had a long chat about his work at Virgin with his older brother. He explained the way Virgin was structured. There was a holding company at the top, of which Branson owned 60 per cent and Powell 40. That company did business through a number of subsidiaries that it owned, covering records, studios, retail, mail-order and management. When someone at Virgin had been given a minority shareholding, it was always a shareholding in the subsidiary company. So Branson and Powell together owned 80 per cent of the subsidiary, and the rest belonged to the individual minority shareholder.

Draper’s brother told him that since Virgin’s shares were not quoted on any stock exchange, the value of a stake in the Virgin holding company was not clear until it was actually sold. But a minority shareholding in one of the subsidiary companies – which was what Draper himself possessed – was worse still; it was fundamentally unsafe. There was simply too much scope for Branson and Powell to change matters to their own advantage: if, for instance, they decided to dismiss Draper outright, he would be able to claim only the par value of his shares, not their real value as assets. Under company law, Draper’s 20 per cent of the record company was not a large enough stake to give him a veto over decisions that might become important later; and the presence of the holding company above it could allow profits from the record company to be used to finance other companies in the group. The advice from Older Brother was simple: Simon Draper should try to swap his stake in the record company for a stake in the holding company – and if that were not possible, he should at the very least obtain some safeguards to protect his position.

Branson and Powell would not agree to the first option. But Draper extracted from them an agreement on what he would be paid if he were ever to sell out his 20 per cent of the record company. He would still be required to offer Branson and Powell first refusal on his shares; but they would be obliged to buy him out not just at any arbitrarily agreed price, but at a ‘fair value’ or £100,000 – whichever was the less.

The matter became more complicated in the 1980s, because Draper saw the financial transactions between the record company and other group companies being arranged in such a way as to reduce the record company’s profits and liberate money for spending on the expansion of other companies in the group. Draper therefore insisted that the accounts should contain a note recording that for the purposes of valuing his shares, the record company’s profits should be considered higher.

Steve Lewis was less hard-nosed about the matter. His 20 per cent stake was in a management company, whose job was to represent musicians, extracting the best possible terms from record companies and music publishing companies, in return for a commission on the musicians’ earnings. Elsewhere in the music business, the relationship between managers and record companies was seen as inevitably hostile – for although a good manager could provide good ideas to promote a musician, and could smooth the dealings between the two sides, the unalterable fact was that it was in the manager’s interest to extract for his client as attractive terms as possible from the record company, and in the record company’s interest to resist.

At Virgin, however, Steve Lewis was expected to represent musicians who were signed to the record label and the publishing company, while simultaneously answering to an employer who owned the record company. The financial arrangements were also unusual. Most managers demand an advance for their client from the record company, and use it to pay wages to the band after extracting their own commission (usually 20 per cent). At Virgin, however, the management company that Lewis ran borrowed money from the record company, using that money to pay salaries to the musicians it represented. Matters were not helped by the fact that the management side was less successful than the record business itself. But the unusual relationship between the management company and the rest of the empire helped to make sure that the management company of which Steve Lewis owned 20 per cent never made any money. Four years after he had been given his shareholding, Lewis realized that it was not worth anything. The firm was later closed down.

Tom Newman’s 20 per cent was in the studio business, which started at the Manor but soon encompassed a mobile studio and another site in London. He had never asked for a shareholding; Richard Branson had written him a letter, unprompted, offering him a stake in the studio business as a reward for the work he had done over the previous two years. Newman, who thought of himself as a songwriter, singer and guitarist rather than as a businessman, was delighted. He had put huge efforts into installing the studio at the Manor and into helping Mike Oldfield make his bestselling album. Here, it seemed, was recognition from a grateful employer.

It was not until more than four years later, when he was sitting in a pub with another Virgin employee, that Newman heard a story that made his blood run cold. His drinking partner, who had been asked by Nik Powell to carry out one of the periodic reorganizations of the Virgin empire, reported to Newman that he had noticed that Newman’s shareholding was not in the main operating company that ran the studios, but in another company that was not trading at all.

The following day, Newman stormed into Branson’s office at South Wharf Road, and confronted him.

‘You bastard!’ he yelled. ‘The company’s worthless!’

Branson was taken aback. He began to mumble some answer, but Newman merely became more angry. After abusing his employer further, Newman walked out of the office and slammed the door. He left Virgin the same day, and resolved never to speak to Branson again. Newman’s hot temper gave Branson no chance to defend himself; more significantly, Branson claimed afterwards that Newman had never explained his grievance to him.

The irony was that Newman was quite mistaken in believing he had been betrayed over his shares. Had he toubled to check the accounts at Companies House, he would have discovered that Caroline Studios, the company of which he had owned 20 per cent, was still in operation as the trading company for the studios business. After the reason for his abrupt departure had become clear, Branson and Powell might easily have explained the situation and brought him back. But they saw Newman more as a musician than a business type; and they were beginning to realize the risks involved in giving employees subsidiary stakes in the companies.

‘My stupidity was such that instead of going straight to a lawyer, I was full of hurt pride. I thought Richard and I were partners; I was enjoying the situation,’ Newman recalled.

The gap in the management structure was filled promptly. Soon after Newman left, Branson appointed Phil Newell, who had formerly worked as the Manor’s maintenance engineer, to replace him.

Newman’s sense of outrage was compounded when he looked at the royalty statements he received from Virgin for Fine Old Tom, an album that he had made himself at the Manor. The record had taken three weeks to make, and Newman had arranged to do it at times when the studios were not needed by other artists. Yet his statement from Virgin after the record was released showed a deduction of £11,000 for the cost of studio time – a figure reflecting Simon Draper’s determination that studio time should be allocated to artists at its full price. But the album’s recording costs altogether were so high for this modest piece of work that it would inevitably take years for the royalties earned by his record to cover that deduction. ‘I’m not even sure that I came out positive in the end,’ Newman recalled.

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

Broken Bottles

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.