Virgin King (Text Only)

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

Media Mogul

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 Stepping Out, 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.’

Elliott was no fool. He realized how much power such a plan would give Branson over him, and how little room for manoeuvre he would have once a magazine with a similar name was on the streets with his ostensible approval. But he swallowed his suspicions, and accepted Branson’s invitation to come down to the Manor on a Saturday afternoon with his girlfriend and two other people.

At Branson’s suggestion, he and Elliott went off for a walk at three o’clock, leaving their respective girlfriends behind. They returned several hours later, to the barely disguised irritation of Elliott’s girlfriend, and Branson insisted that they stay for dinner. The dinner – which the more sophisticated Elliott later dismissed as ‘school food’, citing it as evidence of Branson’s lack of attention to detail – proved to be a social disaster. Talk turned to the subject of the Social Democratic Party, the recent breakaway from the Labour Party led by a group of four senior politicians; and Branson, rarely someone to talk with interest about politics, became embroiled in a flaming row with Elliott’s girlfriend.

Elliott and his girlfriend left immediately after dinner. By the time they reached London, the Time Out proprietor had arrived at two conclusions. First, he wanted to solve the problem of the strike on his own, rather than admitting an outsider to his life on what might well prove a permanent basis. Second, he wanted nothing more to do with Richard Branson. Whatever the reason – whether perhaps he drank too much and became aggressive, or whether simply the personal chemistry had been wrong – Branson’s charm offensive had failed totally. Elliott turned down the proposal.

But Richard Branson’s interest had been tickled, and it was too late to go back. If Elliott would not start Stepping Out in partnership with him, then he was quite entitled to do it on his own. And thus it was that Branson set to work hiring an editorial staff for a new London listings magazine to fill the gap left by the old Time Out. The team was assembled in three months, and the first edition of the magazine – which Branson decided to call Event – appeared in September.

There was just one problem. A week earlier, Elliott’s former employees had established City Limits, their own listings magazine. A week before that, Elliott himself had come back with a new Time Out, staffed by a fresh corps of journalists but in many respects identical to the old. To make matters worse, Elliott had put some subtle changes into effect during the months that his magazine was off the streets. ‘Agitprop’ became less strident, and was renamed ‘Politics’; a gay section, previously vetoed by the staff on the grounds that it was ‘ghettoist’, brought together the clubs and events of most interest to homosexuals; the ‘Sell Out’ department provided more pages of consumer and shopping news than before; and a much-overdue section on nightlife covered a subject that the magazine’s former staff had dismissed as trivial and politically incorrect. The new Time Out’s first cover story, symbolizing the nascent metropolitan affluence appearing under Margaret Thatcher, was about all-night London.

Elliott knew that he would face competition, for Branson had poached Pearce Marchbank, Time Out’s design guru, to co-edit Event with Al Clark. But Event proved to be a damp squib. Its editorial approach was just a little too middlebrow; it went in for slightly tacky competitions; and it committed a fundamental error by printing the listings – for many readers, the magazine’s principal attraction – in a point size so small that it was barely legible. The staff were at each other’s throats.

Despite the undoubted literary and artistic talents of the team that Branson had assembled, the magazine soon began to go downhill. The real competition to Elliott’s new Time Out was not Event, but City Limits. As the months roiled on, Time Out’s circulation began to rise above 60,000; City Limits stayed put at around 30,000; and Event declined, equally immune to changes of personnel and of style, to below 20,000 by the turn of the year. Tina Brown, later to become editor of the Tatler, Vanity Fair and the New Yorker, described Branson’s venture with scathing accuracy as ‘a triumph of managerial incompetence over editorial flair’.