Case Study

Ministry of Sound
Richard Whittington
The Ministry of Sound went from start-up to maturity in little over a decade. The case raises issues concerning both business strategy, particularly regarding sustainable competitive advantage and resources, and corporate strategy, particularly regarding diversification and internationalisation. There are also issues of ownership and organisation. In the end, the fundamental question is: what future for the Ministry?

In 1991, 28-year-old James Palumbo invested 225,000 ( 1340,000) of his own capital into a new dance club located in an old South London bus depot. As an old Etonian (the UKs most elitist private school), a graduate of Oxford University and a former merchant banker, Palumbo was an unlikely entrant into a dance culture that was still raw and far from respectable. He actually preferred classical music. The clubs name, the Ministry of Sound, ironically recalled Palumbos father, a former Minister in the Conservative government of the day. Yet within just 10 years, Palumbo built the Ministry of Sound into a music and media empire worth nearly 150m. Two years later, Palumbo had quit as chief executive and the Ministry of Sound was looking for a new strategic direction. The Ministry of Sounds start had been difficult. Dance music had its origins in acid house, itself with its roots in the futuristic, electronic music of the gay clubs of Chicago and New York. The new style had been picked up by British DJs in Ibiza, who combined it with the drug Ecstasy to create a new blissed-out sound. Dance music arrived in the UK during 1988, the so-called Second Summer of Love, strongly associated with recreational drugs. By the early 1990s, drug-dealing in its most ugly sense had become part of the dance culture. Palumbo recalled:
When I came into this business, with my bonuses and my nice City suits, I was completely nave. Just a joke. I found that every Friday and Saturday night my door was taking 30,000 and the security team was making 40,000 on Ecstasy. It happens everywhere in the UK leisure business. There are all these fat bastards running chains of discos and bowling alleys, and none of them admits it. We went through a really traumatic time at the club.1

Palumbo changed his security team, bringing in security professionals from the North of England with no links to the local drugs gangs. He even hired a psychoanalyst to cope with the gangland threats that followed his drugs crack-down:
If they say were going to kill you, you know what youre up against. But the threats [from Londons East End drugs gangs] are much more sinister. The word is fed back that if the business is cut off, they will follow you home, go for your family, stab you or murder you.2

But Palumbo persisted in making his club a safer, cleaner environment. During the 1990s, he campaigned nationally against the use of drugs in youth venues. Thus the Ministry of Sound led in the transformation of club culture from an underground movement associated with acid house into a mainstream youth market activity. An illuminated sign on Palumbos office wall read:
We are building a global entertainment business based on a strong aspirational brand respected for its creativity and its quality. The Ministry of Sound team will be more professional, hard-working and innovative than any other on the planet.3
1 2 3

New Statesman, 5 September (1997). Ibid. Marketing, 4 December (1997), p. 3.

This case study was prepared by Professor Richard Whittington, University of Oxford. It is intended as a basis of class discussion and not as an illustration of good or bad practice. Richard Whittington 2007. Not to be reproduced or quoted without permission.

Exploring Strategy

by Johnson, Whittington & Scholes

Exploring Strategy Classic Case Studies The Ministry established a distinctive logo and brand and invested heavily in club facilities and sound equipment. It was a leader in developing the new super-clubs, fronted by super-DJs earning six-figure sums for playing other peoples music. By 2001, over two and a half million clubbers had visited Ministry of Sound nightspots and that same year its first festival weekend attracted 55,000 people at Knebworth. The business developed in many directions during this period. A magazine aimed at clubbers, Ministry, was launched in the mid-1990s and achieved a readership of 300,000. The Ministry of Sound radio show was broadcast in London and Central Scotland, besides being syndicated in 38 countries worldwide. The Ministrys Relentless joint venture became the largest independent record label in the UK, with its Chill Out Sessions 1 and 2 reaching number one in the album charts and its So Solid Crew reaching the top of the singles charts. Large supermarket chain Asda was distributing the Ministrys albums to shoppers around the UK. The Ministrys distinctive logo had become the basis for a large merchandising business, mostly for clothing. By 2001, the Ministrys touring division was hosting 300 events worldwide, including China and India, and had regular summer residencies in Ibiza, Ayia Napa and Benidorm. A Ministry of Sound super-club opened in Bangkok. By this point, the Ministrys original nightclub only accounted for about 3 per cent of a total turnover, reaching around 100m per annum. As a mark of the Ministrys success, in the summer of 2001 venture capitalist company 3i acquired approaching 20 per cent of the Ministrys equity for 24m. Palumbo was quoted as saying: With 3is support, we are now poised to spread the dance music gospel worldwide. In its Rich List 2001, The Sunday Times estimated Palumbos total fortune as 150m. A spokesman for 3i said:
We had obviously heard a lot about the Ministry and James [Palumbo] has had a lot of good press. We were impressed by how successful the brand has become and by how fast it has grown. . . . Ministry has a phenomenal skill in helping new acts hit the big time. The more successful it became, the more people wanted to become associated with it. . . . When making an investment, you have to be totally comfortable and confident that you are backing an A1 team. With James we found the perfect deal. James is the sort of person VCs [venture capitalists] can make money out of.4

The Ministry of Sound was aiming for a stock market listing within a couple of years. Then things started to go wrong. The dance music on which the Ministry was based was going out of fashion. Dance music (including house, trance, techno, breaks and drumnbass music) saw its share of the UK singles market fall to 15.4 per cent in 2002, down from 34 per cent in 1991. Dance clubs were closing or downsizing, while live music audiences were growing. Malik Meer, Deputy Editor of New Musical Express, commented in early 2004:
The dance culture as a whole got lazy. It came to be perceived as one thing: this cheesy, superclub, larging-it lifestyle . . . Dance music came from an underground culture and was about being edgy and anti-establishment. At the height of superclub-dom, a club would be 25 to get in and be full of slightlyolder people, glammed up and wearing crap labels. If you are young and want to be cool, you are not going to buy into that.5

For many aficionados, the last straw was when the Sugababes got crowned the Best Dance Act of 2003. At the end of 2002, Palumbo was obliged to close down his flagship magazine, Ministry. The Ministry of Sound then worked with publishers Cond Nast to launch a new style magazine, Trash, which would be able to share expertise and economies of scale. Trash was closed after just one issue. The recording joint venture Relentless went out of business, owing 3m. Bangkoks Ministry of Sound closed after a change in local laws restricted late-night attractions. In February 2003, Palumbo quit as chief executive to become chairman of the company of which he was still the largest shareholder. Rumours that he was forced to stand down by venture capitalist investor 3i were dismissed.

4 5 6

European Venture Capital Journal, September (2001), p. 1. Independent, 2 January (2004), p. 10. Financial Times, 30 April (2003), p. 13.

Ministry of Sound Ministrys 36-year-old Marketing Director, Mark Rodol, took over as chief executive and launched a strategic review of the whole business. Rodol commented on Palumbos exit:
James is an entrepreneur but what is going to make this business great is a focused, long-term brand strategy. To his credit James has had the foresight to step aside and let the people who understand and believe this run the company. Its about a difference in style.6

As to the strategic review, Rodol observed:

Over the years, weve pursued a number of opportunities that we shouldnt have done. The intention we have over the next couple of months is to examine what the core of Ministry of Sound actually is.7

The Ministry of Sound was not, however, abandoning all initiatives. Rodol saw large potential in continued merchandising in areas such as branded clothing, specialist holidays and consumer hi-fi products, with turnover targeted to reach 5m by 2006. On top of this, Ministry was starting to sell branded DJ equipment and offering branded mobile phone games. A Ministry PlayStation game allowing gamers to mix their own dance music was being launched too. An advertising-supported online broadcast music channel was launched, with potential for streaming over mobile phones. As a spokesman put it, this will be just like MTV, only on the Web.8 A new super-club was also opened in Taipei, Taiwan, in the second half of 2003 and Rodol declared an ambition to have a Ministry of Sound club in every big city in the world. Rodol also reorganised the Ministry, leading to several management departures. As well as the continuing record business and club activities, there would be three divisions: an international arm, encompassing radio, touring and record compilation; a brand division, focused on retail, product licensing and the Ministry website; and a marketing division, aiming to form long-term relationships with brands such as Philips and Bacardi. Rodol denied that the reorganisation was motivated by simple cost considerations, and underlined its importance for moving the brand forward towards long-term goals. Central would be keeping the brand cool in the eyes of its customers. The Ministry of Sound was perceived by many as having lost its edginess. Mark Rodol insisted:
Thats what were working on. It is possible to be big and cutting edge there are big mass market brands like Nike and PlayStation that manage to retain an edge despite their size. Thats what we intend to do.9

7 8 9

Financial Times, 28 February (2003), p. 22. New Media Age, 13 November (2003), p. 24. Financial Times, 30 April (2003), p. 13.