Losing My Virginity

by Richard Branson

  Jacques Kerner was offering me £300,000 to license the entire Virgin catalogue in France, with a percentage of royalties on top. Since Virgin had little money at the time, and we had just taken on another loan to pay for Necker Island, the easy option would have been to accept it. But, instead of dutifully taking down the details in my notebook, I wrote down ‘Patrick Zelnick: Virgin France’. I surprised Jacques Kerner by asking for some time to think it over.

  After the meeting I thanked both men, and asked them to drop by and see me on the houseboat when they were next in London. The next month Patrick came to London and called me up. We had lunch on Duende, and I asked him whether he would leave PolyGram and set up Virgin as an independent subsidiary in France. I would give him complete independence to sign whichever French bands he liked. We worked out some rough figures on a piece of paper, and Patrick agreed to do it. He set up Virgin France with a friend of his, Philippe Constantine, who was a wild, ragged individual, on and off heroin but with excellent musical taste. While Patrick did the business, Philippe spent his time with all the bands.

  ‘When you’re invited for dinner,’ Jacques Kerner said in a reproachful phone call to me when Patrick resigned, ‘you’re not meant to walk away with the cutlery.’

  I apologised for poaching Patrick, but told Jacques that Patrick had made his own decision to set up Virgin. It was only after Patrick had left PolyGram that we looked through the figures again and realised we had miscalculated: we had forgotten to include VAT in our estimations; we had used the wrong retail margin; we had hopelessly overestimated the numbers of records that were sold in Paris. But by then it was too late: Patrick and Philippe were working for Virgin. One of the first bands they signed was called Telephone, who became the bestselling band of the year in France. In later years, Patrick would shake his head in disbelief that he had left the security of PolyGram and joined a virtually bust English record company.

  While the negotiations with Patrick were going on, I went back to France to meet the managing director of Arista Records. We were unable to agree a distribution deal, but I pricked up my ears when he started boasting about how Arista was about to sign Julien Clerc, France’s biggest pop star. I had no idea who Julien Clerc was, but I excused myself and slipped into the lavatory. I scribbled ‘Julien Claire’ on my wrist and then carefully pulled down the sleeve of my sweater to hide it. After the meeting was over I rushed to a call box and telephoned Patrick.

  ‘Have you heard of a singer called Julien Claire?’ I asked.

  ‘Of course I have,’ Patrick said. ‘He’s the biggest star in France.’

  ‘Well he’s free to sign. Let’s try to sign him. Can we meet him for lunch tomorrow?’

  At the lunch the next day, Patrick and I managed to persuade Julien Clerc to sign with Virgin from under Arista’s nose. Within a fortnight I had succeeded in having my name struck off two record companies’ lunch lists, but both Patrick and Julien Clerc went on to make fortunes for Virgin France and themselves.

  With Ken in New York, Patrick in Paris, Udo in Germany and our own operation in London, we could properly market Virgin as an international record label. Our trouble was that we had no cash reserves, and so any setback could prove fatal. When I visited Coutts Bank in the Strand I now wore shoes and my hair was in no danger of getting caught in the revolving door, but they still treated me like a schoolboy prodigy rather than a businessman. Even looking at Virgin’s sales of £10 million, they would shake their heads and smile.

  ‘It’s all good pop music, isn’t it?’ the Coutts manager would say genially. ‘My son loves Mike Oldfield. I just wish my other one didn’t play all this loud punk stuff. I keep having to yell up at him to turn it down.’

  I tried to point out that Virgin was growing into a large company. We had very good sales, and were making as good and steady money as any regular business. But the bankers never saw it like that: ‘You’re doing jolly well,’ the bank manager said. ‘But of course the quality of your earnings is so poor. We can’t see what they’re going to be more than a month in advance.’

  In spite of this cheerless analysis, at the end of 1978 we felt quite confident: in the UK we had enjoyed a good year, with a string of top-ten hits and good sales through the record shops. But in 1979 Margaret Thatcher was elected prime minister; interest rates soared, and we were hit by a severe recession. Record sales in Britain dropped for the first time in twenty years, and our chain of shops lost a lot of money. Ken had had no luck in New York: Virgin’s first single there cost $50,000 to promote and completely bombed. Reluctantly, we decided to close the office and called Ken back home.

  Everything seemed to be going wrong, even at home. In November 1979 Joan called me to say that the houseboat was in danger of sinking. I had left the water pump on and, rather than pumping water out, it had backfired and started siphoning water in. We met at Duende and waded around in the water trying to salvage furniture and boxes of files. After we had retrieved all we could, we stood on the towpath chatting to our neighbours about the best way to pull the boat up. One of the neighbours shifted a box, and to our embarrassment a large vibrator fell out. When it hit the ground, it turned itself on and started to vibrate. As we all watched it, it buzzed around and finally fell into the canal, where it zipped through the water like a torpedo before finally vanishing from view.

  ‘Anything to do with you, Richard?’ Joan asked caustically.

  ‘No. You?’

  ‘Of course not.’

  That box had (of course!) been on Duende for years. The circle of ripples where the vibrator had sunk seemed a fitting end to the 1970s.

  In 1980 I travelled to Los Angeles to try to interest American record companies in English artists. The trip was a disaster. I took a collection of demo tapes but nobody was interested in anything new. Mike Oldfield was as popular as ever – someone even misspelt his name ‘Oilfield’, which was certainly closer to the truth for Virgin – but the other bands I was trying to license, such as The Skids, The Motors, XTC, Japan, Orchestral Manoeuvres in the Dark (‘Hang on, Richard,’ said the buyer at CBS. ‘We haven’t got all day. Can’t we just call them OMD?’), and The Flying Lizards, were listened to with polite interest but few bids.

  As I saw that Virgin’s income was drying up, I made continual lists of savings we could make. I sold Denbigh Terrace, and put the money into Virgin; we sold two flats we owned in Vernon Yard; we cut back on everything we could think of. I recently came across a list of immediate priorities of the time in my notebook. It brings back the sense of desperation:

  Remortgage the Manor

  Turn off the swimming-pool heater

  Sign Japan [the band]

  Sell the houses in Vernon Yard

  Ask Mike Oldfield if we can hold back his cash

  Sell the houseboat

  Sell my car

  Lease all the recording equipment

  Nik could sell his shares to a merchant bank or Warner Bros

  Sell The Venue

  I wrote to the Virgin staff and told them that we had to tighten our belts urgently:

  The good news is that Ian Gillan’s new record has gone straight in at number three in the charts. But the bad news is that it’s only sold 70,000 copies, which is just a half of what a number-three record would have been last year. Our profits have been reduced by more than half since we have the same overheads.

  By Nik’s calculations Virgin was heading for a £1 million loss in 1980.

  ‘I can’t sell my shares to a merchant bank,’ he told me. ‘Virgin is losing £1 million this year. The shares are worthless.’

  ‘But what about the brand name?’ I asked.

  ‘“Virgin"? It’s worth minus £1 million,’ he said. ‘They won’t recognise any value in the brand name. What’s the worth of British Leyland as a brand name?’

  Virgin was suddenly in desperate trouble. The 1980 recession caught us with all the unexpected ferocity of a squall at sea. For the second time we had to make some staff red
undant: nine people, who represented a sixth of the worldwide staff of Virgin Music. This was proportionately less than the cuts being made by other record companies at the time, but it was a gut-wrenching blow for us. Nik, Simon, Ken and I spent hours arguing over what we should do. With no major rock star on the roster to release a hit record, Virgin had no predictable future income. We found ourselves desperately fighting to try to prove Coutts Bank wrong. Once again we went through our catalogue of bands and made several cuts. We had to abandon most of the reggae bands we had signed in Jamaica since a military coup in Nigeria had banned all imports and destroyed our sales.

  Tension rose between Nik and Simon as they argued over which bands Virgin should keep. Nik argued that Virgin should drop The Human League, a young band from Sheffield who played synthesisers.

  ‘Over my dead body,’ Simon told him.

  ‘But they’re so marginal,’ Nik argued. ‘We can’t afford to keep supporting them.’

  ‘The Human League is exactly why I’m in this business,’ Simon said, fighting to keep his temper.

  ‘You just spend all the money I save in the shops,’ Nik said, wagging his finger in Simon’s face.

  ‘Look here,’ Simon snapped, rising to his feet. ‘Never, ever, wag that fucking finger in my face again. And The Human League are staying.’

  I watched Simon and Nik fight it out, knowing that something would have to be done. Nik had been my main partner, my closest childhood friend, and we had worked together since Student, when we were sixteen. But he was obsessed with cutting back and saving money, though, admittedly, at a time when we were in deep trouble. But once again I felt that unless we did something dramatic, which meant spending money, we would never get out of trouble.

  Nik and Simon reached an angry stalemate and turned to me to arbitrate between them. To Nik’s fury, I backed Simon. This was a turning point in the triangular relationship which had worked so well up to this point. I felt that Simon’s taste in music was the only thing that could pull Virgin out of the hole we were in. Without Simon’s new generation of bands, we would be stuck treading water. Nik thought that we were throwing good money after bad, and he went back to the record shops determined to squeeze even more savings out of them.

  At another meeting we argued over a new signing, the drummer from Genesis. In September 1980, Simon wanted to spend £65,000 to sign up Phil Collins as a solo artist. Once again Simon was supremely confident that this was the right move, and he stood up to all the doubts and criticisms Nik threw at him. The reason we even had the chance to sign Phil Collins was our expansion into the recording-studio business. As well as the Manor, we had acquired a studio in West London which we called the Town House. At the back of the Town House we had built a second studio, which was hired out at a lower rate. Rather than having the normal padded walls to kill all acoustic reverberations, we had built it with stone walls. When Phil Collins wanted to record some solo material he decided that he couldn’t afford the top-of-the-range studio, so he booked the Stone Wall studio instead. There he found he managed to get the most extraordinary recordings of his drumming for ‘In The Air Tonight’. It sounded fantastic. And Phil got on so well with the sound engineers that soon he found himself talking to Simon, and before we knew what had happened he was ready to sign up with us.

  Nik made Simon do all kinds of sales analysis to try to work out how many copies of a solo album by Phil we could sell. Nik was worried that Genesis fans would not buy him, but Simon proved that, even if just 10 per cent of known Genesis fans bought Phil’s debut solo album, we would make money. As we stared with dismay at our overdraft and the wretchedly low sales figures of our other bands, we knew the gamble we were making. To his credit, Nik agreed that we should sign Phil Collins, even taking money from the shop tills to make up enough for the advance. Phil proved to be an extraordinarily gifted musician and singer. His voice was haunting and his lyrics poignant: he was destined to become more successful than Genesis itself.

  In the meantime, New Musical Express mentioned that Virgin Music was in financial trouble. If Coutts read NME, which I doubted, they might think twice about extending the loan I wanted. I immediately tried to squash the idea with a letter to the editor: ‘Since in your last issue you speculate that I am in deep financial trouble you will appreciate my need to sue you in order to acquire some interest-free money rather than approach the merchant banks …’ Although New Musical Express was hardly the Financial Times, I recognised that if rumours like that are not hit hard on the head they have a horrible habit of becoming self-perpetuating. Worse still, they were true.

  A couple of months after the arguments over The Human League and Phil Collins, I came across two deals that I thought were irresistible. They both involved nightclubs. The first one was The Roof Garden in Kensington, which was being offered for sale at £400,000. Virgin of course had no money, but the brewer who supplied beer to The Roof Garden was prepared to offer us an interest-free loan if we continued to stock their wines, beers and spirits. The other nightclub was Heaven, a large gay nightclub under Charing Cross Station. The owner was a friend of my sister Vanessa and he wanted to sell it to someone who would respect it and keep it as a gay club. Through my work at the Advisory Centre, he knew that he could trust me to do this. His asking price was £500,000 and once again the brewer was prepared to give us an interest-free loan to cover the entire purchase price, in return for stocking their beers. I had no idea why the brewers did not want to acquire these clubs outright, and I jumped at the chance to buy them.

  I knew that Nik would oppose these purchases, so I signed the contracts without telling him. He was furious. He thought that I was squandering money. He looked at the £1 million extra liability which the purchase of these clubs represented and thought that I was ruining Virgin.

  ‘It’ll sink us,’ he argued.

  ‘But we don’t have to pay any interest,’ I said. ‘It’s free money. When someone offers you a Rolls-Royce for the price of a Mini you have to take it.’

  ‘There’s no such thing as a free lunch and there’s no such thing as free money,’ Nik told me. ‘It’s still debt. We can’t possibly pay it off. We’re practically bust as it is.’

  ‘This money is free,’ I said. ‘And I think there is such a thing as a free lunch. We’ll trade out of trouble.’

  Nik disagreed with me so vehemently that it became clear we had to go our separate ways. He thought that I was leading Virgin headlong into bankruptcy. He wanted to protect the remaining value of his 40 per cent share of the business before it was too late. For my part, in spite of our history, I had been unhappy with our professional relationship for two or three years. Nik and I had always been best friends but, as Virgin had grown bigger and moved from being a record retailer to a music label, I felt that he had become out of his depth. Nik thought that we were all out of our depths, which we may well have been. There was no room for him in the record label, and in any event he wasn’t comfortable doing all the socialising with the musicians which Simon, Ken and I did. I rather suspected that Nik’s puritanical outlook made him resent every pound that was thrown away on ordering another bottle of champagne, even if by charming and so winning the band on to Virgin Music we would reap vast benefits. I felt that Nik was always trying to stop me doing the things I wanted to do, most of which, admittedly, involved risking money on new bands. It is probably an interesting litmus test of our relationship that I don’t think Nik came on staff skiing holidays after about 1977. I have always wanted the Virgin staff to have a great time, and I’ll be the first one to make a fool of myself in any way if I think that it’ll help the party go with a swing. Nik found all that side of life difficult to enjoy. We knew each other so well we could write pages about each other’s good and bad points. In the end we both realised that it was best to separate while we were still friends. That way we could remain friends, rather than waiting until we had grown into implacable enemies.

  I raised another loan from another bank, and b
ought out Nik’s shareholding in Virgin. As well as this cash, Nik also took with him some of his favourite parts of the Virgin Group: the Scala cinema and the film- and video-editing studios. Nik’s real interest lay in the film world, and when he left he set up Palace Pictures with a view to making movies. With his talent he soon started making wonderful films such as The Company of Wolves, Mona Lisa and the Oscar-winning The Crying Game.

  With our separation settled, Nik and I hugged each other and made up. We had both got what we wanted, and to celebrate our ‘divorce’ we threw a leaving party at The Roof Garden. In many ways we managed to get the best of both worlds: we remained great friends, saw a lot of each other, and both managed to thrive without the other. Although I had acquired Nik’s 40 per cent of Virgin, I was well aware that there was no difference between owning 100 per cent and 60 per cent of a busted company. Nik was right about Virgin’s trading losses for 1980: we lost £900,000.

  12 ‘Success can take off without warning.’