EMI Group (UK)
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Until its demise in 2012, EMI Group was Britain's biggest music company, its international profile secured by a position as the traditional home of several of the country's biggest groups, including at various times The Beatles, the Rolling Stones, David Bowie, Pink Floyd and Queen. For many years it was also part of one of the country's largest conglomerates, with interests in retail, film and even electronics. Restructured during the late 1980s to concentrate solely on music, it enjoyed a run of success until management problems and falling record sales pushed it into a frustrating and fruitless search for a bigger partner. Several attempts were made to merge with either Warner Music or BMG only to founder on disagreements over terms or regulatory objections. EMI was eventually acquired in 2007 by investment manager Guy Hands, but his subsequent restructuring of the business proved disastrous, alienating the talent and prompting an exodus of artists and management. With performance in steady decline and debts mounting, EMI's bankers Citigroup seized control of the business at the beginning of 2011 and put it up for sale. Following regulatory approval granted in 2012, it was broken up between Universal Music, Sony and Warner Music.
For most of the last 10 or so years in its history, EMI enjoyed a broad global profile but remained strongest in Europe, and the UK in particular. Elsewhere, it had struggled for years to make headway, especially in North America. As a result, the company tried repeatedly in the 2000s to forge an alliance with what was then the last remaining "independent", Warner Music, which had a much stronger presence in the all-important US market. However the two sides failed just as repeatedly to agree the terms of any such partnership. Instead, after years of fruitless negotiations with different partners, EMI's board gave its endorsement in May 2007 to a takeover by private equity group Terra Firma for £2.3bn, which was around half the value of the offer received from Warner Music just a year earlier but rejected by EMI's board.
New executive chairman Guy Hands began a painful restructuring at the end of the year. However, his widely quoted complaint that some unnamed artists on EMI's books failed to work hard enough to promote their albums ruffled feathers. He also eliminated so-called "fruit & flowers" expenses, a euphemism for expenditure on drink, drugs and other party items. Hands also announced a dramatic one-third reduction in the company's workforce, equivalent to up to 2,000 jobs, to eliminate duplication, and vowed to make significant cuts in EMI's artist roster. The subsequent departure of UK label boss Tony Wadsworth led to sharp rebukes from at least two of the company's biggest selling artists, Robbie Williams and Coldplay, both of whom threatened to "go on strike" by refusing to deliver their next albums unless given reassurances over distribution and marketing support. In perhaps the biggest blow to morale, The Rolling Stones quit EMI in summer 2008 to sign with Universal Music.
Although EMI's new management had managed at least to halt the steep decline in performance by 2009, the group's long-term future still looked precarious. Towards the end of that year, Guy Hands initiated a lawsuit against Citigroup, which had advised and also funded much of Terra Firma's takeover bid. He claimed that the American bank had misrepresented facts regarding the auction of EMI in 2007 in order to get a higher offer. Citi denied those allegations. In the mean time, though, Terra Firma needed to raise substantial additional cash to pump into the business to prevent default on the covenants of the loan provided by Citigroup. In early 2010, EMI opened negotiations with Universal Music and Sony to license its music to them for the North American market, a move that would raise cash while also allowing it to eliminate its own American business. However those talks failed to reach a deal, putting EMI in formal default on its covenants. As a result, Terra Firma was obliged to ask its shareholders to provide a further £105m of investment to prevent the business being seized by Citigroup. Investor confidence took another knock when Sir Paul McCartney withdrew his post-Beatles albums from EMI's back catalogue a few days later. Nevertheless, against the odds, Hands was able to pull off the required recapitalisation.
Another, and ultimately disastrous, blow came in November 2010, when a US court rejected Terra Firma's lawsuit against Citigroup. With another covenant test looming, and no hope of another round of finance from investors, Citigroup seized control of the business at the beginning of February and began an orderly search for a buyer. In November 2011, the bank agreed terms for the sale of EMI's recorded music division to Universal Music for $1.9bn, and its music publishing interests to Sony for $2.2bn. Following an investigation by regulators, Sony received approval in July 2012 without conditions. Universal's deal was approved in September on condition that around a third of EMI's assets, mainly in Europe, be divested. Roger Faxon, previously long-term head of the company's music publishing division and one of the few senior managers from the old EMI to remain at the company, was named as group chief executive in 2010. He announced his resignation following approval of the Universal takeover in September 2012.
Prior to its break-up, EMI had consisted of two principal divisions. Recorded Music was the main recording, manufacturing and distribution business. What was once a large roster of different labels was steadily consolidated during the 2000s. In 2007, the remaining two popular music label groups were merged into a single entity, operating under the Capitol Records name in North America and as Virgin Records elsewhere. However both groups still operated a large family of subsidiary label brands, including Blue Note, Astralwerks, Mute Records and Parlophone. (All these labels continue to operate under their new owners). Recorded Music also housed the recording studios, including famous Abbey Road in London and Capitol Tower in Los Angeles.
Recorded Music generated revenues of almost £1.2bn in the year to March 2010, up 7% on the previous period, but still far below past performance. As a demonstration of just how bad EMI's position had become, only three albums sold more than 1m copies during the year ending March 2008, compared to 18 the year before, and no new album by an EMI artist released in 2007 made even the top 50 UK sellers. There was a modest recovery after that, although the group remained in dire need of more successful releases. During 2008, however, EMI was at least able to claim the world's single best-selling album, in the form of Coldplay's Viva La Vida. Katy Perry's One of the Boys was the only other EMI release among the global top 50 by new artists, although the group took a share of several compilations. A much-needed success in 2009 and 2010 came from the a remastered re-release of the Beatles back catalogue, which sold more than 10m units.
EMI's global market share fell steadily over that same period, from 13.5% in 2005 to under 10% for 2009. Disastrous performance in the UK saw its local share slide from over 20% share in the early 2000s to just 9% by 2007. For 2012, industry researcher Music & Copyright estimated EMI's global market share at just 7.1%, down from 9.9% the year before. The company's top-selling album that year was Our Version of Events by Emeli Sande, which sold 1.7m copies, making it the overall #18 album worldwide, according to IFPI statistics. Now 83 sold 1.6m copies and Coldplay's Mylo Xyloto 1.3m copies. Coldplay's Live 2012 album was also among the top 50 with 1.1m copies, as were albums by Luke Bryan, David Guetta and Katy Perry.
Under the terms of the Universal takeover, the Parlophone, Mute and Chrysalis labels were put up for sale (excluding The Beatles catalogue and Robbie Williams), as well as EMI's stake in the Now! That's What I Can Music compilation series, previously a Universal-EMI joint venture in Europe and a three-way partnership with Sony in the US. The Mute portfolio was acquired by Bertelsmann; Warner Music bought the Parlophone and Chrysalis label groups for £487m.
The second arm to the group prior to its break-up was EMI Music Publishing. In 2012 it was the world's second biggest music publisher (after Universal Music), and the #1 in popular music, managing and licensing a vast library of over around 1.3m song copyrights, from modern artists to classic popular songs from the whole of the last century. Unlike the bigger Recorded Music division, Music Publishing's sales had remained reasonably strong, rising 15% in 2009 and by 2% in 2010 to £478m. It was named Music Publisher of the Year for 13 consecutive years by trade magazine Billboard from 1997 to 2011. Mechanical royalties on album and single sales generated more than half of the division's income, with a further 25% from performance royalties and the remainder from synchronisation royalties from the use of songs in film, television and commercials.
Following its acquisition by Terra Firma in 2007, EMI became the main operating business of holding company Maltby Capital Ltd. Group sales fell by almost 14% in that first year ending March 2007 (to £1.8bn), and by a further 17% in the year ending March 2008 to under £1.5bn. However, the performance in new releases was even worse, with revenues from active artists plunging by as much as 40% in 2008, offset only by the strength of back catalogue.
For the year to 2009, pretax losses widened from £414m to a disastrous £1.7bn. That figure included a £1.0bn impairment charge, two-thirds of it against the music publishing arm. For its final full year to March 2010, there was a modest improvement in revenues to £1.65bn. Net losses for 2010 were £512m.
The companies which made up the heart of EMI were present virtually at the start of recorded music. Emile Berliner invented the gramophone in 1887, and within ten years The Gramophone Company had set up in business to exploit this new discovery. The company was quick to establish offices throughout Europe, followed by Australia and Japan by 1902. To form its company image, The Gramophone Company acquired the celebrated dog-and-trumpet painting known as His Master's Voice (by Francis Barraud) in 1899. At the time no one was certain how successful this new technology would be, but The Gramophone Company took a calculated risk in signing up leading singers of the day to record for its fragile shellac-coated discs. The first major signing was operatic superstar Enrico Caruso in 1902. The rapid international expansion of the business was vital to its success. By 1906, over 60% of the company's profits came from outside the UK. Within another ten years the company operated factories in more than eight European and Asian countries, and managed sales operations throughout the region. Significantly, however, the company had little representation in the US.
In 1921, the company opened its first retail outlet in London, under the His Master's Voice (HMV) brand. Four years later, a new electrical recording process made discs easier to record and manufacture. In 1931, The Gramophone Company merged with rival Columbia Graphophone Company to form Electrical & Musical Industries, later shortened to EMI. That year the enlarged group opened its celebrated recording studios at Abbey Road, London.
At the time, the company devoted most of its attention to classical music, but by the 1940s, musical tastes were changing and EMI employed its first "artists and repertoire" managers, whose job was to seek out popular music acts. Among the first such A&R men was the young George Martin, later to become one of the company's most successful producers, responsible for guiding the talents of The Beatles. In 1946, EMI signed a licensing agreement with US company MGM, followed by Paramount and Mercury two years later. Under this deal, EMI began distributing US recordings in Europe and Asia. The flood of new product coincided with the introduction of 33 1/3 rpm long-playing vinyl records in 1948. Another innovation was the arrival of 45rpm singles six years later.
The 1950s witnessed an explosion in the sales of popular music. EMI capitalised on this new generation of record-buyer by acquiring major US record label Capitol in 1955, bringing Frank Sinatra, Peggy Lee and Nat 'King' Cole into its stable of artists. Two key signings, however, came to dominate EMI's popular music catalogue over the following decade. The first was Cliff Richard, signed in 1959, and considered to be Britain's equivalent to Elvis Presley. But the most important was The Beatles, three years later.
Buoyed by the enormous success of The Beatles, the group began to expand its retail operations in the mid-1960s, opening additional HMV stores in London, and acquiring music publisher Keith Prowse Music in 1969. Publishing was to become a key part of the group's operations over the following decade as it added Affiliated Music in 1973, Screen Gems and Colgems three years later. These businesses were combined to form EMI Music Publishing. But the group also diversified into other, less profitable areas. One was a disastrous flirtation with the film business, which began with the purchase of Associated British Pictures in 1969. EMI Films suffered a string of costly movie flops during the 1970s, chewing up the profits generated by the music division.
In the rapidly changing music industry of the 1970s, EMI scored something of a coup with the signing of seminal punk group the Sex Pistols in 1977, then quickly dropped them after the band proved too controversial for EMI's conservative board. The decision demonstrated how out of touch EMI had become, and it was quickly overtaken by more entrepreneurial and "street-wise" independent labels. Ironically it was ultimately Richard Branson's Virgin Records which reaped the commercial benefits of the Pistols, before itself being bought by EMI.
In 1979, EMI was acquired for £250m by Thorn Electrical Industries, a wide-ranging manufacturing group which made everything from lighting to defence systems. The merged business - then one of Britain's biggest - was renamed Thorn-EMI in 1980. Yet the breadth of the group's operations only contributed to EMI's lack of focus. In 1985 new CEO Colin Southgate was given the task of bringing the group back on track. He did so over the following decade by selling off almost everything apart from the core music business. The revenues from the sales were used to add further music businesses, including 50% of Chrysalis Records in 1990. The biggest purchase was Virgin Records, acquired from Branson in 1992 for around £560m. Finally the Thorn lighting and rental business was demerged in 1996 to leave EMI Group as one of the world's leading music companies. The split of the two businesses immediately led to widespread speculation that sooner or later EMI - by now the world's #3 music company - would merge with one of its rivals.
EMI initially made a strong start as an independent thanks to a series of hit albums in 1996, led by the sudden and meteoric success of the Spice Girls. Meanwhile HMV Record Stores had expanded rapidly during the decade, and the group added books to its portfolio in 1996 with the purchase of Dillons bookstores from failed retail group Pentos. The following year, EMI paid $132m for 50% of Motown boss Berry Gordy's Jobete companies, giving EMI Music Publishing rights to the classic Motown catalogue. However problems also began to emerge in 1997. Poor performance by the North American business led to the closure of two smaller labels and the group's New York office. The company's US chairman walked away with a generous severance deal. Later that year similar management turbulence struck Virgin's US operation, while a severe economic downturn in Asia hit record sales hard. The biggest blow came in 1998 when US-based head of EMI Music, Jim Fifield, resigned after being turned down as replacement for CEO Colin Southgate, then heading into retirement. Fifield negotiated a compensation payment of over £12m, the biggest settlement ever by a British company, causing an outcry from shareholders.
More bad news came with the collapse of merger discussions with Universal Music Group. Universal's owners Seagram spurned EMI at the last minute in favour of Polygram. Then mid-year the company's highest-earning act threatened to disintegrate when Geri Halliwell walked out of the Spice Girls. To make matters worse the music industry in general was faced with a new threat from the MP3 digital format which allowed for the easy illegal distribution of music online. Also in 1998, the group's retail interests were spun off as HMV Media Group, a joint venture with US venture capitalists Advent International. HMV Media then acquired rival bookseller Waterstones for £300m, merging its own Dillons chain into its former rival. However by mid-year EMI was forced to bail out its subsidiary with a £200m loan after the retail group failed to raise sufficient funds from the City. For a while EMI toyed with acquiring Polygram's loss-making films division but the group's shareholders, remembering the company's previous unprofitable move into movies, eventually vetoed the deal.
In 1999, newly appointed executive chairman Eric Nicoli oversaw a series of deals designed to shore up the group's position against digital piracy. EMI agreed strategic alliances with five internet companies, giving access to its catalogue in return for equity. Meanwhile, behind the scenes the group continued to seek a partner, talking to Bertelsmann and News Corporation among others. Finally, a deal was agreed with Warner Music in January 2000, just days after Time Warner announced its own acquisition by AOL. For a while Warner EMI Music was set to become the world's biggest music group with more than 2,500 artists, a publishing library of over 2 million songs, and combined revenues of $8bn. However, UK shareholders reacted poorly to the deal, complaining that EMI was being sold off too cheaply. Finally, after nine months of investigation, EC regulators blocked the Warner merger unless further major concessions were made to resolve competition issues. The two companies withdrew their merger in order to consider revised terms, but finally came up with nothing. In the meantime, Bertelsmann reopened a dialogue, offering to inject its own BMG music group into EMI in return for a stake in the enlarged company. That deal also collapsed when terms could not be agreed.
Having watched its financial results progressively decline over the last few years, the group reported positive performance for the year ending 2001. Excluding its share of losses at HMV, pre-tax profits rose 6% to £260m, on sales up 12% to £2.7bn. However, the following six months saw another drop in performance, with the group's music division slipping into losses, and a further hit from restructuring charges at HMV Media. (EMI sold its remaining stake in HMV Media in 2002.) The group's problems were compounded by difficulties with key artist Mariah Carey. The company signed Carey in 2001 to a massive $80m contract, one of the largest ever in music history. Carey then suffered a nervous breakdown, delaying her new album. By sad coincidence this was eventually released on 11th September 2001, the same day as the terrorist attacks on the US, to considerably lower sales than expected. Despite an initial series of denials, EMI finally confirmed that it had bought Carey out of the contract with a pay-off of $28m. The total cost to EMI for the 18-month relationship was estimated at around $55m. Only a few months later the group confirmed that it had renewed its contract with another artist, Robbie Williams, in a deal thought to be worth about £60m, the highest amount ever paid to a British pop performer. The deal was a landmark also in that it was the first UK contract to cover touring, publishing and merchandising as well as record sales.
In 2003, EMI took advantage of a stalemate in merger talks between BMG and Warner to reopen its own dialogue with Warner about a combination of the two businesses. It was reported to have outlined an offer of $1.6bn in cash and shares to acquire Warner Music. However the likelihood of a deal was thrown into question when Sony and BMG stole a march on the deal by announcing their own merger first. Most observers agreed that the chances of regulators passing not one but two mammoth consolidations in the industry were unlikely. Shortly afterwards, a rival bid from a consortium led by former Seagram boss Edgar Bronfmann and TV entrepreneur Haim Saban made a higher all-cash offer for Warner. Time Warner decided in November to give those negotiations preferential status.
In 2006, EMI made its third known attempt to merge with the by now independent Warner Music, offering around $4.2bn in shares and cash. That deal was rejected by Warner's board, but EMI quickly began putting together a higher offer. Before it could finalise that bid, however, Warner itself launched a bid to acquire EMI, offering $4.5bn. EMI responded with a new offer of its own, valuing the US group at $4.6bn. Yet all negotiations were suspended in July after the shock legal ruling that the merger of Sony and BMG would have to be revisited by EU regulators. In December 2006, private equity group Permira was said to be finalising a deal to take EMI private for around £2.0bn, but terms could not be agreed and the discussions ended after two weeks.
Soon afterwards, in January 2007, EMI announced the departure of the three most senior officers in its main operating units: Alain Levy and David Munns, respectively chairman-CEO of Recorded Music and vice chairman & CEO of EMI North America, as well as Martin Bandier, chairman of Music Publishing. What followed over the next four years was the appointment of series of executives with no experience of the music industry to the role of CEO. Executive chairman Eric Nicoli, former head of United Biscuits, assumed the title of group CEO in early 2007, but he too agreed to leave in September 2007 following EMI's takeover by Terra Firma.
At this point, EMI adopted a new management structure centred around a supervisory board headed by Terra Firma executive chairman Guy Hands. Two other Terra Firma directors also initially took on senior roles. Chris Roling became COO & CFO of both EMI Group and EMI Music, while Ashley Unwin was appointed as director of business transformation. Both men subsequently left EMI towards the end of 2008 following the appointment of Elio Leoni-Sceti from Reckitt Benckiser to become CEO of Recorded Music. He left the business only 18 months later, to be replaced by the former TV executive Charles Allen, who was already non-executive chairman of holding company Maltby Capital. Allen too stepped down from that role after just three months. Finally, a music industry insider, longtime EMI Publishing boss Roger Faxon, was appointed as CEO. But by that time, the writing was already on the wall.
Last full revision 12th December 2015
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