Mark Kleinman on marketing and the City: EMI needs a new groove

Mark Kleinman
Mark Kleinman

The music group's problems are deeper than cost-cutting and a shift toward digital channels can fix.

Last week was not a good one for Guy Hands, the private-equity tycoon. Not only did he reveal that his status as a tax exile was preventing him visiting his family in the UK, he also disclosed that EMI, the British music company his Terra Firma vehicle bought from the stock market in 2007, had lost more than £1.5bn last year.

It was the second of these revelations that left the City open-mouthed in amazement. That EMI was in financial trouble was widely-known - indeed, it had been struggling for some time before it was taken private - but the scale of the loss was a shock.

The bald numbers do not tell the whole story, however. Much of that £1.5bn was due to the decline in the value of the shareholding in EMI of Terra Firma, Hands' private equity vehicle, since the takeover. Indeed, EMI Music Publishing, one half of the group business and home to the likes of Coldplay and Robbie Williams, is performing reasonably well.

In one sense, EMI's plight since Terra Firma's takeover simply reflects the structural challenges facing 'old media'. The internet has decimated the revenue streams they historically enjoyed, a vacuum that has been hard to fill.

That was why the appointment two years ago of Elio Leoni-Sceti, a Reckitt Benckiser executive with a strong marketing pedigree, to run EMI Music, was supposed to herald a turnaround in the value of the business. Some classic FMCG experience brought to an industry struggling to reinvent itself for the digital age would, Hands hoped, give EMI some breathing space.

Despite some improvement under Leoni-Sceti - the group made £293m in operating profit last year - the transformation has not been deep enough to protect EMI from the interest payments on the vast debt taken on by Hands to acquire the company.

Now, Terra Firma's investors are being asked to stump up another £100m-plus to help prevent a breach of EMI's banking covenants when they are tested at the end of March.

If they do not agree, Hands faces the unenviable choice of dipping into his own (deep) pockets or handing over the keys to principal creditor Citigroup.

To persuade investors to find the money, Hands has promised a new business plan from Leoni-Sceti. Part of that will be based on cost-cutting, and part on a pledge to substantially boost the proportion of EMI's revenues that are derived from digital channels.

The first of these is eminently deliverable: the company can jettison loss-making artists and trim head office costs, almost certainly by cutting jobs.

The second may be harder. In a letter to Hands, made public as part of a legal action being brought by him against Citigroup, last October Leoni-Sceti warned that EMI had, in the preceding nine months, 'lost distribution deals that would have generated incremental fee income of $13m per annum with the counterparties citing concerns about EMI's stability ...

We also have a number of global artists ... considering whether they should postpone their next studio album until the future with respect to EMI is clear'.

With such doubts hanging over it, taking long-term decisions about marketing investment is a practice riddled with uncertainty.

Yet this situation is about more than the fact that Hands overpaid for EMI three years ago. At its heart, it underlines the music industry's struggle - and, so far, its inability - to reinvent itself. Most of the innovation has come from technology firms such as Apple. The music companies badly need some fresh marketing insight if they are to capture the true value of their product.

Mark Kleinman is City editor at Sky News and a columnist for The Times

30 SECONDS ON ... EMI

- Anglo-American company Electric & Music Industries Ltd was founded in 1931 after the merger of the UK Columbia Graphophone Company and The Gramophone Company, parent of the His Master's Voice label.

- From the 50s into the 70s, EMI became one of the world's most successful music companies due to its ownership of Parlophone (the Beatles' label), Columbia (outside the US), HMV and Capitol Records.

- EMI claims to have been the first company to release a digital album download, David Bowie's Hours, in 1999.

- As well as the music business, EMI was involved in large-scale electronics research and manufacture from the 40s to the 80s. It worked on everything from guided missiles to the first BBC TV transmitter, TV cameras, the first transistorised computer and the first CAT scanner.

- EMI Music Publishing is the world's biggest music publisher, with a catalogue of more than 1.3m songs, 1000 of which have been US or UK number ones.

Discussion

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus
Brand Republic Jobs

subscribe now

Latest

Waitrose boosts content strategy with 'Weekend Kitchen with Waitrose' C4 tie-up
Hottest virals: Cute puppies star in Pedigree ad, plus Idris Elba and Fruyo
Amnesty International burns candles to illuminate new hope
Toyota achieves the impossible by calming angry Roman drivers
Tom of Finland's 'homoerotic' drawings made into stamps
YouTube reveals user habits to appeal to 'older' marketers
Ex-M&S marketing chief Steven Sharp consulting at WPP
Wolff Olins reveals new CEO after Apple poaches Karl Heiselman
Glasgow offers £30,000 prize to best digital idea for 2014 Commonwealth Games
Google's revenues surge but shares drop as it grapples with transition to mobile
Facebook beats Twitter to most 'marketing friendly' social media site crown, says DMA
Fableists believe children like Finn should be outdoors enjoying life
Homebase, Baileys and Camelot join the line-up at Media360
MasterCard renews Rugby World Cup sponsorship to push cashless message
Lynx unleashes £9m 'Peace invasion' campaign
Social Brands 100 Youth: Pizza Hut most social youth brand in UK
Cheryl Cole is wild and arresting in new L'Oreal work
Morrisons told not to show alcohol ads during YouTube nursery rhymes
O2 head of brand Shadi Halliwell departs after 23 years at company in restructure
Tesco hit by further sales decline as it turns to digital Clubcard and social network
Branding guru Wally Olins dies aged 83
Duracell short film captures epic Transatlantic voyage
Ash runs Tinder experiment to show smokers are less desirable to opposite sex
British Airways teams up with Gerry Cottle Jnr for summer of rooftop film screenings
Arklu says 'girls can be superheroes too' with doll design competition
Coke enters squash market with Oasis Mighty Drops
Virgin Galactic signs up Land Rover as space flight sponsor
Motorola marketer Andrew Morley departs as Google gears up for sale to Lenovo
US Airways apologises after tweeting obscene image at a customer
Mumsnet admits users' emails and passwords accessed via Heartbleed bug