EMI: The Future?

Posted by: Grayson Brulte

With reports leaning towards EMI being bought out by a private equity group; What is the future of EMI and its recorded music division? That is the million dollar question that the music industry would love to know. I have the following take on the possible purchase of EMI by a private equity group.

EMI is an “old” company that has been mismanaged for years and now it’s time for someone to pay the price; the company. With their year-end net debt increased by £24.7m from £879.5m to £904.2m during the financial year ending March 31, 2007 its safe to say the company is not going in the right direction.

The right private equity firm would gut the company and sell it off in pieces, while holding onto the publishing division. Below I list a few options that would make sense if that is the direction the firm wants to go.

1) Sell the recorded music business to Warner Music Group if Edgar and company will agree to acquire some of the debt.

2) Keep EMI Music Publishing and promote Big Jon Platt to oversee the whole operation and bring in an ex-Studio head to ensure music is placed in Film, TV, and Video Games.

Or:

1) Sell the recorded music business to Live Nation or AEG along with merchandising rights (if any) for a premium. Live Nation or AEG would then have the assets to jump start their “much rumored” record labels.

2) Sell EMI Music Publishing to Sony ATV and re-unite Marty Bandier with his old catalog. This would most likely pass EU anti-trust regulations since all signs are pointing to a Universal Music Publishing/BMG Songs merger.

The bottom line is that EMI is worth more broken into separate companies and sold off. The private equity firm could see a hefty return on investment in two to four years if they decide to gut and sell the company off piece by piece.

Notes from for the Financial Year Ended 31 March 2007.
• Underlying Group revenue fell by 15.8% on a reported basis and by 12.1% at constant currency
• EMI Music revenue fell by 15.0% at constant currency
• EMI Publishing outperformed the recorded music market with revenue declining by only 0.9% at constant currency
• Group digital revenue increased by 46.5% from £112.1m to £164.2m on a reported basis representing 9.4% of total underlying Group revenue

Read the full Financial Report here.