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EMI's future in doubt after it records £1.75 billion losses
Gideon Spanier and Jonathan Prynn4 Feb 2010
The future of EMI, the British record label behind Robbie Williams, Madonna, Coldplay and Lily Allen, was plunged into doubt today when it admitted to making massive losses.
The 113-year-old company slumped to a pre-tax loss of £1.75 billion in the last financial year and is struggling to repay bank loans.
Its private equity owner, Terra Firma, has been forced to demand extra money, at least £105 million, from its investors to meet terms of the deal set by lender Citicorp. If it fails to, the US bank could seize control of EMI.
EMI, also home to Kylie Minogue, David Bowie and Katy Perry, has disclosed pre-tax losses of £1.75 billion in annual accounts for the year to 31 March 2009. They were filed by its parent company Maltby Capital today.
Terra Firma, headed by financier Guy Hands, bought EMI for £4.2 billion in 2007. It has been forced to disclose the losses as it prepares to sue Citigroup in a dispute about how much the US bank knew about the state of the record label's finances before the deal.
Terra Firma has already had to inject more than £100 million over the past two-and-a-half years as it struggled to meet the bankers' terms.
EMI's chief executive Elio Leoni-Sceti is working on a new business plan that will be submitted to Terra Firma investors within weeks.
The losses have been caused mainly by financial write-offs, and the underlying day-to-day performance of EMI has been relatively successful. The accounts showed the group made an operating profit of £293 million.
This week EMI has four albums in the US top 10, and an 18 per cent share of the market.
Like other record labels it has been fighting a battle against illegal downloading.
Over the past five years the recorded music industry's global revenues have fallen 30 per cent, and in 2009 they dropped by 10 per cent to $15.8 billion.
It is estimated that 95 per cent of music downloads worldwide are illegal, according to trade body the IFPI.
EMI has also been weakened by its heavy debt burden following the takeover by Terra Firma. Since the deal it has undergone a dramatic change, with the “rock n roll” culture clashing unhappily with the “suits” from private equity.
Insiders and some artists complain Terra Firma has no feel for the “music biz”.
In December 2007 Radiohead quit the label, guitarist Ed O'Brien complaining: “It's been taken over by somebody who's never owned a record company before, and they don't realise what they're dealing with.”
Reader views (7)
The purchase of EMI by Terra Firma [how ironic] is a superb example of the hubris that afflicted the financial world in the last few years. What was he thinking?
- Ringo, London UK, 04/02/2010 20:27
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Whoops! Another private equity debt-ridden disaster. I can't believe they paid 4.2 billion for EMI only a few years ago. But that was in the days of (almost) free and easy debt. Then, literally, the music stopped and Terra Firma were left holding the 4.2 billion dinosaur. Like John, I feel sorry for the employees.
- Paxtonpat, London, UK, 04/02/2010 19:03
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Robbie and Kyle, how naff!
- Ben, London, 04/02/2010 17:04
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first of many. The model that brought us huge record labels is dead. And the music industry has itself to blame for resisting and not embracing the new world of downloads and mp3s. Weeping for them is like weeping for the blacksmith because people want tyres and not horseshoes.
TV and probably film studios next.
- Simon, london, 04/02/2010 17:01
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The simple fact is Mr Hands paid far too much for the company. Will he suffer? No, but the employee's of EMI sure will when the company goes to the wall!
- John: London, London UK, 04/02/2010 16:01
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Surely the recipe is simple : Pay "stars" what they are worth and relate it their current success as opposed to their past performance.
- Norman, Eastcote, 04/02/2010 15:08
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EMI need a totally different approach on how to manage artists & how they operate. They need to adapt to the market of today & understand they cannot keep milking the music industry/artists like they did in the past. Maybe if they invested in some real music rather than trying to dictate the market with the same old same old, EMI might improve their business.
- Keep It Real, London, 04/02/2010 14:31
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