EMI Group sold as two separate pieces to Universal Music and Sony


By Alex Pham, Los Angeles Times November 12, 2011

The century-old EMI Group music company has been split in two and sold for $4.1 billion to Universal Music Group and Sony Corp. The absorption of the music giant leaves only three major record companies in control of an eroding industry.

The deal announced Friday calls for Universal to acquire EMI's recorded music division from EMI parent company Citigroup Inc. for $1.9 billion, and Sony to acquire the smaller but more lucrative music publishing business for $2.2 billion.

The two edged out rival bids from Warner Music Group and BMG Chrysalis. Warner had vied for the recorded music unit whose roster includes Norah Jones and Lady Antebellum, while BMG Chrysalis bid for EMI Publishing, whose catalog includes classics such as "Over the Rainbow" and "New York, New York."

With the deal leaving Warner, BMG and Universal as the only major players, antitrust regulators in the U.S. and Europe are expected to review the transaction for possible anti-competitive issues.

But the industry is shrinking, mainly because the big houses are struggling to remain profitable and now have to compete with the numerous alternatives that technology and the Internet have given to artists.

Globally, music sales sunk to $18.4 billion last year from $29.4 billion in 2005, according to a report from research firm Enders Analysis.

As a result, the power of record companies to dictate what albums are produced has been diluted, said Mike McGuire, a music analyst with market research firm Gartner Group. "The choke point that labels enjoyed for years because they owned all the recording studios and all the best producers are over," McGuire said.

Artists now have a plethora of ways to distribute and promote their music and are no longer beholden to record labels, he said. "Labels will have to compete on their ability to help artists."

That's a key reason why antitrust regulators may be likely to clear the deal, legal experts said.

"In a different era, a merger between any of those companies would raise major red flags at the antitrust division," said Mark Lemley, a professor at Stanford Law School.

Citing Sirius' 2008 merger with satellite radio rival XM, and Live Nation Entertainment's merger with Ticketmaster last year, Lemley said: "They're letting through mergers in even more concentrated markets, and even some that looked like the merger that created monopolies."

In addition, the recording business is not the crown jewel of EMI. It's the publishing business, which holds the rights to 1.4 million songs, including those by David Bowie, Stevie Wonder and many others.

Though smaller in size than its recorded music division, EMI's publishing group punched above its weight when it came to earnings. The group accounted for 29% of the company's revenue in 2010, the last year for which financial results were made available, but it made up 45% of EMI's operating profit.

The deal is a coup for Sony Chief Executive Howard Stringer, who has made music a priority for the company at a time when the industry has been ravaged by piracy and plummeting CD sales. In 2008, Stringer spent $1.2 billion to buy out Bertelsmann's 50% share in a joint venture, Sony BMG.

The sale brings to a close EMI's 114-year run. The independent music company was founded in 1895 by Emile Berliner, a Jewish German immigrant to the U.S. who is credited with inventing the gramophone.

It also caps years of financial and corporate turmoil for EMI. British private equity firm Terra Firma bought the company for $4.7 billion in 2007, using mostly borrowed funds. When it became clear early this year that Terra Firma could not service its enormous loans, Citigroup, the company's primary banker, took ownership of EMI. Citigroup wrote off 65% of EMI's debt with the intention of selling the music company by the end of the year.

Citigroup doesn't walk away free and clear from the deal, however. It must continue to shoulder the cost of a pension plan that covers 21,000 EMI employees, estimated to cost from $200 million to $600 million. Citigroup did not announce how Universal and Sony have arranged to deal with EMI's remaining $1.9-billion debt held by Citigroup.

^ One more thing! In 2000, there were 5 music labels! Now there are only 3!

Sony ?

As antiquated as the these giant labels are, it's a bit sad to say goodbye to something that had such a dominating presence in the industry for so long.

I've read some other articles since I saw this one posted here this morning. And those articles are dotted with large monetary sums in the millions and billions which is all well and good if you're a financial analyst interested in number crunching.

But what does this mean for the artists?

whirlygirl, on 14 November 2011 - 3:34 PM, said:

That was my first thought. Is this going to necessarily be a good or bad thing for artists trying to "make it" in the music business?

Is this just another sign that artists are relying less on large record labels to find their own version of success?

One of my newer favorite bands is Ghostland Observatory, who are based out of Austin, TX. It looks like they created their own label called Trashy Moped Recordings. They play sold out shows across the U.S. and I'm sure their album sales are *at least* decent.

With electronic distribution being facilitated by various sources including Amazon and iTunes, as well as the ability to host your own music on a website and ask for donations or attempt to set up a website "shop," it is arguably a lot easier to thrive as an indie band without a label and rely on the popularity of your music and the fans to support you.

Does anyone have any data to counter this idea? Is there a direct and causal relationship between the decline and dismantling of larger, established record labels to a decline in artist success?

Considering the numbers I have seen when artists contracted with large record labels, which was a small percentage of sales, I would doubt that this is the case.

MadPooter, on 14 November 2011 - 4:33 PM, said:

Good question, but I got nothing on me about that!

But maybe one bad thing....which is this....Universal gets the entire label roster....Coldplay, (who cares) Katy Perry (who cares), including our Chemmy Bros! I'm not fond of Universal!

OT, but I would think that artists would be smart enough by now to leave these greedy labels by now and flee from the evil RIAA- type accounting practices! But that's a whole other story!

What it means, is that artists and labels will have to run their careers more like a business (what a thought?) and rather than blowing wads of cash at radio and magazine promotion (do we really need to hear that Rihanna song for the 3664th time today?) they might have to invest in new music, and do a business plan to make each artist's career, a profitable endeavor.

Of course, not yet. There's still 3 big elephants in the room.

KngtRdr, on 23 November 2011 - 11:54 AM, said:

lawl. makes sense.

inchemwetrust, on 13 November 2011 - 9:04 AM, said:

Actually there are a lot more music labels. But I guess you meant majors.

The bloke off the internet, on 28 November 2011 - 12:13 AM, said:

Yeah--that's the big issue here. There are lots of smaller labels that are arguably more favorable for artists to work with.