December 15, 2010

Wednesday News Item: Potential Sale of EMI

If you've followed the the news on the music industry recently you've probably heard that EMI may be history in the near future. This would obviously be an interesting and important development, but how exactly did we get here and what will it mean?

The Past
Terra Firma, a private equity firm owned by Guy Hands made a deal with EMI in 2007. The firm invested in EMI and Citigroup issued a loan to cover the rest of the deal. After a few rounds of layoffs and successful quarters with improved profits and sales figures, it sadly still seemed the deal was not the best move for Terra Firma. In 2009, a case was launched by Terra Firma alleging that Citi has misrepresented the value of EMI at the time of the deal. In the mean time, EMI has required several additional investments from the firm to avoid defaulting on the initial loan.

The Present

The next deadline for the debt is approaching in the new year and, according to The New York Post, investors aren't interested in putting additional funds into the company to meet it. This means the only option may be to hand over control to Citigroup or perhaps to sell. The Post also alleges that this may happen by the end of this year.
New York Post Article

The Future
So, what would this mean? If Citi group took control they would likely put it up for sale and potentially even separate different entities, such as publishing and the record labels.
Generally, when companies are merged in the music industry, it means a lot of people are laid off and a lot of artists are dropped. Hopefully, for the sake of all of EMI's employees and artists, this won't be the case, but sadly it seems inevitable. On the other hand, splitting up or selling EMI would mean that what were once six major labels have become merely three. Last year, for the first time, indie labels collectively had a higher market share than that of EMI and the loss of another major could represent an opportunity for the indies to gain even more control and perhaps even to pick up some of the artists that end up getting dropped. On another sad note, EMI has been one of the most innovative majors in recent history and were often the first to work with new technologies, artists, and business models. It will be sad to see the loss of one of the more innovative major companies.

Here's a great blog post if you're looking for more information on this
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