CMU Weekly Editor's Letter

CMU Weekly – Friday 24 Jun 2011

By Andy Malt | Published on Friday 24 June 2011

It would be the week that I choose to go on holiday that the big story we’ve been waiting for since January finally broke, wouldn’t it? It’s been six months since US bank Citigroup repossessed EMI from equity firm Terra Firma, and ever since we’ve been expecting the major record label to be put up for sale.

As Citigroup made the announcement that it was undertaking a “strategic review” in relation to EMI’s future – which, the bank says, may result in a re-financing, a flotation, or sale to a third party – I was walking the hills and valleys of the Lake District. Well, some of them. Big news stories are like buses, you wait months for them to arrive, and then when they do you’re in a valley with no mobile reception. Or something like that.

Anyway, thankfully, while there may be little to no 3G signal in Cumbria, there is wi-fi – well, there was where I was staying – so once back there and online I could get up to speed with the story. Not that there was a lot to get up to speed with. We’ve been talking about the pending sale of EMI ever since Citigroup took control – come to think of it, we were talking about it before then even – so the fact that sale process is now underway doesn’t really change much, and everyone tipped as a potential bidder so far we already knew about, mainly because most of them bid on Warner Music earlier this year.

The flotation thing is interesting – that is new – though I don’t know how serious that proposal really is. Perhaps Team Citi have seen the silly money being pumped into digital IPOs at the moment and hope they can fool the City into thinking EMI is some sort of trendy digital set up worth spending big bucks on. If they did go that route, assuming they floated it on the London Stock Exchange, it would mean EMI would be back exactly where they were before the whole Terra Firma misadventure began.

But an outright sale seems more likely. But to one buyer or two? That is to say, might Citigroup get more money by splitting up the publishing and recording bits of EMI and selling them off separately? EMI chief Roger Faxon will fight that proposal – he likes to bang on about the future being a more integrated EMI, with the publishing and recording divisions working together – though, while Citi have indicated they support Faxon’s plans, they lost so much by financing Terra Firma’s 2007 takeover, they’ll likely go with whatever solution results in the most cash.

A favourite to bid is Len Blavatnik’s Access Industries, the new owners of Warner Music, resulting in a combined EMI/Warner, a merger that, some argue, has been a very longtime coming. The combined company would be headed up by Warner Music boss Edgar Bronfman Jr who has long wanted the two companies to join. So much so, some reckon Bronfman instigated the Warner Music takeover earlier this year – which resulted in his mate Blavatnik having complete ownership – so that the company was in a stronger position financially to bid for EMI.

But what would a combined EMI/Warner mean for Faxon’s plan? It would possibly be doomed. Both EMI and Warner have been dabbling with interesting strategies to deal with the challenges of the digital age, but they are quite different strategies. I don’t see how Faxon and Bronfman’s business plans could be merged, meaning the former would probably fall by the way-side, even if Faxon was offering the combined EMI/Warner publishing empire to lead.

Not that Blavatnik and Warner are the only possible bidders. The other two majors – Sony and Universal – may also bid, though any of those deals would need regulator approval. Selling to one of the other consortiums of equity groups and billionaires might be simpler. Though whatever happens, and with the recent change of ulimate ownership at Warner and ongoing restructuring at Universal and Sony, times remain interesting and exciting at the top of the record industry.

There’s more discussion of the EMI story on this week’s CMU podcast. On that Chris and I (me on the phone from Cumbria) also chat about all the various to-ings and fro-ings in the crazy world of three-strikes, developments in the far more exciting world of legitimate digital music services, that Amy Winehouse being drunk in Eastern Europe (and she wasn’t even on a stag do), and Lady Gaga pissing off the French by throwing petals around.

I’ll be back again with another one of these this time next week, though I’ll be back in the comfort of the CMU office rather than on holiday, which is nice.

Andy Malt
Editor, CMU

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