EMI's Future In Doubt After It records £1.75 Billion Losses
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 is said to have fallen more than Pounds 1 billion into the red last year and is struggling to repay bank loans.
Its private equity owner, Terra Firma, has been forced to demand extra money, at least Pounds 100 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, is expected to disclose losses of Pounds 1 billion in accounts for the year to 31 March 2009. They are being filed by parent company Maltby Capital this week. Some reports put the losses closer to Pounds 1.5 billion.
Terra Firma, headed by financier Guy Hands, bought EMI for Pounds 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 had to inject more than Pounds 100 million over the past two-anda-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 are expected to show the group made an operating profit of Pounds 293 million.
EMI has an 18 per cent share of the market and like other record labels it has been fighting 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, says trade body the IFPI.
EMI has also been weakened by its heavy debt burden following Terra Firma's takeover.
Since the deal it has undergone a dramatic change -- the "rock'n'roll" culture clashing 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 saying: "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."
By Gideon Spanier & Jonathan Prynn for the London Evening Standard
