EMI remains on the long and winding road to recovery

EMI Music is far from being turned around, but the company is working hard on that plan. Back in February we learned that the company’s half-year figures were quite an improvement. Last night EMI released some details for the first nine months of its fiscal year.

Here is what the Financial Times wrote: 

For the nine months to December earnings before interest, tax, depreciation and amortisation rose from £12m to £104m at EMI Music. Earnings from the music publishing division incr eased from £81m to £91m but revenues were 1.6 per cent below budget.

Nevertheless, it appears that Terra Firma doesn’t expect to recoup its investment in EMI any time soon. The private equity had to write off a huge chunk, “accepting the likelihood of losses on one of the most eye-catching deals struck during the credit bubble.”

Taking a break

Some of you might have already noticed it: There ain’t much going on here recently. I have to appologize. I’m currently starting a new business which as you can imagine is consuming quite a bit of my time.

Nevertheless I want to come up for air real quick and post some links to what I think have been the relevant developments in music during the last couple of weeks.

First, there is this media hype regarding the proposed merger of Live Nation and Ticketmaster. I wrote a feature story on that for MusikWoche which can be found here (PDF in German).

Then it should be mentioned that despite doomsday predictions Universal Music Group appears to be in rather decent shape. 

Choruss is trying to make inroads onto U.S. college and university campuses. Watch a video by Warner Music’s Jim Griffin explaining the concept during his keynote at the Digital Music Forum East. You’ve read about this before, here and here.

Many go lala over Spotify. Latest version here. 

You read it first on Höf’s Mixtape: Warner Music is pushing its weight behind live and merch. Official announcement came today.

 

That’s all for now. Back to putting the finishing touches on my business plan. Stay tuned.

The NIN model – making money in a digital world

For those of you who didn’t go to Midem this year (like me) there has been a lot of blogging about the event. The coverage of one specific presentation went online today. Mike Masnick of TechDirt talked about the Nine Inch Nails business model at MidemNet. He boiled it down into a simple formula, too: 

Connect With Fans (CwF) + Reason To Buy (RtB) = The Business Model ($$$$)

Find the article here and watch the clip from Cannes below (be patient, it might take a while to load). 

How Irving Azoff saved Warner Music’s quarter

You’ve got to hand it to Warner Music CEO Edgar Bronfman. The man sure knows how to make shit smell good. The spin doctors went in overdrive today and Wall Street bought it. Warner Music Group this morning reported a revenue drop of 11.2% for its fiscal first quarter (Dec 31) to $878 million. Profit turned back into the black with net income of $23 million – after a $16 million net loss in the year-ago quarter. 

But … the only reason Warner turned a profit was the sale of its stake in Front Line Management to Irving Azoff’s Ticketmaster Entertainment last year. That’s important to point out and only few did it as well as Glenn at Coolfer. Wall Street was undeterred, though. WMG stock climbed a ridiculous 24% today to finish at $2.49. 

Wake up, people. The music industry a growth business? Bronfman might want you to believe that but his own numbers prove him wrong. All indicators in Warner’s Q1 report point south. And this claim of Warner being a leader in the development of digital business … well, I don’t know how a 19% share of digital in overall revenues qualifies for a leadership position. Both Universal and Sony Music are well north of 20% by now. Hell, even EMI makes 21% of its business with digital formats. 

Maybe it’s time for some people to read the WMG assessment by Pali’s Rich Greenfield again.

No need to worry about Sony Music

The fact that Sony Music ended its third fiscal quarter (Dec 31) with sales down 22% shouldn’t get you worried. The company might have just closed its well-known GUN Records subsidiary in Germany but the fundamentals of the major label seem to be strong. German Manager Magazin recently portrayed the company and its CEO, Rolf Schmidt-Holtz, saying that in an adverse environment Sony Music had the best management in the business. 

Even though they expect yearly revenues (FY ends March 31) to decline to around $3.6 billion, down by appr. 6.5% from $3.85 billion last year, Sony predicts operating profits to exceed $300 million. That would represent an operating margin of more than 8% – quite a good figure in today’s distressed markets. 

Moreover, Sony seems to be really happy with the conditions of the buy-out from Bertelsmann. According to internal files, Bertelsmann will be paid for their half of former Sony BMG mainly by the label’s cashflow. Until the end of the FY Sony will only transfer $126 million in cash to the Germans. 86% of the purchase price will be covered by cashflow from ongoing business.

“Three strikes” laws for Germany? Not with the current administration

Even though conservative members of the German grand coalition government have been asserting that they would support pro-copyright legislation that would help strengthening the position of rights owners it increasingly looks like the current administration will not be shaken by the entertainment industry’s push for a “three strikes” rule. Germany’s federal minister of justice (U.S. = attorney general), Brigitte Zypries, a member of the more liberal leaning Social Democrats, recently made it clear she does not want to persue that route. 

Zypries had called for a meeting with the six largest internet service providers in the country to discuss how a graduated response model like the one discussed in France could be implemented in Germany. Disconnecting filesharers from the internet seems to be a hot issue in law-making circles. However, Zypries does not see this happening anytime soon. According to her position, the three strikes concept is incompatible with German privacy and telecommunications laws. 

“I don’t think that is a fitting model for Germany or even Europe”, Zypries has been quoted. Labels shouldn’t delude themselves. The German government’s opinion sounds determined: “Preventing someone from accessing the Internet seems like a completely unreasonable punishment to me. It would be highly problematic due to both constitutional and political aspects. I’m sure that once the first disconnects are going to happen in France, we will be hearing the outcry all the way to Berlin.”

No investor – TMI is over

When Germany’s entertainment distributor TMI filed bankruptcy in late September last year people involved had hoped that there might be a chance to save the business, or at least parts of it. These hopes have now been shattered. Trustees, who already in mid-December had terminated the TMI headquarters in St. Leon-Rot, have now also given up on the remaining TMI locations in Bremen and Alsdorf.

The administrators had been trying to keep up trading throughout the fourth quarter but more and more TMI clients defected to competing ditributors. That basically left the company without sufficient business. In total, some 500 jobs are affected by this collapse. TMI was founded in 1989 and during better times generated annual revenues in the area of €280 million ($360m).

Tony Moss to lead BMG’s UK business

BMG Rights Management stays busy. After announcing their new head of the legal department the Bertelsmann music company is waisting no time in putting into action plans for their European expansion. Managing Director Hartwig Masuch has hired Tony Moss to lead BMG RM in the UK. The former General Manager of Ministry of Sound Publishing will be responsible for Ireland as well. From his office in London Moss will report directly to Masuch. 

Prior to working for MoS Moss held positions at UK royalty collection society MCPS-PRS (now PRS for Music). Before joining BMG he worked as freelance publisher, working closely with Modest Management. 

“Tony is a person with tremendous vision, drive and passion and this appointment will give him the opportunity to make great contributions to the growth and development of the BMG Right Management business in UK and Ireland”, Masuch said in a prepared statement. “We will also benefit from his extensive knowledge of the UK market place which is at the forefront of change in the music industry landscape.”

Masuch had previously said that he wants BMG RM to expand its Berlin HQ team to 20 people in two years. An additional 10 colleagues will be working in satellite offices in France, the UK, Spain and the Benelux countries. By 2012 Masuch expects the company to grow into a team of up to 60 employees.

Bonnaroo 2009 – the lineup is out

Here are several good reasons to plan a trip to Tennessee in June. 

I highlighted the most important ones (imho). But I really, really miss one name here. Where are Fleet Foxes on this list? Ashley, please explain …

Scheduled to play Bonnaroo this year are: 

Bruce Springsteen and the E Street Band
Phish (2 Shows)
Beastie Boys
Nine Inch Nails
David Byrne
Wilco
Al Green
Snoop Dogg
Elvis Costello Solo
Erykah Badu
Paul Oakenfold
Ben Harper and Relentless7
The Mars Volta
TV on the Radio
Yeah Yeah Yeahs
Gov’t Mule
Andrew Bird
Band Of Horses
Merle Haggard
MGMT
moe.
The Decemberists
Girl Talk
Bon Iver
Béla Fleck & Toumani Diabate
Rodrigo y Gabriela
Galactic
The Del McCoury Band
of Montreal
Allen Toussaint
Coheed and Cambria
Booker T & the DBTs
David Grisman Quintet
Lucinda Williams
Animal Collective
Gomez
Neko Case
Down
Jenny Lewis
Santogold
Robert Earl Keen
Citizen Cope
Femi Kuti and the Positive Force
The Ting Tings
Robyn Hitchcock & The Venus 3
Grace Potter and the Nocturnals
Kaki King
Grizzly Bear
King Sunny Adé
Okkervil River
St. Vincent
Zac Brown Band
Raphael Saadiq
Ted Leo and the Pharmacists
Crystal Castles
Tift Merritt
Brett Dennen
Mike Farris and the Roseland Rhythm Revue
Toubab Krewe
People Under the Stairs
Alejandro Escovedo
Vieux Farka Touré
Elvis Perkins In Dearland
Cherryholmes
Yeasayer
Todd Snider
Chairlift
Portugal. The Man.
The SteelDrivers
Midnite
The Knux
The Low Anthem
Delta Spirit
A.A. Bondy
The Lovell Sisters
Alberta Cross

… more to come …

EMI’s half-year figures: bottom line still red, but not as bright

Sure, EMI Music’s balance sheet (PDF) for the six-months period that ended September 30, 2008 isn’t pretty. But it’s a whole lot better looking than its most recent full-year figures. So even if it might not look like they are catching up at first sight, they actually are. 

That’s why I don’t really understand the bashing the company got today in the Wall Street Journal and by Glenn at Coolfer. Yes, there are risks involved in the way the new management is steering away from the golden calf that is the CD. But you have to give them credit for at least trying. 

No, Terra Firma has not turned EMI around yet – of course not. But numbers are improving significantly. Please find the details at Billboard or in my news story for MusikWoche. I am not going to recap them here. But I think it is important to point out that EMI’s net losses decreased by more than 50% while group EBITDA grew by 202%. Even the recorded music division could transform a negative EBITDA of £12 million into a £59 million pre-tax profit. 

Still weighing heavily on the company are its finance costs. Don’t be fooled, though. That had to be expected with all the debt Terra Firma has to lift after having bought EMI at an inflated price and at the peak of the buy-out boom. The company will indeed remain vulnerable in trying to meet its covenants. But there still is Terra Firma’s cash reserve of £250 million of which they had to inject only one third into EMI so far. 

So let’s all take a step back and take in the big picture. EMI is on its way out of a very deep whole. Regardless of how much market share they have lost, I believe the company is recovering noticeably. 

Additional reading/previous coverage: 

• EMI to be sold again in “five to seven years”
• Leoni-Sceti wants EMI to be #1 consumer driven label, expects FY operating profit
• Terra Firma: Don’t worry, EMI will meet covenants
• EMI is worth less than the sum of its debts
• Terra Firma may need to put more money into EMI to avoid defaulting on Citi loan
• EMI: The view from within
• New EMI CEO inaugurates himself with slightly improved numbers
• EMI reports losses of $1.2b for year one under Guy Hand’s leadership
• EMI financial woes: Just the Faxon, please
• EMI’s digital business isn’t catching up fast enough