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.”

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.

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

BMG taps von Einem to build legal team

Bertelsmann’s new music unit, BMG Rights Management, is not only building an artist roster but also a legal team. The company has hired Götz von Einem as Director Business and Legal Affairs. He joind BMG from the Berlin offices of law firm Nörr Stiefenhofer Lutz where he specialized in media law. Prior to that the 33-year-old did a stint at well-known German music law firm Kiso & Siefert. Von Einem officially started his new job in January.

Before that Ama Walton of Walton Stegemann consulted BMG throughout the founding phase and due diligence, including negotiations to buy out the relevant catalogs from the dysfuntional Sony-BMG marriage. Nevertheless, Walton remains close to BMG RM Managing Director Hartwig Masuch and continues to work with the company on specific projects.

Ownership of master rights as determining factor in label deals

The always interesting Helienne Lindvall has a smart post on her blog over at the Guardian about the question of musicians’ rights in today’s label landscape. She makes the the case for acts who refuse to sign with a record company that tries to obtain too many rights. The article highlights the push by the recently established Featured Artists’ Coalition (FAC). A good read.

The issue of ownership is a hot topic among artists and managers at the moment. Traditionally, when an artist signs a record deal (particularly with a major label), they assign the copyright of their recordings to the label. This means they no longer own them and only have a right to royalties. In fact, the only way artists might get them back would be if the label went bust.

One of the main problems with labels owning recordings is that once artists are no longer under contract, the label isn’t obliged to do anything with them. The label may have been bought by another, the people who cared about your music may have been sacked, or maybe the label is too busy focusing on “the next big thing”. This is known as your music being in “the lock-up”.

EMI to be sold again in “five to seven years”

Much has been said and written about Terra Firma’s real intentions for EMI Music. Some commentators never let go of the idea that TF head Guy Hands might try to combine EMI and Warner Music – a match made in heaven for many financial analysts, not so much for the people actually working at either company. 

Won’t happen anytime soon, though. Roger Faxon, EMI’s publishing CEO and a man known for only going on record when there is something substantial to say, told the Times that EMI will remain in TF’s hands for the overseeable future. “Do we need a huge alternative catalogue when we already have the best in the world? I don’t think so,” Faxon said in regards to ongoing speculation about a possible merger of EMI Music Publishing with Warner/Chappell Music. 

His publishing business represents a “standalone structure” within EMI, Faxon said. He did, however, acknowledge that Terra Firma isn’t interested in holding on to the music business forever. “Terra Firma’s aim is to sell EMI as a whole or spin off separate businesses within five to seven years.” Buyers, start saving.

Know all about what’s going an at Midem without being in Cannes

Actually, going to Midem should be mandatory for anybody who wants to cover the music business. There is probably no other place where one can find as much expertise and inside stories as in mid-January at the Côte d’Azur. That’s bad for me, because I didn’t go this year. If you need to know what’s going on over there in France I recommend you check one or all of these sites: 

• BBC News summary
• music ally blogstravaganza
• MusikWoche Midem coverage
• paidContent goes MidemNet
• and Billboard is there, too
• Music Week stays busy as well

BMG Rights Management sees progress after split from Sony

Bertelsmann’s new music unit, BMG Rights Management, says its first three months of operation have been quite a success. The newly formed company headed by Managing Director Hartig Masuch opened offices in Paris, London, Milan, Amsterdam and Madrid during the start-up period. Response from the creative community throughout Europe had been overwhelming, Masuch says. 

The former head of BMG Music Publishing Germany claims BMG RM has been making rapid progress since its inception in October. He and his team managed to snap up 2raumwohnung from Sony BMG and Peter Fox (aka Pierre Baigorry of Berlin-based dancehall group Seeed) from Warner Music. Another new artist represented by BMG RM in Europe is songwriter Toby Gad who in the past had worked with Beyoncé, Natasha Bedingfield and Fergie. 

BMG RM signed several more artists, including German singer/actress Yvonne Catterfeld, Austrian pop sensation Christina Stürmer, Laith Al-Deen, vocal group Die Prinzen and Techno veteran Westbam (that one I don’t understand). Masuch didn’t specify which rights BMG RM will administer with each of these signings. The company had previously said it would “offer custom-tailored services for songwriters and performers who want competent support in the creation, marketing and licensing, collection and accounting as well as advance financing of their music repertoire.”

In addition to these new signings, BMG RM can access a pool of some 200 artists the company inherited during the de-merger of Sony BMG. From a local perspective, the most notable act on that list is probably German pop/NDW queen Nena who was discovered by Masuch in the 80s (even Americans remember her hit “99 Luftballons”/”99 Red Balloons”). BMG RM represents the singer’s full catalog of master rights plus rights to her future work. 

Masuch will be in Cannes at Midem in the coming days to promote the company.

While I was away …

Welcome back, readers of Höf’s Mixtape. Sorry it took me so long to get back online. While I was kicking back in Germany the music world continued to create news. More than I anticipated, actually. In retrospect, though, none of them were real game changers or sensations. But for matters of completeness and for my own sanity I compiled what I think deserves mention. 

Instead of rounding up the old news in chronological order I am listing them by relevance. So this is what’s been missing here: 

• The biggest tours of 2008 were not by the biggest CD sellers. The global #1 was Madonna with a gross of $281.6 million according to Pollstar, followed by Céline Dion with sales of $236.6 million. Bon Jovi sold tickets worth $176 million. Fellow Jerseians Bruce Springsteen & the E-Street Band raked in $166 million in ticket revenue, and The Police managed $120.6 million in sales. Completing the list of Top Tours in 2008 are Neil Diamond, the Eagles, André Rieu, Kenny Chesney and Coldplay. 
• Steve Jobs decided it’s time to say good-bye to the old pricing dogma of 99 cents per song and got rid of DRM in the iTunes Store as well. Downloads (in the AAC format!) will now come without digital locks at three different price points. Watch for iTunes users predominantly cherry-picking songs at 69 cents. $1.29 anybody?
• Related I: iPhone users can now shop wirelessly at iTunes via 3G (fast, sort of) and EDGE (really not fast at all). Can you hear AT&T and other carriers who are trying to sell DRM-ed OTA downloads cussing at Jobs?
• Related II: Apple so far has sold six billion songs via iTunes. Averages around two billion a year now. 
• The recorded music market in the U.S. remains a battlefield. Album sales were down 14.4% in 2008 at 428.4 million units according to Nielsen SoundScan figures. Digital track sales rose 27% to 1.07 billion units, digital albums gained 32% and sold 65.8 million units. The CD album which still accounts for 84% of the entire business collapsed another 19.7% to 360.6 million copies sold. Vinyl, however, made a comeback to 1.88 million albums (an increase of 89%). 
• More SoundScan I: Album market share (catalog & current combined) leader was again Universal Music with 31.52% of overall sales (slightly down), followed by Sony BMG (25.30%, slightly up), Warner Music (21.38%, up by more than one point) and EMI (8.97%, slightly down). The combined share of independent labels decreased half a point to 12.83%. The same pecking order applies to download market shares. 
• More SoundScan II: The best selling albums of 2008 were “Tha Carter III” by Lil Wayne (2.874 million units), “Viva La Vida”/Coldplay (2.144 million), “Fearless”/Taylor Swift (2.112 m) and “Rock N Roll Jesus”/Kid Rock (2.018 m). Top selling album artist was Taylor Swift who had two titles in the Top Ten for a total of over 4 million sales. The best selling digital tracks were “Bleeding Love” by Leona Lewis (3.42 million units), “Lollipop”/Lil Wayne feat. Static Major (3.161 million), “Low”/Flo Rida feat. T-Pain (2.979 m) and “I Kissed A Girl”/Katy Perry (2.977 m). Top selling digital artist was Rihanna with a total of almost 10 million sales. 
• More SoundScan III: Where does the shrinking number of album buyers get their fix? The mass merchant category (Wal-Mart, Best Buy, Target, etc.) is still #1 at U.S. album retail with a share of 37% (down 3 points, though), followed by chain music stores (i.e. f.y.e.) with a 33% share of the market (also down 3 points) and the non-traditional outlet segment with almost 25% (up 7 points) and indie music stores covering the rest. NTOs include digital, internet, mail order, venue and non-traditional retailers, with digital accounting for 65% of the segment. 
• While 2008 was an annus horribilis for the U.S. record industry, the business accross the pond did far better than expected. BPI figures show the labels sold 133.6 million albums in the UK - a decrease of only 3.2% (some pundits were fearing up to 10%). The singles market was up 33% with 115 million units (mostly downloads) sold. 2008’s best selling album was Duffy’s “Rockferry” with 1.685 million copies. But Take That came awefully close with 1.446 million copies of “The Circus”. The record only had one month to achieve this sum. Even more impressive: The best selling single was “Hallelujah” (a Leonard Cohen cover) by X factor winner Alexandra Burke. The track sold 888,000 units in just two weeks. Overall entertainment sales in the UK were encouraging considering the tight consumer budgets everywhere. The Entertainment Retailers Association (ERA) said its members sold more product in 2008 than ever before. 
• At the RIAA some people started using their brains. The label group decided it’s time to end the witch hunt on music fans. Since the RIAA started suing alleged filesharers in 2003 legal proceedings have been opened against about 35,000 individuals. P2P fans shouldn’t pop the champagne bottles yet, though. The WSJ wrote: “Instead, the Recording Industry Association of America said it plans to try an approach that relies on the cooperation of Internet-service providers. The trade group said it has hashed out preliminary agreements with major ISPs under which it will send an email to the provider when it finds a provider’s customers making music available online for others to take. Depending on the agreement, the ISP will either forward the note to customers, or alert customers that they appear to be uploading music illegally, and ask them to stop. If the customers continue the file-sharing, they will get one or two more emails, perhaps accompanied by slower service from the provider. Finally, the ISP may cut off their access altogether. The RIAA said it has agreements in principle with some ISPs, but declined to say which ones.” Good luck with that. 
• Just when you think reason is taking over, something stupid happens. Like Warner Music pulling their content from YouTube. It’s about the money, what else.
• Meanwhile, Universal Music says online video streaming is making a significant contribution to the company’s bottom line. eLabs EVP Rio Caraeff told CNet that the category was up 80% last year in U.S. revenues. Company insiders estimate Universal’s video streaming business at around $100 million. 
• No surprise then that the majors are rumored to plan their own video streaming service, perhaps in collaboration with Hulu or YouTube – think “YouTube Music” like MySpace Music. 
• Wholesale distributor EUK was killed after administrators failed to find a buyer for the company. 700 people were laid off. 
• As a result of the EUK drama British retail chain Zavvi (formerly known as Virgin Megastores) went into administration on December 24. Some 2,300 permanent staff and around 1,000 part-time workers are in danger of losing their jobs. Zavvi operates 125 stores, HMV is said to be interested in buying some of the locations. 
• Stateside, retail chain Trans World Entertainment (f.y.e.) also experienced a dissappointing holiday sales season. Comparable store sales in the nine weeks to January 3 decreased 14%. Total sales for the period were $287 million (down 24%). TWE closed 18% of its locations during the quarter. 
• What to do when your CD sales are tanking? If you ask Mike McGuire at research group Gartner, all you need to do is let go of the physical format alltogether. Rather than focusing on the the retail CD as a primary revenue generator, McGuire says, labels should move to a “digital first” strategy before Christmas 2009. Well, I don’t know …
• Universal Music Germany bought out joint venture partner X-Cell Records. 
• The highest German Court (BGH) ruled on the licensing of music as ringtones in a case that had been ongoing for years. In short, music publishers cannot ask for a two-tier licensing system that compensates both, the actual recording and the sound editing. Expert comments can be found here and here.
• Prince wants to release three albums this year. All without the help of traditional label means. Physical formats will be carried by one undisclosed major retailer, digital will be handled by one as-of-yet unnamed download store. 
• Removing DRM for download sales at Amazon MP3 so far has failed to put a dent into Apple’s lead with iTunes. But at least they can claim to be #2 now without being heckled. 
• 2009 will be a year of jam band glory: The Dead will go on their first tour since 2004, Phish will reunite and probably play Bonnaroo, and the Allman Brothers Band will celebrate their 40th anniversary with some live shows.
• Last.fm had to lay off 20% of its staff. 
• Anatomy of a flop. GNR’s “Chinese Democracy” at Best Buy? Nobody seems to care. Not even Axl. 
• The Long Tail? Not so long, after all. 
• Michael Robertson (MP3tunes) writes an open letter to Douglas Merrill (EMI). Good read. 
• Sales of Nokia’s “ComesWith Music” cell phones in the UK have been “OK, but not earth shattering”. 

Terra Firma: Don’t worry, EMI will meet covenants

All this talk about the prospect of defaulting on Citigroup loans and another possible cash injection for EMI is overblown, the people at Terra Firma think. And they are putting their own spin on the story for an article in The Independent. Strangely, though, nobody is being quoted with a name to deny the recent rumors. 

The usual sources within the company talked to the paper, “angrily” denying suggestions that it needed more cash to avoid breaching covenants in March. So, they’re angry and want to set the record straight, but they don’t want to go on record with a face? Smells funny to me. 

The sources from Terra Firma and EMI told the Independent that they have a covenant check scheduled for March and that they are confident EMI will not default on the loans made by Citigroup. 

“EMI had a solid first half, and if performance continues in the same way then there is no reason why it should run into problems. The covenant light facility has seven years to go, and March is nothing more than a covenant test,” the sources say. 

The paper goes on to report on the most recent cash injection Terra Firma had to put into EMI and puts the amount in the area of £65-£75 million. This is exactly what had been reported in early December and seven times as much as the £10 million the Wall Street Journal had in yesterday’s story. 

Just goes to show that they are all out there fishing. Nobody really seems to know how big of a liability EMI is to Terra Firma. We will have to take the private equity’s angry word for it: EMI doesn’t need more cash. Now, wouldn’t that be good news …