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).
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:
Yesterday I allowed myself to look at recent events in the industry with a worried attitude. Wrong, say people who know better. Pierre Perrone at the UK’s The Independent walked the grounds of Midem and talked to some industry figures who all seem to be rather upbeat about the times ahead. Here are some examples of their quotes. Quite infectious.
“The doom and gloom people, it’s time they left and retired” – Harvey Goldsmith
”It’s tough out there, nobody’s denying it, but what do we do to get out of it? (…) How can new bands utilise the internet to help them break through? How does it all work for the fans? How do the fans hear about new artists and start to get involved with them? The new braves, Reverb Nation and Hot Spin, and all these new technology opportunities, basically help acts break through and help fans get to the acts. MidemNet showed the solutions are coming through. There are ways of connecting fans with new acts so everyone’s gung-ho. The doom and gloom people, it’s time they left and retired. Every day you wake up, somebody sends you a track to listen to or you hear about a band you go and see them live, you just get really invigorated and turned on by it. (…) We’ve got ourselves in a mess, now let’s dig ourselves out of it and just get on with it. I feel we’re going to have a great year.”
“I’m very optimistic about the future of live music” - Michael Eavis
“This is my first Midem and I got this green award. I’m very optimistic about the future of live music. People respond to an artist, they buy the records, or now the downloads and they come to the concerts. Live music, especially in Britain, is a very vibrant force. It’s very attractive and it’s good fun.”
“This industry has always lived with piracy” – Alison Wenham
“The British are good at internationalising their business – we only have 8 per cent of our sales in the UK. This industry has always lived with piracy. The supply chain has been disrupted by the demise of Pinnacle but the independent industry is mercurial. We don’t like the duopoly, Sony and Universal, routinely controlling 80 per cent of the charts and the visibility, but I’m always hopeful. You’ve got to remember this industry has been going through an agonising decline for eight years. We haven’t suddenly hit the buffers like the finance industry. So we are rather war-torn but we’re also hardened and resourceful.”
“Are music fans going to stop enjoying music? It’s not going to happen” – Feargal Sharkey
“All of us have to grapple with a little thing called evolution which has a nasty habit of sweeping you aside as irrelevant should you decide not to cooperate. But the most important thing is the music. We know 63 per cent of 14- to 24-year-olds in Britain are downloading music and not paying for it but, on the upside, we also know they are passionate about music. It registers above mobile phones, game consoles, DVDs. Are young people going to suddenly stop wanting to be creative and make music? Are music fans going to stop enjoying music, wanting it as part of their lives? It’s not going to happen. All the music industry ever did was provide a bridge between creators and fans. That bridge is always going to be there.”
“We have to accept that there’s going to be a new way of doing things” – Brian Message
“I’m really optimistic about the future of the music industry. It doesn’t mean it’s going to be easy. The gravy train of the past is gone. It was a great production line, great returns, being able to buy copyrights and own them forever. Managers used to make 20 per cent commission for no investment. We have to accept that there’s going to be a new way of doing things. Flexibility is the key. There are no rules anymore. The key word is value. Free music is a valuable part of the artist proposition. If we need to get into a market where we don’t have a base, we can do something with free music to stimulate interest. Let’s focus on that artist-fan relationship. But there’s a myriad of choices out there. There’s no one model any more. It’s not easy. Everybody needs to be creative and come up with what they think is the best plan for their artist. “
The new year in the business of music is already off to a lousy start. And it’s not even February yet. Lay-offs, bankruptcies, paltry sales, etc.
Here are some of the worst news from the last couple of days:
Are these signs of an accelerated downward trend? Or just singular results that examplify the recurring weakness of the slack season?
What do you think? Drop me a line.
Filing for Chapter 11 just was not enough to help Circuit City out of the slump. The nation’s second-biggest electronics retailer will be liquidated after it failed to attract a bidder for the chain that currently still employs some 30,000 people in 567 U.S. stores.
“We are extremely disappointed by this outcome,” said James Marcum, who until today is acting as CEO for the retailer. “We were unable to reach an agreement with our creditors and lenders to structure a going-concern transaction in the limited timeframe available, and so this is the only possible path for our company.”
The liquidation sale will start tomorrow (Jan 17) and will run until March 31. Circuit City has appointed Great American Group , Hudson Capital Partners, SB Capital Group and Tiger Capital Group as liquidators. The company says as of August 31 it had $3.4 billion in assets and $2.32 billion in liabilities.
Up until yesterday (Jan 15) it had appeared as if there might be some kind of rescue scenario for Circuit City. The Wall Street Journal had reported that there were at least to active bidders, San Francisco-based private equity firm Golden Gate Capital and Mexican billionaire Ricardo Salinas Pliego. Golden Gate had asked for a 30-day auction delay to analyze the business. Salinas had bought 28.5% of CC stock in recent weeks. No details have emerged, why these bidders didn’t prevail in the process.
International music trade body IFPI on January 16 released their Digital Music Report 2009 – right in time for the industry gatherings MidemNet and Midem in Cannes. According to these latest figures, the digital music business grew for the sixth consecutive year. In 2008, the increase in global sales was approximately 25% to a trade value of $3.7 billion.
This is of course against the backdrop of an overall global decline in recorded music sales of around 7% last year. The Digital Music Report ‘09 goes on to specify that by now digital platforms account for 20% of all recorded music revenues – up from 15% last year. Sales of single track downloads, which still are the key driver in the digital business, grew 24% to 1.4 billion units with Lil Wayne’s “Lollipop” ending up being the international topseller of the year at 9.1 million units. Digital albums experienced a growth of 36% in copies sold.
The most important global territories for digital sales are basically the same as in the physical world with the United States leading the way ahead of Japan, UK, Germany and France.
In these markets digital growth happened at very different speeds. During the first half of 2008, digital accounted for 39% of recorded music sales in the U.S. That percentage was more than four times that of Germany (9%) in the same period. This corresponds with the differences in consumer spending for digital music. While American broadband users on average spent $12.50 on digital music last year, music consumers in the UK only spent $7.80 for downloads in 2008. It’s even less in other European territories.
Even though IFPI sees great improvements in the market, the digital business is still hampered by piracy. Chairman & CEO John Kennedy explained that record companies are transforming their business models “in an environment where 95% of music downloads are illegal and unpaid for”. According to IFPI estimates, more than 40 billion tracks were fileshared in 2008.
Kennedy still plans to battle this issue by trying to come to agreements with ISPs on models of graduated response. Last year had seen a “tipping point” in that quest, he said. Meanwhile France, UK, Germany and the U.S. appear to be on the same track for this approach.
British retail chain HMV Group had a busy day today. After announcing that it will enter the live business via a joint venture with Mama Group, the retailer reported that sales during the all-important Christmas shopping period had been satisfactory, despite the overall economic slump in the UK that left two retailers – Woolworths and Zavvi – bankrupt over the holidays.
CEO Simon Fox told Billboard that the company over Christmas sold “7% more albums than we did last year. So the music market is not dead.” Fox said the increase resulted in total sales of 9 million CDs for that period. In the five weeks that ended on January 3 HMV increased total revenues by 4.2% while same-store sales grew 1.4% during that period. In the ten weeks until January 3 total sales increased 2.5% while like-for-like revenues were down 0.3%.
Looking only at HMV’s UK & Ireland business, revenues in the five week period grew 5.8% and 3% like-for-like, respectively. The ten-week window saw total UK & Ireland sales increase 3.4% and 0.6% on a like-for-like basis.
In addition to these rather encouraging numbers, HMV announced that it will buy 14 stores of the Zavvi chain from its administrator. The sticker price for these stores and their stock – 9 in the UK, 5 in Ireland – is £700,000 ($1m). Factor in rebranding and remodeling and the acquisition will cost HMV approximately £2 million ($2.9m).
In the year to November 30, these 14 outlets garnered combined sales of £55 million ($80m) while producing an EBITDA of £2.7 million ($3.9m). The takeover will preserve some 270 jobs.
In a surprise move that has no precedence in the industry, British media retailer HMV is taking a page from the 360 degree playbook and is entering the live entertainment business. HMV will form a joint venture together with venue owner/operator Mama Group that will include 11 venues in the UK. The two companies will share in the profits generated from these mid- to large-sized venues.
HMV plans to fund the joint venture by a share placement worth up to 5% of the chain that is expected to raise around £20 million ($29m). HMV will initially invest £18.25 million ($26.6m) in the new company. Some of the 11 jointly operated sites will have to be renamed. For instance, the Hammersmith Apollo in London will be called HMV Apollo soon. The retailer has secured several 10-year naming rights, but not for all the venues that are part of the JV.
“The live music market is booming, despite these though times”, HMV CEO Simon Fox said about the deal. “The physical music market is changing structurally, and we need to diversify. Live music is an important and growing part of the UK music market and … it also delivers a younger demographic to our brand.” Fox estimates the UK live market to be worth £1 billion ($1.46 b) per year. Per BBC News, the 11 venues had combined revenues of £20.25 million ($29.5m) in the 12 months to July 31,2008, with operating profits of £2.24 million (3.27m).
Concerts and other events at the JV-owned venues will be promoted in HMV outlets. UK ticket agency Seatem will provide ticketing for 250 HMV outlets and hmv.com. Not only will the retailer be selling ticket, but also merchandise. ”We will also be using the best seats as rewards for our loyalty card members”, Fox said.
