February 17, 2007

Lex Column on EMI futures

Follow-up to Steve Jobs and Digital Rights Management Systems from Kinoeye

Lex on EMI 17/02/07: Is there value in a busted flush?

Well its good to be marginally ahead of Lex the 'agenda setting' FT column. Today's was talking about EMI amongst other things.  You'll need a free trial to read the full account which starts off nicely with the comment:

EMI and Warner Music appear locked in a race to the bottom. This year, both listed music groups have seen their shares plunge by about 20 per cent. Since July last year, when merger talks broke down, they have tumbled 30 per cent and 40 per cent, respectively.

The column later notes that having entered into merger talks three times perviously this would be an especially propitious time to merge. However Lex notes that the EU is considering the BMG / Sony musci link up and would probably look unfavourably upon another merger on competition grounds. For Lex the value of EMI is in its publishing activities "relatively sheltered from the violent swings in recorded music." This provides an opportunity for a private equity company to move in and say that EMI is oversold. 

Whislt Lex is clearly putting out tempters it would indeed be a brave organisation who thinks that EMI is oversold at current share levels. What it does raise is the possibility of online music publishing as another add on activity for the new social networking generation. New bands are perfectly capable of publishing this material for themselves via the net although why the Arctic Monkeys didn't do this is a mystery.  Perhaps some straight cash did the trick?

Gene Kelly Singing in the Rain

Singing in The Rain : Part of EMI's Long Tail

Whilst the long-tail may tempt in private equity firms how they would release extra value from this is unclear. Would they also be open to needing to end contracts with leading celebrities from a now vanishing era, because a private equity company would hardly want to be running a business of this nature by themselves. The nature of private equity is to asset strip and or release value which doesn't appear in the sum of the parts. Whilst there is little room for error in terms of supermarket property valuations publishing rights to old pop culture songs is a rather more challenging thing to estimate. EMI is certainly upbeat as the statement from their website repeated below suggests:

EMI Music Publishing is the world's most creative music publisher with more than one million copyrights including some of the best known songs ever written: New York, New York, Over The Rainbow and Singin' In The Rain. Its current hit-making writers and producers include: Arctic Monkeys, Beyoncé Knowles, Natasha Bedingfield, James Blunt, Kelly Clarkson, Daddy Yankee, Jermaine Dupri, Eminem, Enya, Gorillaz, Jay-Z, Alicia Keys, Daniel Powter, Eros Ramazzotti, Scissor Sisters, Kanye West and Pharrell Williams.

Lex obviously picked up on the Brit Awards announcement which was more or less simultaneous with the dire profits warning:

London, February 14, 2007: EMI Music Publishing was celebrating tonight, as the publisher's bands and solo songwriters were victorious in a record six out of twelve categories at the Brit awards show in London. This is an unprecedented number of wins for the music publisher.

The Arctic Monkeys, Amy Winehouse, Take That members Jason Orange and Howard Donald and the Fratellis were all signed out of the publisher's London office, with International artist Nelly Furtado signed from New York.

Brit Awards and EMI Cartoon

For the immediate future 

Anyway what is going down seems likely to be going down for a while yet. EMI shares have a way to drop to ensure good value to a private equity company. Glum whistles will be heard in the comapnie's corridors for a while as they try and figure out a viable strategy and the vultures of private equity houses circle with their calculators as the once giant of music continues to stumble forwards rather aimlessly.  


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