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Ignore the chatter, EMI is doing just fine, says EMI

By | Published on Friday 12 November 2010

Now look here, journalists of the world, stop saying EMI is on its last legs will you? Clearly the London-based major has a long rosy future ahead of it, were talking at least eight, nine, maybe ten more, erm, months? EMI big chief Roger Faxon yesterday sent a memo to his staff dealing with all the rumour and speculation that has been circulating since the music firm’s owner, Terra Firma, lost its lawsuit against Citigroup.

While others, even crazier dudes, have suggested that if and probably when Terra Firma has to pump another 100 million into EMI next summer so it can meet its loan covenants, the equity group might have a real problem persuading its investors to support such a cash injection. That too, these crazy dudes reckon, makes EMI’s long term future insecure.

But, the Fax man says, no no no, EMI is doing super duper fine, have a cupcake on me. Or words to that effect.

Faxon’s memo dealt with four specific rumours that have been circulating in particular, after observing that “the tales of doom and destruction for EMI that followed [last week’s court ruling] have as much credibility as the idea that I might be the answer to the Yankees’ pitching problems or Manchester United’s defensive woes”. Tough talking, though I’ve no knowledge of Faxon’s baseballing or footballing skills, so maybe a mixed message there.

The specific rumours he dubbed as “more fairy tale than actual journalism” were that EMI would have to file for Chapter 11 bankruptcy protection if it failed to meet any of its loan covenants with Citigroup, that the major might sell out to one of its music industry rivals, that EMI would be selling off chunks of its catalogues to survive, and that EMI is likely to be broken into two and sold off.

It’s with great disappointment and a little bit of embarrassment that we have to admit to spreading, erm, none of those rumours here in CMU, except perhaps the last one, in that it does seem likely that if EMI was to collapse – either because Terra Firma bails or Citigroup has grounds for and an inclination to repossess – then the recordings and publishing divisions of the London major would most likely be split up for sale, not out of choice but necessity.

Potential buyers from outside the music industry would only really be interested in publishing and, as Faxon himself admits, it seems unlikely Sony, Universal or Warner could afford to bid for the whole of EMI, and even if they could, neither Sony nor Universal would probably get competition regulator approval for such a deal.

Faxon argues that such a split would be impossible because of his strategy of transforming EMI into a global rights management business whereby the exploitation of recording and publishing rights would be unified into one. It’s actually a rather good strategy that, if fully implemented, would indeed make splitting EMI Publishing and EMI Music for sale rather tricky. Though, from the outside looking in, it’s hard to see much actual tangible implementation of that strategy as of yet.

Rodge is also right to point out EMI is actually doing quite well at the moment, especially when compared to the rest of the music industry, and I’m pretty sure I saw a very intelligent chap saying so on BBC World and BBC News last Thursday night – imagine that, a journalist on the telly not spreading malicious rumours.

But even Faxon would surely have to admit that EMI’s immediate future does intend on Terra Firma’s commitment to his company. Of course, Terra Firma top man Guy Hands has shown a lot of personal commitment to his music asset this year, despite at least some of his financial backers losing patience with the EMI project, and even last weekend, after Citigroup’s victory in court, sources were telling City AM that Hands was still in no mood to bail on the music major, arguing doing so made “no economic sense”.

Faxon has presumably been told all this first hand, which might have motivated the bullish tone of his memo yesterday. EMI clearly isn’t going to go disappear tomorrow, and perhaps, as the general economic climate improves, Terra Firma can see it through until the time at which it could recoup its losses to date with an EMI sale, which would mean keeping hold of it for at least two or three more years, probably more. But still, while a three billion debt with an unfriendly bank remains, there’ll always be some uncertainty and, therefore, plenty of speculation about the future of the UK’s last big record company.