Hey, this is quite a big story. Following reports in the US press yesterday that major changes at the top of EMI were upcoming, the London based major announced this morning a number of board level and senior management changes in its recorded music division, as well as promising a "restructuring programme" which the company says will generate £110 million in incremental annual cost savings. All of which comes as EMI admits its recordings business has not performed as well as expected in the second half of the current financial year, forcing the company to cut its profit predictions.
The biggest news is that the two men in charge of EMI Music, the Group's recorded music division, are out with immediate effect. The official announcement says that chairman Alain Levy and Vice-Chairman David Munns are "stepping down" while thanking them for their "contribution to the business over the past five years". But reports in the US press said Levy and Munns were all but being sacked such are the concerns in the investment community of EMI Music's recent performance.
EMI Group top man, Executive Chairman Eric Nicoli, will take personal control of the recorded music bit of the company. He will become CEO of the Group with direct responsibility for EMI Music. His current deputy, John Gildersleeve, will take over as the Group's Executive Chairman, while current Group Chief Financial Office will also take on a more proactive role with regards EMI Music. Whether Nicoli plans to oversee EMI Music in the long term is not clear - there was much speculation in the US press that former Warner chief Roger Ames, currently a senior level consultant to EMI, might be recruited to run the major's recorded music division on a day to day basis.
The changes at the top are part of a wider restructure due to take place across the Group which are sure to affect all EMI Music divisions across the globe, and might also have some impact on the major's other main division, EMI Music Publishing, even though there are no major changes at the top there. To achieve £110 million cost savings a year the restructure will have to include job cuts, which will most likely be achieved by merging the operations of different divisions within EMI Music that currently run autonomously (within the UK that would mean more collaboration between the major's EMI, Parlophone and Virgin Music divisions). The major may also look to reduce the number of buildings it operates out of - maybe merging Group level offices in with those that house its recorded music divisions. What impact it will all have on the major's artist rosters remains to be seen, though some cuts of underperforming acts wouldn't be surprising.
Commenting on the financial situation that has initiated the restructure, the Group said this morning: "Second half performance to date, in terms of revenues and profits, has been below prior expectations. This has resulted from weak market conditions, particularly over the Christmas period, and lower than expected sales from EMI Music's portfolio of second half releases to date. EMI Music Publishing continues to perform in line with expectations". Given the lower than expected financial performance, coupled with new added costs likely to be incurred by the restructure, the Group confirmed it was changing its profit predictions for the current financial year, now predicting profits will be down 6 - 10% year on year. Restructure costs will probably impact the early part of the next financial year too, though the Group says that is expects the resulting savings to have a considerable impact in term of profit margins before that year is out.
What any of this means regarding the chances of EMI being bought out by one private investment group or another (as was being discussed in late 2006), or the chances of EMI buying or being bought by Warner Music, should the EU regulatory community seem willing to allow such a purchase, is anyone's guess. What does seem certain is that there'll be quite a bit of insecurity within EMI towers for the next few weeks at least.