The future of EMI, the British record label behind Coldplay, Robbie Williams, Madonna and Lily Allen, was plunged into doubt today when it admitted to making massive losses.
The 113-year-old company slumped to a pre-tax loss of £1.75 billion in the last financial year and is struggling to repay bank loans. Its private equity owner, Terra Firma, has been forced to demand extra money, at least £105 million, from its investors to meet terms of the deal set by lender Citicorp. If it fails to, the US bank could seize control of EMI.
EMI, also home to Kylie Minogue, David Bowie and Katy Perry, has disclosed pre-tax losses of £1.75 billion in annual accounts for the year to 31 March 2009. They were filed by its parent company Maltby Capital today.
Terra Firma, headed by financier Guy Hands, bought EMI for £4.2 billion in 2007. It has been forced to disclose the losses as it prepares to sue Citigroup in a dispute about how much the US bank knew about the state of the record label's finances before the deal. Terra Firma has already had to inject more than £100 million over the past two-and-a-half years as it struggled to meet the bankers' terms. EMI's chief executive Elio Leoni-Sceti is working on a new business plan that will be submitted to Terra Firma investors within weeks.
The losses have been caused mainly by financial write-offs, and the underlying day-to-day performance of EMI has been relatively successful. The accounts showed the group made an operating profit of £293 million. This week EMI has four albums in the US top 10, and an 18 per cent share of the market. Like other record labels it has been fighting a battle against illegal downloading.
Over the past five years the recorded music industry's global revenues have fallen 30 per cent, and in 2009 they dropped by 10 per cent to $15.8 billion. It is estimated that 95 per cent of music downloads worldwide are illegal, according to trade body the IFPI.
EMI has also been weakened by its heavy debt burden following the takeover by Terra Firma. Since the deal it has undergone a dramatic change, with the “rock n roll” culture clashing unhappily with the “suits” from private equity. Insiders and some artists complain Terra Firma has no feel for the “music biz”.
In December 2007 Radiohead quit the label, guitarist Ed O'Brien complaining: “It's been taken over by somebody who's never owned a record company before, and they don't realise what they're dealing with.”