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Major setback: Is time up for EMI?

Simon Warner

. . . but since the de-merger from Thorn in 1996, it has looked a rather lonely whale in a sea of increasingly hungry sharks.

It has been an extraordinary couple of years for the one British operator that can claim to be one of the world's great music companies � the so called majors. The ongoing trauma for London-based EMI added another chapter to its volume of calamity when the business announced in late March that a series of redundancies � some 1,800 worldwide � and a profound cull of artist rosters would be needed to keep the show on the road.

EMI is special to British music fans because it is the one global player that resides on these shores, but it is special for more reasons than that. For half of the 20th century, the company was the greatest record firm of them all: already powerful before the Beatles came on board in 1962, and virtually unassailable once the Fab Four had worked their Mersey magic. It would be the early 1980s before EMI would be seriously challenged again, but the last two decades have seen the company inexorably lose ground in the toughest of marketplaces.

While there have been successes at home in recent times � Robbie Williams, Atomic Kitten, and Blue, for example, have had a string of Top 40 entries � it has been more difficult to replicate those hits on the other side of the Atlantic, and specifically in the album listings. While Blur and Radiohead, part of the wider EMI group, have been critically acclaimed in the States, sales have not moved towards multi-platinum levels. While Britain, on the Beatles wave, retains a pop cultural cachet out of all proportion to its size, the fact remains � the US has a third of the total annual sales in the sector, around $40b, and it is there that companies must do their best business in order to thrive.

Problems beset EMI in a way they don't strike the other four majors. Warner, Sony, BMG and Universal all have interests that lie well beyond the rock stage � mobile phones and movies, television shows and magazines, electrical equipment and the internet � and their strategy rests on the principle that a downturn in pop music trading will be compensated by rising sales in the communications or book publishing world.

EMI does have interests outside music production. Its music publishing arm is a massive earner and its high street interests are represented by the HMV music shop chain and Waterstone's, the UK's highest profile specialist bookseller. But they do not have the weight or punching power of an AOL, the most important Internet service provider of all (and in bed with Time Warner), or Universal's movie arm, for example.

This position has left EMI exposed to takeover. In 2000, the organization came within a hair's breadth of joining up with Time Warner, just as the US monolith was becoming engaged to AOL. The monopolies commissions in Europe and the US eventually put paid for this arrangement. Within a year, the other remaining European major, BMG of Germany, was planning a merger with the UK business. Again, the scheme foundered as the EC, again in a monopolies guise, blocked the marriage. Such wedding bell blues have left EMI scrambling to hold its grip on the international slopes, and wondering just how to stabilise this once unsinkable liner.

Electrical and Musical Industries was created in 1931 when Columbia and the Gramophone Company joined forces. The company archive dates its actual founding to 1897, when the US Gramophone Company opened a European operation. The name "Columbia" has an interesting tale attached to it. The American version of the company went bust in 1923, but UK Columbia survived. Thus, while EMI has owned the right to the Columbia name around the world, when the name was revived in the US, it was CBS that held the American rights to use it.

The 1931 merger was, in part, a consequence of fallout from the Wall Street Crash. Dozens and dozens of phonograph and gramophone businesses collapsed and the 1930s saw EMI, Decca in the UK and RCA in the US, as the principal survivors. Hence the "majors" tag, first used around this time.

After that, EMI proved highly durable, a genuine world player, and the signing of an unknown Liverpool act at the start of the Sixties only served to underpin that domination. As the 1980s began, the company linked with Thorn, a significant British power in the electronics industry, a typical consolidation at a time when Sony was swallowing CBS, and BMG emerging from the splicing of RCA, Ariola and Arista.

By 1992, EMI's acquisition of the last of the great independent labels, Virgin, hinted that the company had the vision to remain at the top table, but since the de-merger from Thorn in 1996, it has looked a rather lonely whale in a sea of increasingly hungry sharks. After profit warnings last autumn, in the slipstream of September 11th, there was humiliation at the start of 2002, as a gargantuan deal with fading songbird Mariah Carey, some £70m, was nixed after just one failed album and film. Carey received a pay-off, around a third of the contract's worth, as the company was left to lick its wounds.

A new chief executive in Alain Levy has prompted a radical re-think. In February, it was announced that EMI would be dropped as a trading name for its recorded music output. Instead Capitol and Virgin would become the headline trademarks for EMI's music around the globe. And the aftershock of that announcement was the revelation that employees and artists would be released in the coming months in a bid to balance the books.

Can EMI come back from the brink? Can this symbol of the classic age of recording re-establish itself as a respected player? In short, unless the new Beatles are about to audition for the firm's A&R department, the signs are far from promising. The world business has changed so significantly in the 1990s that unless your organisation is geared to the multimedia epoch, pop 45s and rock LPs (to apply an anachronism) are not going to be sufficient to swell the coffers.

As the music industry reels from the potential effects of internet piracy, maybe having great acts alone is not quite enough. Merger for EMI seems, on the face of it, the most likely outcome, yet the international regulatory authorities seem determined to stop that kind of escape route. For Levy and his fellow managers, the dilemma is huge. In their hands lay the future of an important business that seems out of sync with the times.

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