Tuesday, 1 February 2011

EMI - a long, slow painful death

This afternoon, it was announced that the US bank CitiGroup had finally taken control of the British music company EMI, after a protracted legal battle with the venture capitalist Guy Hands. CitiGroup had financed Hand's Terra Firma private equity firm to acquire EMI for £4.2bn; however as much as £2.6bn of this came from CitiGroup. When EMI, a company already struggling to generate cash flow due to the movement of the music industry online, was unable to service this debt, Terra Firma were eventually left with no alternative but to hand over control of EMI to CitiGroup. EMI now seems likely to be sold onto another record major, probably Warner, reducing the number of record majors to three, Universal and Sony Music being the other two remaining players.

EMI's long-term decline was typical of the protracted death of many British companies, and came about as a consequence of mismanagement. EMI, which stands for Electric and Musical Industries, was founded in 1931 as the result of a merger between the Columbia and Gramophone companies, following a collapse in the gramophone market during the great depression. The company started to move into growth industries in this period, such as radio and TV manufacture as well as transmission equipment, indeed effectively inventing the 425 line television system originally adopted by the BBC. EMI also diversified into radar and defence electronics during the WW2. In the post war period EMI continued to dominate the UK's recording industry, also purchasing the US company Capitol in 1954, and the company profited massively from the expanding popularity of pop music in the 1960s; indeed exploiting the teenage market to the extent that EMI's own Morphy Richards hair-dryers were advertised on the sleeves of pop singles. Although the music market became more competitive, EMI dominated it in the UK and were a crucial player in world markets. Among many others, artists signed by EMI in this period included Cliff Richard, Helen Shapiro, The Beatles, The Beach Boys (via Capitol), and The Animals. Residual income from these artists remains important to EMI today, although the potential returns diminish with each re-release.

However, the company continued to diversify away from music, despite the rise of far eastern competition in the electronics market. EMI abandoned consumer electronics by 1970 for this reason, but continued to diversify into other 'related areas', following the logic of the period. There is not space here to detail everything EMI did, but considerable space has been devoted by business school casebook's to the company's failed medical scanner project in the 1970s, while other diversifications saw the company get involved with entertainment more - hotels, restaurants, even producing shows in London's West End and buying the Blackpool Tower. Less attention was given to the music business and EMI was sold to the UK electronics firm Thorn in 1979.

EMI was subsequently demerged by Thorn in 1996, as a music publishing and recording company only. Some new impetus had been given by the purchase of Richard Branson's Virgin Records in 1992, but synergies emerging from the merger were not pursued, and Virgin remained a separate structure within the merged company. EMI remained an important player in the industry, but was ultimately late to respond to the rise of internet music distribution, and struggled to come to sustainable agreements with content distributors such as Apple's iTunes. Citigroup could choose to float EMI as an independent company, but this seems unlikely; probably will continue as an independently managed label within one of the other three majors. With a more proactive approach, and by sticking more closely to the knitting over the last 80 years, its (likely) demise as an independent might have been avoided.


About Me

London, United Kingdom
I'm Lecturer in Management at The York Management School, at The University of York, UK. I teach strategic management to undergraduate and masters students, as well as running the masters dissertation module. My research focuses on business and management history.