Emi Group Plc Business Information, Profile, and History

Company Perspectives

EMI Group's strategy is to create shareholder value by developing the best musical content at both our recorded music business, EMI Music, and our music publishing business, EMI Music Publishing, and to exploit fully this valuable content on a global basis through all economically attractive channels.

Our investment in artists and repertoire (A&R) is fundamental to our ability to create new, exciting music. At the core of our A&R strategy is the identification and development of artists and songwriters with the potential to enjoy long-term commercial success across multiple releases and revenue streams. Focusing on long-term career artists has favourable economics, driving increased sales and profitability. By replicating this process across geographies and musical genres, we have assembled in EMI Music and EMI Music Publishing exceptional portfolios of music content which exhibit strength, breadth and depth.

History of Emi Group Plc

EMI Group plc is the third largest of the world's "big four" music giants, holding a global market share of approximately 13 percent. Demerged from Thorn EMI plc in 1996, after nearly 17 years of the EMI and Thorn "duet," EMI Group now focuses exclusively on music--music recording through its EMI Music division, which generates about 80 percent of total revenues, and music publishing through EMI Music Publishing, which is responsible for the remaining 20 percent. In the recording arena, EMI Music maintains operations in nearly 50 countries worldwide and has licensees in an additional 20. Its record labels include Angel, Astralwerks, Blue Note, Capitol, Capitol Nashville, EMI, EMI Classics, EMI CMG, EMI Televisa Music, Mute, Narada, Parlophone, and Virgin. Its 1,300-strong roster of artists includes the Beastie Boys, Coldplay, Gorillaz, Janet Jackson, Norah Jones, Lenny Kravitz, Wynton Marsalis, Moby, Radiohead, the Rolling Stones, KT Tunstall, Keith Urban, Robbie Williams, and Cassandra Wilson. Its recording facilities include two of the most famous in the world: Abbey Road Studios in London and Capitol Studios in Los Angeles.

EMI Music Publishing is the world's largest music publisher, owning the rights to more than one million songs. It derives its revenues from licensing the right to use these songs on CDs; on the radio and in performances; on television programs, and in films, advertisements, and computer games; and in numerous other ways, including cell phone ring tones. Of EMI Group's total revenues, the United Kingdom is responsible for about 17 percent; the rest of Europe, 30 percent; North America, 31 percent; Latin America, 4 percent; and the Asia-Pacific region, 16 percent. Rocked by the digital revolution, as all the music giants have been, EMI Group derives approximately 5 percent of its revenues from digital music.

Earliest Roots in the Gramophone

Electric and Musical Industries Ltd. (EMI) was formed in 1931 from the merger of The Gramophone Company and Columbia Graphophone Company. The gramophone was invented in 1887 by Emile Berliner. Ten years later, The Gramophone Company was founded in London as both a manufacturer of gramophones and as a recorder of records to play on the gramophone. In 1898 the company made its first recordings and opened branches in Germany, France, Italy, and central Europe. Additional offices were established in Russia in 1900, in India in 1901, in Japan in 1902, and in China in 1903. The Gramophone Company had its first major artist when opera singer Enrico Caruso recorded ten songs for the company in 1902.

The increasing popularity of recorded music was evidenced by the ownership of a gramophone by one-third of British households by 1913. As a result of World War I, The Gramophone Company lost its Russian and German operations (the latter continues to exist in the late 2000s in the form of the classical music label Deutsche Grammophon, now owned by Universal Music Group). By 1930 the company's roster of artists included Italian conductor Arturo Toscanini, German opera conductor Wilhelm Furtwängler, English composer Sir Edward Elgar, and English conductor Sir Thomas Beecham. In 1931, the year EMI was formed, the recording studios at Abbey Road were opened and EMI demonstrated stereophonic recordings for the first time.

During the 1940s the company's artist lineup expanded to include Austrian conductor Herbert von Karajan and German conductor Otto Klemperer. The company in this decade also appointed its first A&R (artists and repertoire) managers to develop popular music talent in the United Kingdom; George Martin, who later signed the Beatles, was among these appointees. In 1952 EMI added Maria Callas to its artistic roster.

Over the years EMI organized a line of sophisticated electronic systems, an outgrowth of its gramophone manufacturing origins, which included early British radar equipment and the BBC's first television system. Meanwhile, the company enlarged its position in the music recording and publishing industries through the 1955 acquisition of Los Angeles-based Capitol Records, one of the leading record companies in the United States, with a roster that included Nat "King" Cole, Frank Sinatra, Peggy Lee, and Gene Vincent. Additional global moves were made when EMI entered the Mexican market in 1957 and with the establishment of joint venture Toshiba-EMI Ltd., a Japanese record company formed in partnership with Toshiba.

Bringing Beatles on Board

During the 1960s EMI's recording division experienced tremendous growth, largely on the strength of sales of records by the Beatles, who were signed by Martin in 1962, the same year their first single, "Love Me Do," was released. That same year Capitol Records released the first Beach Boys album, Surfin' Safari. The success of EMI in the 1960s was most evident in the British singles charts for 1964, which had eight different EMI artists hold the number one position for 41 weeks of the year. In 1966 the company released its first prerecorded cassettes. The following year EMI signed Pink Floyd. Queen was added to the roster in 1972.

By the late 1960s profits from the EMI recording division surpassed those of the electronics division and enabled EMI to purchase the entertainment organization of Sir Lew Grade and the cinema business of the Associated British Picture Corporation. As a result, EMI had become one of the largest motion picture entertainment concerns in the world by 1970. Adopting its longtime acronym, the company changed its name to EMI Ltd. in 1971.

The late 1960s and early 1970s saw EMI expand in the areas of music publishing and music retailing. In 1966 the company began to expand its HMV music store operation. The first HMV shop had been opened in 1921 on Oxford Street, London, by composer Sir Edward Elgar. By 1970 there were 15 HMVs; six years later there were 35 and HMV had become one of the leading music retailers in the United Kingdom. The music publishing operation was bolstered through a series of acquisitions. EMI purchased Keith Prowse Music Publishing and Central Songs in 1969, Affiliated Music Publishing in 1973, and the Screen Gems and Colgens music publishing companies in 1976, both of which were bought from Columbia Pictures Industries. In 1973 EMI had organized its music publishing operations within a newly formed EMI Music Publishing Ltd. subsidiary.

In the early 1970s, however, EMI was also burdened by heavy losses from its Capitol Records operation and a poorly planned investment in an Italian television manufacturer called Voxson. The most significant nonmusic development for EMI during this period was the introduction of a revolutionary new computed tomographic X-ray scanning device in 1972. The fact that EMI had developed this scanner, with no previous experience in X-ray equipment, caused many to seriously reconsider the company's prospects.

Profitable sales of the scanner in the United States were drastically reduced after the Carter administration restricted government aid to hospitals. In addition, EMI failed to anticipate a strong reaction from its competitors. General Electric Company subsequently introduced a similar but faster model that effectively removed EMI from the market.

By 1977 serious problems with the medical electronics division caused management to be broken up into three divisions, each responsible for its own profitability. At one point EMI even appeared willing to dispense with its recovering music operations. Instead, EMI's path led to its being taken over in 1979.

Creation of Thorn EMI

The financially ailing EMI became a takeover target for lighting and equipment rental giant Thorn Electrical Industries Ltd. Thorn had been established in 1928 as the Electrical Lamp Service Company by Jules Thorn, who remained at the helm until he retired in 1979, not coincidentally prior to the takeover of EMI (Thorn's domineering personality had squelched a proposed merger between the two firms a few years earlier).

Institutional investors, who held a three quarters voting majority in Thorn, expressed concern that a merger of the two companies would be problematic because Thorn and EMI were very different companies. In the event of a merger, Thorn would have to let EMI management run itself, at least for a few years, because it knew so little about EMI's businesses. Another cause for concern was that EMI's new management team, led by the very capable Lord Delfont, had to prove itself under difficult circumstances.

At the end of October 1979 EMI rejected a £145 million bid by Thorn. The offer was resubmitted the following week for £165 million and accepted. The new company's name was changed to Thorn EMI plc on March 3, 1980.

Restructuring of Thorn EMI

The various divisions within the old Thorn and EMI organizations continued to operate independently of each other and, to some extent, of the central management group. Management reimplemented a planning model developed by the Boston Consulting Group that provided for the development of new enterprises by channeling funds from profitable operations. This had the effect of starving the successful enterprises within the company of funds needed to maintain competitive product lines. Just as the model failed in the early 1970s, it was failing again a decade later. Thorn EMI was less like a successful operating company and more like a weak investment portfolio.

In an attempt to raise money and reduce losses during 1980 and 1981, the company sold its medical electronics business, its hotels and restaurant division, and parts of the leisure and entertainment division. Later in the 1980s, additional Thorn and EMI businesses were sold, including EMI's entertainment operations. By the late 1980s, under the leadership of CEO Colin Southgate, Thorn EMI had returned to the basic industries upon which Thorn and EMI had been separately built: music, lighting, rental and retail, and technology (including computer software and defense electronics). All told, during the 1980s Thorn EMI divested more than 50 noncore operations, bringing in more than $700 million.

Growth in the Final Decades of the 20th Century

Although EMI's music operations had been neglected somewhat during the restructuring of Thorn EMI, they became the beneficiary, as much of the cash generated by the asset sales was poured into acquisitions and expansions. In 1986 HMV became a separate division of Thorn EMI and an international expansion of the chain began. In 1990 alone, HMV outlets appeared for the first time in Australia, Japan, Hong Kong, and the United States. By 1996 there were more than 300 stores worldwide in eight countries, including Canada, Germany, and Ireland. In 1995 a U.K. bookstore chain called Dillons was acquired and added to the HMV division.

EMI Music Publishing was bolstered through the 1989 acquisition of SBK Entertainment World, Inc. for £165 million ($337 million). SBK was the onetime publishing unit of CBS Records, which consisted of a 250,000-song catalog, including "Singing in the Rain" and "You've Lost that Lovin' Feeling." This addition made EMI Music Publishing the top music publishing operation in the world; its catalog included more than 850,000 songs by late 1992. EMI's music recording unit, meanwhile, acquired several prominent labels. In 1990, 50 percent of Chrysalis Records was purchased, with the other half acquired two years later. Chrysalis brought such acts as Huey Lewis & The News, Billy Idol, and Sinead O'Connor to the EMI fold. The blockbuster acquisition, however, was that of Virgin Music Group Ltd., bought for £510 million ($957 million) in 1992, a deal that included both record labels and publishing catalogs. The addition of Virgin, whose artists included the Rolling Stones, Phil Collins, and Janet Jackson, cemented EMI's position as one of the music industry's giants, alongside Time Warner, Sony, PolyGram, MCA (which later became Seagram's Universal Music Group), and Bertelsmann. Also acquired in 1992 was Sparrow Records, the largest Christian music label in the United States, which later became the centerpiece of the EMI Christian Music Group (later renamed EMI CMG). Added in 1994 was Intercord, a leading independent record company in Germany. During the early 1990s EMI garnered blockbuster sales in the United States from the star of its Liberty label, country singer Garth Brooks (who later recorded for EMI's Capitol Nashville label). Virgin signed Janet Jackson to an exclusive, $60 million contract in 1996, the same year that the Beatles' Anthology albums posted large sales.

In 1994 EMI entered into the music television arena through joint ventures in Germany, where the VIVA and later the VIVA2 channels were launched, and in Asia, where Channel V was introduced. All of these stations devoted much of their airtime to domestic artists, whereas MTV, even in Germany, for example, tended to showcase English-language acts. The VIVA stations were co-owned by EMI, Bertelsmann, Time Warner, Philips (owner of PolyGram), and Sony. Channel V was 50 percent owned by News Corporation, with EMI, Time Warner, Sony, and Bertelsmann each holding a 12.5 percent stake.

1996 Demerger of Thorn EMI

Thorn EMI itself, meanwhile, was continuing to be transformed in the 1990s. Thorn's rental operations became the company's most important nonmusic unit and had been beefed up in 1987 through the £371 million acquisition of Rent-A-Center, a rent-to-own outfit based in the United States. In 1993 Thorn EMI sold its lighting division, the business upon which it had been founded. Over the course of several years and several transactions, the company's defense businesses had been divested by 1996. Thus Thorn EMI in mid-1996 had just two divisions, music and rental, both world leaders. They had little in common, however, leading to the long-anticipated August 29, 1996, demerger of Thorn and EMI, out of which emerged EMI Group plc and Thorn plc, both initially headed by Southgate as chairman. EMI Group included all of Thorn EMI's music-related operations: music recording, publishing, and retailing and the investments in the music channels. It also included the Dillons bookstores, which continued as part of the HMV Division. Several noncore businesses--Central Research Laboratories, Thorn Secure Science International, Thorn Transit Systems International, and a holding in Thorn Security--which EMI retained after the demerger, were divested less than a year later.

Rumors that the newly independent EMI would be taken over by one of the industry's other giants persisted for some time following the demerger, but had subsided somewhat by late 1996. In October 1996 the debut album by the prefabricated Spice Girls posted huge sales; more than 17.5 million copies had been sold in the 12 months following its October 1996 release. EMI's immediate concern was the need to turn around its flagging North American music operations, which had managed to capture a mere 8 percent of the $12.5 billion U.S. market in 1996. In May 1997 North American management was shaken up, with Ken Berry, who was already president and chief executive of EMI Records Group International and chairman and chief executive of Virgin Music Group Worldwide, taking over. Berry became the worldwide president of the newly formed EMI Recorded Music unit, which comprised all three of these operations. At the same time, a restructuring of the U.S. operations, including the closing of the head offices of EMI-Capitol in New York, led EMI to record a charge of £117.2 million ($192.8 million) in fiscal 1997. Aiming to bolster these U.S. operations were a string of fiscal 1997 acquisitions: 50 percent of rap label Priority Records (including the rapper Ice Cube), 49 percent of New York-based alternative label Matador Records, and all of Forefront Communications, the largest independent Christian music label in the United States, headlined by million-selling artist dc Talk. Later in 1997, EMI Music Publishing, already owner of the rights to more than one million songs, added a catalog of 15,000 songs from the Motown era--including "I Heard It through the Grapevine" and "My Girl"--in a deal with Berry Gordy, founder of Motown Records, worth up to £232 million ($382 million).

EMI enjoyed a string of successful releases in the late 1990s: The Spice Girls' Spiceworld album, released in November 1997, went on to sell more than 13 million copies. Sales figures for two Garth Brooks titles released in 1997 and 1998 reached seven million and six million, respectively. Utada Hikaru's First Love, released in 1999, became the best-selling album in Japanese history. In addition, Robbie Williams, formerly with the U.K. boy band Take That and signed by EMI in 1996, had established himself by the end of the decade as the top-selling solo artist in the United Kingdom and had gained a strong international following as well, though not in the United States. In 1998 EMI also acquired full control of Priority Records and narrowed its focus still further by transferring its HMV and Dillons chains into a joint venture called HMV Media Group (EMI's 43 percent stake in HMV was reduced to a token holding of 14.5 percent in 2002 when HMV went public as HMV Group plc). The exit from retailing was accompanied by a 1999 bolstering of EMI Music Publishing through the acquisition of Windswept Pacific Entertainment Co. for $200 million. Windswept, based in Los Angeles, held the rights to 40,000 songs, mainly from the 1950s and 1960s, including such old favorites as "Louie Louie," "Why Do Fools Fall in Love?" and "The Twist."

Alongside these positive developments, however, was a great deal of management turmoil and speculation about the company's future. Southgate had remained firmly in charge of the company but began putting together a succession plan designating James G. Fifield, the president and CEO of EMI Music, as the next CEO of EMI Group. Southgate's intention to remain chairman precipitated a power struggle as Fifield wanted to run the company without any Southgate interference. In early 1998 EMI's board, showing its loyalty to the chairman, rejected the plan to make Fifield CEO, and he soon left the company armed with a hefty severance package. Just one month later, in May 1998, Seagram approached EMI about a merger, but talks collapsed when Southgate demanded a price the Canadian firm deemed too high. Seagram quickly moved on, reaching a deal to acquire PolyGram, which was subsequently merged into Seagram's Universal Music Group, thereby reducing the world's music giants to a "big five." The turmoil at EMI continued later in 1998 when Southgate raised eyebrows by making a serious bid for PolyGram's film division, which Seagram had placed on the block. Southgate abruptly pulled out of the bidding at the last minute. Finally, in July 1999, Eric Nicoli succeeded Southgate as EMI chairman. Recruited from his position as chief executive of cookie-maker United Biscuits (Holdings) plc, Nicoli was a surprising appointment and one that prompted much speculation that the last of the big independent music companies was being readied for a sale.

Deals Gone Awry, Restructurings, New Artists

The sale scenario quickly became quite real. In September 1999 EMI entered into negotiations with Time Warner that led to a January 2000 agreement. The plan called for EMI's music operations and Time Warner's Warner Music Group to be merged into a joint venture that would comprise the number two music power in the world. European Commission regulators, however, were concerned about further consolidation in the music industry and effectively blocked the deal later in 2000. Complicating the situation with regulators was Time Warner's simultaneous pursuit of a merger with America Online, Inc., which was ultimately approved, resulting in AOL Time Warner Inc. Nicoli next attempted to engineer a merger with Bertelsmann's BMG Entertainment unit, but this deal also collapsed because of European regulatory resistance.

In the wake of these failed deals, EMI had to face a worsening industry environment as a solo act. Music sales were falling partly because of the increasing popularity of online file-sharing services, such as Napster, and partly because the music companies had thus far failed to develop their own successful paid online services. EMI continued to be hampered by its weak position in the United States, the world's largest music market, where the company's market share of around 10 percent was the lowest of music's global big five. Making matters worse at EMI was a deal Berry signed with pop diva Mariah Carey in early 2001, a multi-album pact valued at more than $80 million. Glitter, the first Carey album released by Virgin under this deal, initially flopped commercially (at least in comparison to Carey's previous albums), selling little more than 500,000 copies in the first few months after its September 2001 release.

Berry left the company late in 2001. His replacement as head of EMI Recorded Music was Alain Levy, a Frenchman who had headed PolyGram prior to its purchase by Seagram. Levy was charged with turning around the troubled music recording operations. One of his first moves was to buy Carey out of her disastrous contract, although it took $28 million to do so. Levy also reorganized EMI's labels around two global brands, Capitol and Virgin, deemphasizing the EMI label. In March 2002 Levy launched a sweeping restructuring involving 1,800 job cuts, or 19 percent of the workforce, the combining of the back-office operations of Capitol and Virgin, and the jettisoning of one-quarter of what Levy considered a "bloated" artist roster of 1,600. Most of the roughly 400 unceremoniously cut were unknowns. Restructuring charges and charges related to the Carey debacle contributed to a pretax loss of £152.8 million for the fiscal year ending in March 2002.

Shifting from EMI's past tendency to sign existing stars generally past their prime, Levy aimed to find new, young artists and develop them into world superstars tied to EMI for years to come. Two 2002 releases marked the first fruit of this new strategy. Coldplay's second release, A Rush of Blood to the Head, was a multimillion seller for Capitol, while Blue Note scored a huge hit with Come Away with Me, jazz-pop chanteuse Norah Jones's debut album, which sold more than 17 million copies, was the world's best-selling album of 2003, and garnered eight Grammy Awards. During 2002, EMI also acquired Mute Records, a leading European independent record company whose roster included Moby, Depeche Mode, and Nick Cave and the Bad Seeds. In addition to parting with most of its HMV stake when that firm went public, EMI in 2002 exited from the music television channel sector by selling its 15.3 percent stake in VIVA Media to AOL Time Warner. Late in 2002 EMI and the other four global music company giants, along with the three largest music retailers, agreed to pay a collective $143.1 million to settle a CD price-fixing lawsuit brought by the states of New York and Florida.

A merger was back on the agenda in late 2003, when the newly named Time Warner Inc. placed Warner Music Group on the block. EMI offered to acquire Warner Music for approximately $1 billion in cash and a 20 percent stake in the combined company. Time Warner elected instead to accept a $2.6 billion offer from a group led by Edgar Bronfman, Jr., the former Seagram chief. Concerns about gaining antitrust approval played a role in the decision as regulators were already wrestling with a proposal from Sony and Bertelsmann to combine their music operations into a joint venture. The resulting Sony BMG Music Entertainment, created in 2004 after regulators proffered their provisional approval, jumped into second place in the industry, behind Universal Music Group.

Despite yet another failed merger, EMI had reason for optimism. Levy's focus on developing new artists continued to pay dividends. Multimillion sellers in 2003 and 2004 included Jones's second offering and the first two releases of Joss Stone. With sales of six million, Robbie Williams's Greatest Hits was number six worldwide in 2004. Not resting on its laurels, EMI launched another restructuring in the spring of 2004. This one involved 1,500 job cuts and a further culling of underperforming artists from the roster, a 20 percent cut. In addition to merging several niche labels and some marketing departments, EMI also outsourced its CD and DVD manufacturing operations in North America and Europe. Later in 2004 the company sold its Australian CD manufacturing unit. Restructuring charges sent EMI into another pretax loss, of £52.8 million, for fiscal 2004.

EMI returned to the black the following year and then posted even stronger results in fiscal 2006, when pretax profits jumped nearly 20 percent, to £118.1 million ($210.2 million). The company was buoyed by three albums selling more than five million units each: Gorillaz's Demon Days, Williams's Intensive Care, and Coldplay's X&Y, the latter the world's top seller during the 2005 calendar year at more than eight million copies. It finally appeared that the digital wave could be a benefit to EMI rather than a curse as the company saw its digital music sales increase 139 percent for the year to £112.1 million ($199.5 million), or 5.4 percent of total revenues. Late in 2005 EMI completed its exit from CD and DVD manufacturing by selling the Japanese plant owned by the Toshiba-EMI venture.

Under the leadership of Nicoli and Levy, EMI appeared to be proving that the company could not only survive but also thrive as an independent company. The U.S. market remained a weak area, however, and Nicoli elected to make another run at the now-dubbed Warner Music Group Corp. However, in May 2006 Warner's board of directors unanimously rejected EMI's $4.2 billion takeover offer. Many analysts still considered a merger of the two firms as inevitable because a combined EMI-Warner would rank closer in scale to the two giants of the global industry, Universal Music and Sony BMG.

Principal Subsidiaries

Capitol-EMI Music, Inc. (U.S.A.); Capitol Records, Inc. (U.S.A.); Chrysalis Records Ltd.; EMI Music Germany GmbH & Co. KG; EMI Entertainment World, Inc. (U.S.A.); EMI Music Australia Pty. Ltd.; EMI Music France S.A.; EMI Music Italy S.p.A.; EMI Music Publishing Ltd.; EMI Records Ltd.; Jobete Music Co., Inc. (U.S.A.); Priority Records, LLC (U.S.A.); Toshiba-EMI Ltd. (Japan; 55%); Virgin Records America, Inc. (U.S.A.); Virgin Records Ltd.; EMI Group Finance plc; EMI Group Finance (Jersey) Ltd.; EMI Group Holdings (UK) Ltd.; EMI Group International Holdings Ltd.; EMI Group North America Holdings, Inc. (U.S.A.); EMI Group North America, Inc. (U.S.A.); EMI Group Worldwide Ltd.; Virgin Music Group Ltd.

Principal Divisions

EMI Music; EMI Music Publishing.

Principal Competitors

Universal Music Group; Sony BMG Music Entertainment; Warner Music Group Corp.

Chronology

• Key Dates
• 1897 The Gramophone Company is founded in London.
• 1902 Company gains first major artist, Enrico Caruso.
• 1921 First HMV shop is opened in London by Sir Edward Elgar.
• 1931 Gramophone Co. merges with Columbia Graphophone Company to form Electric and Musical Industries Ltd. (EMI).
• 1955 EMI acquires Los Angeles-based Capitol Records.
• 1962 EMI signs the Beatles and releases their first single, "Love Me Do."
• 1971 Company is renamed EMI Ltd.
• 1973 EMI Music Publishing is formed.
• 1979 EMI is bought by Thorn Electrical Industries Ltd., forming Thorn EMI plc.
• 1989 EMI Music Publishing acquires SBK Entertainment World, Inc.
• 1992 Virgin Music Group Ltd. is acquired.
• 1996 The EMI music business is demerged from Thorn EMI as EMI Group plc.
• 1998 EMI effectively exits from retailing by placing its HMV and Dillons chains into the joint venture HMV Media Group.
• 2000 European regulators block plan to create joint venture with Time Warner's Warner Music Group.
• 2002 Major restructuring is launched.
• 2006 Warner Music Group Corp. rejects a $4.2 billion takeover offer from EMI.