Thursday, July 19, 2012

Breaking Up EMI

EMI logo image from Bobby Owsinski's Music 3.0 blog
As the sale of EMI to Universal Music gets further down the line, more and more interesting details come out, many of which look to have an affect not only on Universal, but the music business in general.

First of all comes word comes that Universal may have to sell off at least Virgin Records and EMI Classics in order to appease European regulators so they will allow the purchase to stand. There are several things in play here:
1. Virgin Founder Richard Branson has indicated that he'll be amongst the bidders to buy back Virgin Records. This could be interesting in that Branson has always been on the cutting edge of technology, and what he might do with a present day record label would hopefully be good for the entire industry for the entire industry.
2. Universal's stock price is at a 9 year low. They desperately need this purchase to happen in hopes of giving the stock a boost.
Now the thing about the purchase that's interesting is that Universal assumed all regulatory risk in the purchase, so they're going to need the deal to be approved or the sale is essential worth zero to them. Also, if the regulators ask them to sell off more of EMI in order to get approval, then they'd probably have to sell at a low price to get the approval sorted ASAP, which wouldn't help their stock much, since any such sale would probably be at a lower than market price.

Then on top of that, Universal has to pay 80% of the purchase price to Citi by September, regardless of whether it's approved or not, which means that they'd pay for it, but not really own it. It would be like buying a car yet not being able to drive it.

The only thing this sale really has going for it in Universal's favor is that it increases their market share in virtually every territory, with their global share increasing to about 40%. It's higher still in some territories.

Obviously this sale isn't great for the music business as there's so much power consolidated in one company's hands. The only thing that gives some hope is what Richard Branson might bring to the business again.

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