EMI GETS SMALLER

In a major restructuring announced today, EMI said it is cutting 1,500 jobs, trimming its artist roster and getting out of CD manufacturing in the U.S. and Europe.

The job cuts, 900 of which are related to manufacturing, represent a 20% reduction in EMI’s global workforce. EMI previously eliminated 1,800 jobs in 2001 after Alain Levy became head of the company’s Recorded Music division.

Simultaneously, EMI says it is also cutting its artist roster by about 20%. By cutting mostly “niche and under-performing artists,” according to an EMI statement, the company’s roster “is being rebalanced to focus resources and efforts more effectively on the artists who have the greatest potential on both a global and local level.”

In addition, EMI is consolidating its marketing efforts in smaller international territories into single departments. This move, the company says, will enable its best marketing executives to service releases from both Capitol and Virgin.

Several of EMI’s niche labels will also be combined. In the U.S., new-age label Higher Octave will merge with Narada, while Christian music labels Sparrow and Forefront will form one label group.

EMI will also increase its use of back-office shared services in North America and Continental Europe, with an eye to reducing administrative workload through its ongoing program of updating office technology and process streamlining.

Combined, the changes involved in the restructuring are expected to eventually yield savings of £50 million ($91.5) million a year. EMI will take a one-off restructuring charge of £75 million and a non-cash charge of £30 million from the write-down of assets due to outsourcing of manufacturing. Trimming the artist roster will incur another non-cash charge of £50 million from goodwill impairment. The charges will all be reflected in results for the fiscal year ending March 31, 2004.

EMI will close its CD/DVD manufacturing plant in Jacksonville, Illinois. Product currently manufactured by that plant will now be provided by Canadian discery Cinram (which last year bought Warner Music Group’s manufacturing division). EMI is transferring its CD/DVD manufacturing facility and its associated assets in Uden, The Netherlands to Dutch manufacturer MediaMotion, which will now serve as EMI’s European disc source. EMI’s Uden plant employees will be taken on by MediaMotion.

The company says it will maintain its supply group, physical warehouse and distribution facilities and functions at both Uden and Jacksonville.

Said EMI Group Chairman Eric Nicoli of the restructuring, “Since their arrival in 2001, Alain Levy and David Munns have taken vital steps to improve our competitive position and the financial performance of the business. They have delivered over £100 million of fixed-cost savings so far and have also managed a dramatic turnaround in the performance of our US operations. The actions announced today represent another major step forward. EMI will continue to be an agile and progressive music content company that fully embraces and profits from changes in technology and consumer trends. Whilst we remain optimistic that the market will return to growth in due course, we are committed to being in the best possible shape to compete in all conditions and to take advantage of improving trends.”

Commented EMI Music Chairman/CEO Levy, “The time is right to further reposition EMI Music. Exiting manufacturing in our two primary regions of Europe and the US will allow us to lower our costs while flexibly meeting our supply needs in the future. These additional steps will more closely align us with the evolution we are seeing in our markets. We believe that by concentrating our efforts on a tightened roster of artists we will increase our revenue-generating potential while reducing our costs, even as we continue to invest in artists worldwide and in developing our digital capabilities.”

Observing the changes, one analyst remarked to Dow Jones Newswires, "Without the prospect of a merger, the company has been forced to take unilateral action." Another market expert told the news outlet, "The statement reads well and the cost restructuring looks pretty solid." As of this posting, EMI shares were up nearly 8% to 277.5 pence.

Regarding EMI’s current fiscal year, which ends today, Nicoli said, “In the financial year just ending, we have outperformed the industry on the most important measures. In recorded music, we have enjoyed market share gains, with sales for the full year close to last year's level. Furthermore, Marty Bandier has continued to drive our music publishing business to deliver another solid performance for the year.”

EMI will make its preliminary full-year results announcement on May 24.