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Improving EMI revenue still leaves them in the red

Written by Rich Fiscus (Google+) @ 18 Aug 2010 16:42 User comments (7)

Improving EMI revenue still leaves them in the red According to the annual financial report for EMI, smallest of the Big 4 record labels, the company lost 624 million euros (just over $800 million using today's conversion rates) in the fiscal year ending March 31, 2010.
The report is prepared each year by EMI's owner, Terra Firma owned Maltby Capital, a Terra Firma owned company which purchased EMI in 2007.

Maltby Capital Chairman Stephen Alexander began the report by addressing developments in recent months suggesting Citigroup, the principal lender in Terra Firma's acquisition of EMI, might take over the company due to an alleged breach of lending terms.

Alexander wrote, "despite the issues around the financing structure and the related public speculation, both divisions of EMI have shown marked progress in their underlying performance during the course of the last twelve months."

This translates into losing less money than the previous year, which saw a loss of more than 1.7 billion euros. He also admitted having no actual first hand knowledge of the legal proceedings between Citigroup and Terra Firma.

There is a glimmer of hope for the future if they can survive long enough. EMI's goal, it says, is becoming "a comprehensive rights management company that can take full advantage of global opportunities in all markets for music to the maximum benefit of its artists and songwriters."

But are they doing enough to make that a reality? The report's section on EMI's recorded music division focused almost entirely on a handful of best selling artists. Diversification into new areas like merchandise distribution and their live recording/distribution service, Abbey Road Live, were almost a footnote.

In fact, despite all the mention of diversification, the report itself seems written with the assumption that the established business model of downloads being a simple replacement for CDs is a good one.

That's not what sales trends dating back a decade show. In fact the trend in music downloads, whether licensed or unauthorized, has always been toward individual tracks rather than albums. That means you need to either make significantly more sales or find a way to convince people to buy more with each transaction.

In reality the answer is actually both. A download is not a CD. This is neither good nor bad for the labels. But the economics are different and need to be addressed as such.

It costs to produce each CD. A download costs the label nothing if it comes from a third party store like iTunes or Amazon MP3.

Each CD sold results in one less CD available. There is an infinite supply of downloads for every recording ever made.

The current pricing scheme for major label music, including EMI, is based around maximizing profit on each existing sale rather than making more sales.

Higher per song prices work in the CD market because the supply of product is limited to what a company with significant resources can supply. As Trent Reznor has shown with his numerous experiments and encouragement of fan productions, this doesn't have to change even if you give music away.

What does need to change is how the labels look at downloads. Instead of trying to re-create the technical limitations of CDs, they need to take advantage of the technical advantages offered by downloads.

Instead of finding more ways to get royalties from existing uses of their recordings, they could benefit from what amounts to a free distribution infrastructure.

More than ever, recorded music sales face competition from a growing number of products. The market growth in game consoles and various internet options, including the mobile internet and smartphones, are eating into the same discretionary funds the labels are hoping to get.

At the same time they're shooting themselves in the foot with variable download pricing, which results in fewer sales of many popular songs at $1.29 per sale when compared to a standard $0.99 price.

The results of a study published recently at the Wharton School of the University of Pennsylvania suggests that significantly cutting both royalties and retail prices significantly would result in more profits for both labels and merchants.

The diversification glossed over in this report is also essential if EMI wants to cover the expense of recording at the same level they're used to. Recorded music is in infinite supply. Other goods and services, like merchandise and live performances, are still limited and still worth money.

The question is whether it will be labels profiting from those, and whatever else emerges from the new technology. Someone certainly will be.

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7 user comments

118.8.2010 18:06

how many studies all saying the same thing have to be published before the execs actually sit up and notice ?

218.8.2010 18:32

bollocks.. emi?.. who..

look for me in this video.. and they turned us down!!

whining fat billionaire studios and corps winging they can't fill their bottom line by blatant theft any more.. oh dear (wipes away noon existent tears) .. what a choker.. good riddance

ARR! Them pesky Navy! Get out of my sea!

318.8.2010 23:04

The Trent Reznor model that you mentioned does not work for new bands nor for Trent Reznor. Reznor's income has decreased substantially since he was dropped by his label, Interscope. He also hasn't increased his fanbase - it's actually decreased. You also don't see other musician's following his example except for giving away a couple of songs. Instead most musicians are cutting deals with other sources.

419.8.2010 2:02

Originally posted by RockOut:
The Trent Reznor model that you mentioned does not work for new bands nor for Trent Reznor. Reznor's income has decreased substantially since he was dropped by his label, Interscope. He also hasn't increased his fanbase - it's actually decreased. You also don't see other musician's following his example except for giving away a couple of songs. Instead most musicians are cutting deals with other sources.

Just because he makes less that way doesn't mean it doesn't work. The fact is there are more people successfully selling music today than ever before. Just because they're not making superstar money on their recordings, it doesn't mean they're not successful. It may mean there are fewer huge successes in the future, but that's a small price to pay for more artists reaching an audience and making a living. Most artists have never made a living selling recorded music, whether they're using a modern DIY model or the old label system. Recordings are primarily a promotional resource.

With the larger amount of music being produced independently it should be easier for the labels to find artists they can promote enough for above average success. As I stated in the article, the key is volume and not the size of individual successes. Even for the most successful recording artists live performances are usually a bigger money maker anyway. Musicians make their living performing, not selling recordings. Most of the same artists who make good money selling CDs or iTunes tracks make even better money performing live, as do the majority of artists who make literally nothing on their recordings.

Success is relative. You're making a comparison between successful today and successful in a different market. Once again, downloads aren't CDs. If they continue down the road they're on the result isn't the old CD market you seem to be using as a yardstick for success. It's a version of the current market which hasn't grown enough to replace the old CD revenue.

519.8.2010 9:06

It's a bitch when you become obsolete..It's a case of either evolve or die for sure. I don't know what they are going to do but wringing more money out of the radio industry and suing the hell out of your average person for sharing a few songs sure isn't the route to go...

620.8.2010 14:46

As a recording engineer and an ex-hi-fi designer, I can state without any reservation that if the record companies stopped messing with the media that sold in preference for an easy life EMI and others would not be in the mess they are now in.
Before this fiasco, we had CD, DVD-A, SACD and even music DVD's, the market place destroyed all this in favour of downloads that easily hackable and now they are moaning because they cannot admit their mistake.

Add to this the loudness war and many can understand why consumers are not buying the media, but prefer to buy old scratched vinyl instead.
The onset of this has also affected the Hi-Fi industry amongst other market places.

Is it not time the bosses of this industry sacked the children and bought in people that can do the job properly.
Just before anyone starts shouting airplay, the radio companies now have smart media that determines whether the music is set to overload levels and adjusts accordingly, so the record companies efforts in this are useless.

Remember the market is not just youngsters that do not have any money but adults too that have funded this indstry for a very long time.
Go back to old school of 30+ years and provide the market place and bands with what they really want.
Good music that is enjoyable to listen to and perhaps they might be able to pay the bands for the music they steal.

This message has been edited since its posting. Latest edit was made on 20 Aug 2010 @ 14:50

723.8.2010 14:05

Music is just in a creative slum right now. I just don't care if another Nickelback/Saliva/Buckcherry/etc album comes out. Very few bands are doing anything I'd consider interesting I don't acquire music legally or illegally right now.

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