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Strategic Management


Group Project

Objective: “To apply concepts and tools of strategic analysis covered during the course
to the analysis of a firm”

Title: A strategic analysis of the British music group EMI.

Group Members

Katie Welsh-
Lauren Leslie-
Asta Young-Smith-
Cindy Law-

Course Co-ordinator: Monia Mtar

Submission date:

12th of March 2008

Word count: 4035

Table of Contents

Introduction .............................................................................................. 3
Overview of the Music Industry.............................................................. 3
The Market Structure............................................................................... 4
Part 1. Appraisal of the Industry Environment...................................... 4
Overview of Key Trends.................................................................. 4
Review of the Broad Environment................................................... 6
Porters Five Forces Analysis............................................................. 6
The Structural Determinants of the Five Forces of Competition...... 7
Assessing the Industry’s overall attractiveness................................. 8
Part 2. Identification of the Firm’s Current Strategy.............................. 9
The Steps EMI is taking to achieve its Strategic Objectives............. 10
Part 3. Evaluation of EMI’s Financial Performance................................ 11
Part 4. Appraisal of EMI’s Internal Resources and Capabilities............ 13
Recommendations......................................................................................... 15
Appendix........................................................................................................ 16
Identifying Key Success Factors..........................................................16
EMI Group Resources and Capabilities................................................17
Financial Tables....................................................................................20
Competitor Analysis: Warner Label......................................................22
The Key Issues Facing EMI...................................................................23



The purpose of this report is to conduct a strategic analysis on the British music group, EMI. For
this the broad environment will be appraised to identify the major trends impacting the industry
and the factors affecting its structure. Following this EMI’s current strategy will be identified and
its financial performance evaluated. In order to highlight EMI’s strengths and weaknesses the
firm’s key resources and capabilities will be appraised. The effectiveness of the firm’s current
strategy will then be assessed to determine whether this strategy is exploiting strengths in terms
of resources and capabilities. Recommendations will be offered to enhance the company’s
strategy with suggestions made for possible organizational change.

Overview of the Music Industry

For this analysis it is important to understand the concept of the music industry’s content and
structure. The Standard Industrial Classification (SIC) offers a description of the music industry
as involving “businesses and organisations that record, produce, publish, distribute and market
recorded music.” 1 In addition to these, four main stakeholders characterise the music industry-
the artist, the consumers, the music agents and the distributors. However, in seeking to define the
industry it is acknowledged that no one definition can capture its diverse nature in terms of “(…)
musical activity and commerce.”2

In commercial terms the global music industry “is a multi billion dollar segment of the media
industries” (Kozul- Wright, Z & Stanbury, L, 1998, pp14) and has reached a stage of maturity in
its lifecycle. However with the rise of the digital era, it is undergoing significant transformation.
With a core business sector comprising the record companies and music publishers, the global
music industry transcends national boundaries and “pervades virtually every culture and every
society.” (Dolfsma, 2008)3

This definition corresponds to the International standard industrial classification as appears on cited 8/2/08
Available cited on 8/2/08
Article entitled “How will the music industry weather the globalization storm?” Available from: cited 4/2/08

The Market Structure

Four large music companies – Sony BMG, Universal, EMI and Warner- dominate the industry
and in 2005 they accounted for 71.7% of the worlds recorded music.4 Having the “financial, legal
and technological muscle”5 has enabled this “big four” to influence and control the industry to
their advantage. For this reason the music industry has been described as an Oligopolistic market
structure with monopolistic tendencies where by this small group has dominated production,
distribution, marketing and market share.6 However over the years the nature of the music
industry has significantly changed, with greater decentralisation and fragmentation (George,
2007)7 the dominance of the major companies has declined.8

Part 1. Appraisal of the Industry Environment

In appraising the industry environment, two components should be considered, the broad and the
competitive environments. In the past ten years the traditional “recorded –music model” has
faced increasing pressure as a result of emerging environmental trends.

Overview of Key Trends

The digital revolution has had a huge impact on the global music industry. The advancement of
information and communication technology is driving change and is dramatically affecting the
industry’s business model and structure.

This new technology has lead to innovations in both the production and distribution of music and
with this has come greater opportunity to create, enjoy and consume music. (Kozul-Wright and
Stanbury, 1998, pp17) One predominant development has been the convergence of mobile and
portable music devices (I-Phone) which has greatly expanded on-the-go music consumption.

As appears cited
As appears cited 8/2/08
Available from cited on 7/2/08
Available from cited 8/2/08
Available from:
on-piracy-61365.html cited 3/2/08

Online distribution of music has boomed in recent years with the internet becoming the most
important medium for music promotion and distribution. With this “click and mortar” e-tailers are
outperforming “brick and mortar” retailers, shifting patterns of music consumption from the
physical to the virtual. With this revolution traditional music- consumption is being eroded,
diminishing the sale of physical CDs. With consumers growing preference for single tracks over
albums, online, single track downloads are rocketing, proving to be the most popular worldwide
music format in 2007.9

Driving this change is a combination of factors. The growth in mp3 downloads and P2P (peer-to-
peer) software has provided the “interface for uploading and downloading with ease.”10These
innovations have enabled consumers to file share and download music online. This shifting
consumption trend has lead to less demand for the physical product and consequently stores have
cut CD shelf space for other forms of consumer entertainment products. Another aspect driving
this change is the growing number of people burning music on to discs and by implication
diminishing the physical purchase of music. With such developments has come the growth of a
new music consumer generation- “Gen D” (digital and download consumer generation) who are
driving consumption change. With the growth of digital technologies and online information
consumers experience greater convenience, choice and lower costs and consequently have
become more powerful influencing price and music formats. As a result record companies are no
longer in a dominant position of control.

Digital technologies are also affecting the industry’s structure causing a re-shuffle of the value
chain. This has changed the role for many key players whereby distributors can now sell online
avoiding high fixed costs of physical stores. Record companies are experiencing a role change
whereby they are potentially being usurped from the market, and so lowering their perceived
value. Artists are now able to sell directly to consumers via the internet taking a more active role
in the industry’s value chain. The implication of this is that some artists are by- passing the record
companies in favour of setting up their own independent companies, leveraging the internet as a
tool for communication, distribution and marketing. As such the future role of the traditional

Sourced from “ IFPI Digital music Report, 2008” Available from: cited 8/2/08
Sourced from: “Assessing the effects of p2p music sharing on the recorded industry” Available from: cited 5/2/08

record company looks increasingly uncertain where artists and consumers constitute“(…) the
only essential components of the dissemination of music.”11

Whilst technology has brought many opportunities, it has however simultaneously led to a
massive increase in piracy. The ease of access and consumption of music online has diminished
the perceived value of the industry. It is estimated that for every one, legitimate track sold, twenty
are downloaded illegally. 12 With this mass-availability of illegal and un-paid for music, the
industry experienced an overall market decline in 2007.13 This constitutes a major threat to the
legitimate music industry in terms of lost revenues. In 2007 record companies in the US made
projected losses from illegal downloading of approximately $4 billion14 furthermore the artists
themselves missed out on royalties.

Review of the Broad Environment

It is evident that the music industry is undergoing a significant transformation and with this
comes emerging opportunities to reinvigorate growth and profitability. However, these
opportunities bring substantial challenges disrupting the status quo of the music industry. To be
successful companies must continually monitor their environment, exploit emerging opportunities
and re-think their traditional business model. Through diversification strategies the “big four” are
expanding into music- merchandise, sponsorships and concerts as a way to overcome the decline
in record sale revenues.

Porters Five Forces Analysis

To compete effectively, companies must be alert to the dynamics of their industry and markets.15
Using Porter’s five forces the competitive environment of the global music industry can be

Sourced from: “IFPI International music managers forum: creators and consumers come first: Defining
the music industry” Available from: cited
Sourced from “ IFPI Digital music Report, 2008” Available from: cited 8/2/08
Sourced from “ IFPI Digital music Report, 2008” Available from: cited 8/2/08
Sourced from “ IFPI Digital music Report, 2008” Available from: cited 8/2/08
Available from: cited 5/2/08

The Structural Determinants of the Five Forces of Competition

1. Competition from substitutes:

Within the music industry the threat of substitutes is extremely high. The internet has created an
emerging source of substitute competition in the form of digital music and digital delivery. The
availability of substitutes allows consumers to make performance and price comparisons with the
option of switching to download music. The growth of both illicit and subscription downloading
is effectively leading to the direct substitution of recorded music for digital alternatives. With
little cost or inconvenience consumers are switching, to digital and online music services
attracted by the value- added benefits of greater convenience, diversity of choice and lower costs
compared with traditional formats. Currently the chance of being caught downloading music
illegally is low further encouraging the consumer to switch to substitutes. As a result the
profitability of the record company is being threatened with the better value alternatives.

2. Threat of entry:
The threat from new entrants has increased with the growth of the internet. Lower capital
investment and operational costs for online distribution has lowered the entry barriers for new
independent record companies. As a direct consequence, new entrants compete on a more level
playing field, where size is no longer a determinant of success or failure within the online market.
With diversity of demands, new entrants have the opportunity to achieve success through niche
target marketing. Furthermore with these evolutionary changes, traditional distribution channels
are less relied upon and new entrants can compete through online distribution and marketing.

However starting up in the music industry still involves risks, where investing in a new- artist
may involve unrecoverable sunk costs. Representing a new artist requires financial resources,
experience and substantial contact networks and with limited resources independents might find it
hard to break in to the industry. The major players have already achieved a substantial
competitive advantage with well established contact networks, global reputations and long- term
relationships with artists. Their financial muscle and repertoire of artists enables them to spread
risk over their range of portfolio projects.

3. Rivalry between established players:

Internal rivalry and competition within the industry is high and remains tightly concentrated
between Sony BMG, Universal, Warner and EMI. With the increase of independent labels

entering the industry competition has increased. Large and small companies are now directly
competing to attract artists and improve market share in both the physical and online markets.
Due to the intense nature of this competition, decisions made by one company can influence

For the main companies this intense rivalry means that their market share fluctuates through
competition and can no longer be guaranteed. With “parallelism” pricing decisions (Grant, 2008,
pp 76) CD’s are priced at similar levels and as such companies are looking to their artists as a
means of differentiation whilst attempting to offer the most creative channels of music

4. Bargaining power of buyers:

The emergence of the digital music market has increased the strength of buyers bargaining power.
Through online network communities, consumers’ bargaining power is strengthened by the
abundance of online information. Consumers are now much more price sensitive and are
becoming an empowered force, directly influencing how music is delivered and in what format.
With the growing perception that they offer nothing more than capital, record companies are
forced to react, reinventing their business models accordingly.

5. Bargaining power of suppliers:

The bargaining power of suppliers within the industry has lowered .The artists can now choose to
circumvent the suppliers by either setting up their own label or promoting their music via the
internet. This has substantially increased artists control over earnings and marketing.

Assessing the Industry’s Overall Attractiveness

In terms of the industry’s attractiveness different perspectives have to be considered. From the
record companies stand point, the growing threats posed by competition, substitutes and
consumer power combine to diminish the overall attractiveness of the traditional music industry
in terms of assured profitability. In contrast, from the artists and consumers perspective the
industry’s attractiveness has significantly increased. Consumers now benefit from greater
diversity of supply mediums and better pricing, whilst artists can enjoy greater distribution
opportunities and improved control of promotions and revenues.

Whilst record companies are experiencing a challenging time there still remains tremendous
opportunities to make money and profit. The growth potential within the industry is
unquestionable and with continual advancements of technology further opportunities will emerge.
Whilst the global market for music is practically guaranteed, the question facing record
companies is how to ensure a profitable status within the rapidly developing digital environment.
To secure long term viability and maximize profit potential record companies will need to
develop a strong competitive advantage. The key success factors16 outlined, offer a foundation for
future prosperity within the music industry.

Part 2. Identification of the firm’s current strategy

The British music group EMI is a specialised, private limited company competing in the single
industry sector of global music. Based in London, EMI constitutes an international business,
operating in over fifty countries and licensing to a further twenty.17 The company’s product scope
focuses on two main divisions: EMI Music and EMI Publishing, which have built an extensive
range of music labels, recording artists and an impressive catalogue of recorded music with over
three million tracks. By vertically integrating activities within the value chain, EMI has held its
competitive position alongside its main rivals Universal, Sony, BMG and Warner. EMI’s ongoing
strategy is to “deliver music to consumers in any form, at any time and in any place.”18

EMI has been facing tough challenges in recent years with the increasing levels of uncertainty
within the global music industry attributable in main to the digital revolution and the subsequent
decline in CD sales. As such the company’s performance has deteriorated with pre- tax losses of
263.6million 19 in 2007. In August 2007 the private equity, investment company Terra Firma
acquired EMI with the intention of “unlocking [the company’s] hidden value”20and reversing its
diminishing performance.

As the existing business model at EMI is believed to be unsustainable, change will involve the
strategic innovation of a ‘new revolutionary structure for the group that will improve every area

Please see Appendix “A Model for identifying the Key Success Factors.”
As appears cited 29/1/08.
As appears cited 8/2/08
As appears on EMI’s official website cited 5/2/08
Available from: cited 5/2/08

of the business.’21 The corporate strategy of EMI is therefore focused on restructuring and
reshaping internally to allow the label to compete in the digital music industry. This will
completely change the functions within the firm in relation to resource allocation, divestments
and diversification. The business strategy on the other hand will be directed towards gaining
competitive advantage on the basis of differentiation and also cost reduction.
First of all it is important to identify the main forces that are driving change.
• ‘85% of what is put out does not make any money while 30% of artists who get advances
never produce an album.’22

• ‘Struggling to respond to the challenges posed by a digital environment’23

• Loss of artists including Radiohead having negative effects on EMI’s reputation

• Recorded music division less profitable and overstaffed

• ‘Exceeded marketing budgets by about £60m a year and wasted £25m a year on
scrapping unsold CDs’24

• Changing ‘needs of the consumer, making artists less dependent on remaining with a
large record label.’25

The steps EMI is taking to achieve its strategic objectives

EMI will make changes to its business model over a six month period in an attempt to combat
these problems and achieve its strategic objectives. The ‘new strategy to turn EMI around will
stress tackling digital challenges, understanding the needs of the consumer and the importance of
keeping artists at the heart of what we do’.26 Additional incentives and better services will be
offered to artists as encouragement to stay with the label, as well as promoting a relationship
‘based on transparency and trust’.27 Greater emphasis will be put upon making existing artists
more profitable. This will be done by maximizing the opportunities associated with digitalisation
in relation to promotion, distribution and increasing revenue by diversifying into new areas such
EMI confirms thousands of job losses – cited 18/2/08
EMI confirms thousands of job losses – cited 18/2/08
EMI confirms thousands of job losses – cited 18/2/08
EMI restructuring – cited 10/2/08
Preview of Guy Hand’s EMI strategy – cited 10/2/08
Preview of Guy Hand’s EMI strategy – cited 10/2/08
EMI confirms thousands of job losses – cited 18/2/08

as merchandising, corporate sponsorship and touring. Although signings will be limited, EMI
will invest more money and resources into its artists and repertoire function which will help
discover and develop new talent. The efficient use of social networking sites will also make this
process easier.

EMI plans to direct its marketing strategy towards digital sales and focusing on promoting single
tracks rather than concentrating on the production of full albums. Wastage, inefficiency and un-
profitability have become major concerns for EMI, for this reason cost reduction is another key
part of the restructuring strategy. Guy Hands, the chairmen of EMI since the Terra Firma
takeover hopes to ‘reduce costs by £200m a year by cutting between 1500 and 2000 jobs
worldwide’28, mainly within EMI’s Music division. Staff and support functions will be made
more centralised whereby ‘EMI will be split into two main divisions, one handling the creative
side of the business and one dealing with back office.’29 This will ensure greater control over
more simplified processes and waste will be reduced as there is less chance of duplications
occurring. The marketing budget will be reduced which has created negativity amongst artists
who believe they will lose out and be trapped with the new, centralised format. Some of EMI’s
14,000 artists will be cut if they are unprofitable, and pay advancements will be replaced with day
rates or salaries which better incorporate success and hard work. Although Guy Hands lacks
experience in the music industry he believes that by extending and directing company’s resources
and capabilities in the right direction will help him to achieve long due profits.

Part 3. Evaluation of EMI’s Financial Performance

Horizontal analysis and ratio analysis have been conducted in order to evaluate EMI’s financial
performances in recent years.30 Gross profit ratios of the past five years have been stable for
EMI. We should however note that the horizontal analysis benchmarking 2007 and 2006 shows
that EMI has became less profitable, level of ratio is only sustained because both profit and costs
have decreased proportionally. This is evident by the decrease of EPS in the past year.

Revenue and group profit have fallen 15.79% and 39.92% respectively. The only profit that has
grown is share of profit from associates, which does not relate to EMI operations.

EMI set to cut up to 2000 jobs – cited 11/2/08
EMI plans to tighten support and make cuts to tune of 2000 jobs – cited 10/2/08
Please see appendix for details of the analyses.

Net profit has decreased due to the fall of revenue as well. Result from horizontal analysis shows
that net profit has suffered a 60.64 drop. This significant fall is caused by the relatively high
costs - operating profit has plummeted by 39.44% while cost of sales, administration expenses
have only reduced 13.05%, 12.30% respectively, which are not proportional to the decline of

Finance costs rose to 2.01%, mainly due to a high interest payment of bank overdraft and loans.

The negative basic and diluted earnings per ordinary share imply that there has been a loss in
2007. Despite the undesired condition, ordinary dividends paid per share in 2007 remained at the
same level as 2006. This may comfort long term investors slightly from the decline of profits.
This is potentially risky for EMI to have paid a total of £63.2 dividends in 2007. The large cash
outflows could have serious adverse impact in a relatively less profitable year.

In comparison, one of EMI’s competitors Warner has more impressive gross profit ratios in the
past three years. Gross profit ratios are more impressive than EMI’s but achieved negative net
profit in 2007 and 2005. The net losses are mainly caused by the huge interest payment on
overdraft and loan.

The gearing ratios show that debt funding of EMI is relatively high comparing to Warner. The
high proportion of debt implies a large interest payment which led to unnecessarily low profit.
EMI may consider putting more weight into equity funding to minimise interest payment, as
Warner is. Gearing ratios of Warner in the past year have been very stable at the level of 0.5:1,
meaning equity funding weights higher than debt funding, hence less risky the financial side of
the company is.

Return of capital employed has improved significantly in 2007, after the plummet in 2004. This
is because both fixed assets and current assets have decreased in 2007. Value of net assets have
been brought down as a result, and hence leading to a high ROCE ratio.

Warner, in comparison, has relatively low ROCE ratios for the past three years. Value of assets is
huge but profits were very low for a company its size.

There are a few losses on different areas caused by unfavorable currency movements, despite the
fact that EMI has hedged against exchange rate risks using financial derivatives. The inefficient
hedging strategies show that financial investment of the firm is poorly managed.
For further details on Warner’s strategy and competitive positioning please refer to appendix.

Part 4. Appraisal of EMI’s Internal Resources and Capabilities 31

Having undertaken an analysis of EMI’s resources and capabilities (see appendix) the principal
strengths and weaknesses of the company have been identified.

EMI’s key strengths are:

• Intellectual Property
EMI possesses one of the strongest and most recognizable brands in the entertainment
industry and also has one of the most important music catalogues and archives in the
world, with the artists that include The Beatles, David Bowie, Queen and many others.
EMI Music Publishing has a catalogue of over 3m track and the world’s largest catalogue
of musical arrangements with over 1m copyrights owned, controlled or administered. It is
imperative that Global Sales team continue to ensure that this fantastic resource is
brought to the widest possible audience.

• Human Resources

The vast pool of artist and songwriters, who are found and nurtured by the A&R,
represents another key strength of the company. Guy Moot, former EMI Music
Publishing managing director commented,’ Music and great songs remain the foundation
on which everything is built in this rapidly changing digital world.’32 EMI Group is
dependent on identifying, signing and retaining talented artists and songwriters whose
music helps to generate great revenues. Therefore, the company continues to invest a
great deal of money in discovering the very best musical talent from around the world.

• Marketing Know-how.

Please refer to appendix for the analysis of the resources and capabilities.
Article entitled ‘EMI Music Publishing songwriters win top honors at the 52nd Ivor Novello Awards’
Published on the 24th of May 2007 on EMI Group website. cited 7/3/08

Marketing know-how is another key capability which enables EMI to put their music
where their fans are. EMI Music’s business success relies on its marketing efforts nearly
as much as the musical talent it promotes. For that reason the group allocates a great
number of their resources towards marketing and promotion.

Key Weaknesses are:

• Management System
Management system is one of the weaknesses that company is experiencing right now.
Whilst the company has good policies in place they are very often ignored by a number
of employees through the whole management system. However, Terra Firma is planning
a major restructuring of company’s internal structure which will hopefully lead to some
great changes in the near future.

Having identified resources and capabilities that are important and where EMI is strong, the key
task is to ensure that these resources are deployed in their restructuring initiatives to the greatest
effect. One of key strengths of EMI is artist, so it is important for the company to seek
diversification advantage through merchandising, corporate sponsorship and touring in order to
achieve the competitive advantage. EMI’s current business strategy identifies diversification as
one of the key strategies. On the other hand management systems that had been developed over a
long period of time have important implications for firm’s capacity for change. That’s where
EMI’s management systems could benefit from Terra Firma’s experience in strategically
transforming business and driving operational change. However, both companies have to watch
for culture clashes, personality clashes between senior managers, or incompatibility of
management systems that could result in the degradation or destruction.


The following recommendations are provided in light of the key issues facing the company.33
EMI Group revenue has gone down 15.79% in the 2007 fiscal year and led it to low gross profit,
net profit and ROCE ratios, as well as undesirable EPS figures. It is vital for EMI to offset the
decline in CD sales and adapt to the changes in the environment to remain being attractive to
investors and artists.
With the growing power of the internet and technologies, the top management may consider to
put weight into effective e-commerce marketing instead of continuing with traditional expensive
marketing methods. It is also essential to understand that gaining market share in the digital
music area should be highly prioritized as the trend of the music industry is clearly moving
towards the technological side.
Piracy has nonetheless become a serious issue in the industry with the rapid development of
technology. It is highly advisable for EMI to cooperate with its competitors to target piracy34. The
possibility of achieving a satisfactory result against piracy is high with their dominant power in
the industry. By bringing in game theory logic, it would be more sensible to work with the rivals
in this scenario to protect revenues in the future.
In addition to sales of record music, there are many other income generating activities such as
concerts, merchandise and sponsorship.
It is, of course, important that EMI continue developing its key strengths whiles adjusting its
strategy to the changing environment. The quality of music produced is the core of the business;
EMI should definitely try to keep successful artist as well as continuing to identify new artists
with potential to growth.

Please refer to Appendix for The Key Issues Facing EMI.
cited 9/3/08

A Model for Identifying Key Success Factors
(Adapted from Grant, R. (2008) Contemporary Strategy Analysis, Blackwell Publishing, UK, pp 90)

Prerequisites for success

What do the consumers How does the firm

want? survive competition?

• Choice- in how music is • Continually monitor the business

consumed. environment to identify emerging trends
and their implications for the industry.
• Price- value for money.
• Identify and satisfy consumers’ changing
• Access- to music to suit demands and preferences.
their lifestyle.
• Innovate in terms of product
• Convenience- ability to development and distribution channels.
purchase and consume Provide value-added benefits to
music at their own consumers through online music
leisure. services.

• Value added online • Differentiate services to provide value

services and premium added benefits and emphasis points of
products. parity with competitors to achieve
competitive advantage.

Key Success Factors for the Global Music Industry

• Through continual monitoring of the broad environment capitalize on emerging business
opportunities with flexibility and speed of response.

• Concentrate on making the delivery of digital music a core capability.

• Differentiate through a diverse range of quality artists and songs.

• Make legal, online music more attractive to consumers by offering premium quality
products and value added services.

• Expand business scope to find new revenue streams in the form of merchandise,
advertising, sponsorship and concerts.

• Co-opetition with other record companies to enforce copyright protection within the digital
EMI Group Resources and Capabilities
• Invest in advertising and innovation of online music services.

Emi’s funding relatively dependant on debt. Equity funding is not
as heavily weighted in comparison with competitor Warner. It
implies that Emi has made good use of resources by maximizing
investment with debt funding. This, however, is potentially
dangerous if a large proportion of debts is not handled carefully.

Intellectual Property EMI Group posses’ many copyrights and trademarks. The major
names of trademarks are: Angel, Astralwerks, Blue Note, Capitol,
Capitol Nashville, EMI, EMI Classics, EMI CMG, EMI Televisa
Music, Mute, Narada, Parlophone and Virgin. EMI possesses one
of the strongest and most recognisable brands in the entertainment

Location EMI Music operates through a network of offices throughout the

world, most of which are held through lease arrangements. In UK,
EMI own and operate two recording studios: Abbey Road and
Olympic Studios. They also have three geographic divisions:
International, UK & Ireland and North America

Manufacturing All of manufacturing are outsourced.


Distribution EMI carry out their own physical distribution activities in a

number of territories: UK, Ireland, US, Hong Kong, Thailand and
Singapore. In the other territories EMI have entered into
distribution joint-venture arrangements with other music
companies. In certain areas distribution services are carried out by
third parties

Human Resources EMI Group has an experienced and talented management team
with creative and business minded executives at the international
and also local levels. There is also a very good team of digital
talent who are fully equipped to realise the full potential of EMI’s
music content in a digital world. However, Artists and Repertoire
(A&R) who generates fresh, high quality, new music for EMI’s
rich catalogue and also artists who create and perform the music
are the key resources of EMI’s Group.

Research & The EMI Group constantly conducts R&D to develop new

Development products in the form of artist & repertoire (A&R) to launch new
artists. It also explores new product formats, such as ringtones and
subscriptions, and digital rights management to protect their
intellectual property. Company reinvests around 13% of its
turnover into R&D.

Corporate Functions Strategic Innovation. In April 2007 company launched a new

premium download product which provides music at a higher
sound quality and without the restrictions of digital rights
management (DRM) to consumers. EMI is a first major record
label to do this by enabling the interoperability of digital music
between services and devices. EMI continue to create innovative
partnerships with various digital platforms like Yahoo, Napster in
Germany, or New York Daily News where news readers are
offered free music downloads from EMI’s music catalogue. Such
innovative products and partnerships help EMI to expose their
talented artists to the large new audience.
Multidivisional coordination. It’s done through ICT, based on
Microsoft Technologies. Very little known about how well the
Company manages to coordinate their divisions, however this
capability should be helping the management to coordinate their
divisions more efficiently.
Financial control. In the past financial management lacked strong
orientation by sometimes ignoring company’s policies like
authorizing £20.000 on unwanted parties and gifts for artists and
£200.000 annually on flowers and fruit for EMI’s offices.35 EMI
Group is going through the implementation of the restructuring
initiatives, and the cash flow generation of the business is expected
to strengthen significantly when the gains from the cost savings
are fully realized.
Marketing Effective restructuring and cost cutting. Following a global
corporate restructuring, EMI’s IT team with the help from Avanade
company, implemented cutting-edge web marketing infrastructure
which enables EMI’s labels to focus their marketing efforts on
innovative business opportunities rather than data and hosting
management.36 The company also has global and international
marketing teams, who manage major frontline releases from
priority artists, while a global catalogue marketing function
handles catalogue campaigns across the world.

Digital Distribution EMI continue to broaden their digital distribution channels

‘EMI faces tighter budget’ Financial Times, published 30-12-07,
b6f8-11dc-aa38-0000779fd2ac.html sited 1/3/08
Case Study: EMI Centralizes Online Marketing with Microsoft.Net-Based Web Services. Sited 3/3/08.

and Sales globally by entering into agreements with partners like Apple or
Amazon in U.S., who make EMI music available on their
platforms. EMI music repertoire is now available digitally in 70
countries. Digital technology helps the company to approach
consumer through online and mobile channels, for example, the
EMI Music distributed the 30 Second To Mars video using the
latest Web2.0 technology.

Financial Tables

EMI - Ratio Analysis

2007 2006 2005 2004 2003

Gross Profit 34.9301% 34.8382% 36.9312% 33.7624% 35.6419%

Net Profit 8.5926% 12.0438% 11.9879% 11.7556% 8.3181%

Current 0.7796 : 1 0.8126 : 1 0.8097 : 1 0.8524 : 1 0.7887 : 1
ROCE 94.9176% 53.4343% 59.6720% 50.1206% 107.6897%
Gearing 1.1871 : 1 1.4129 : 1 1.3229 : 1 1.3661 : 1 1.4141 : 1

EMI - Horizontal Analysis

Income Statement 2007 2006 Difference Difference

£m £m £m in %
Revenue 1751.5 2079.9 (328.4) -15.79%

Group Profit 150.5 250.5 (100) -39.92%

Share of Profit from Associates 1.8 1.0 0.8 80%
Operating Profit 152.3 251.5 (99.2) -39.44%

Finance Income 63.0 57.4 5.6 9.76%

Finance Cost (152.6) (149.6) (3) 2.01%
Total Net Finance Charges (89.6) (92.2) 2.6 -2.82%

Net Profit before Taxation 62.7 159.3 (96.6) -60.64%

Overseas (23.8) (33.1) 9.3 28.10%
UK 10.0 5.0 5.0 100%
Total Taxation (13.8) (28.1) 14.3 -50.89%

Net Profit after Taxation 48.9 131.2 (82.3) -62.73%

EMI - Horizontal Analysis (2)

Income Statement Extracts 2007 2006 Differenc Differenc
£m £m e e
£m In %
Cost of Sales (1069.8) (1230.4) 160.6 -13.05%
Distribution Costs (69.9) (75.0) 5.1 -6.8%
Gross Profit 611.8 774.5 (52.7) -6.80%

Administration Expenses (466.9) (532.4) 65.5 -12.30%

Other Operating Income, Net 5.6 8.4 (2.8) -33.33%


Earnings per Share 2007 2006

Basic Earnings per Ordinary Share (36.3)p 10.9p
Diluted Earnings per Ordinary Share (36.3)p 10.5p
Underlying Basic Earnings per Ordinary Share 5.8p 16.2p
Underlying Diluted Earnings per Ordinary Share 5.8p 15.7p

EMI - Dividend Payment

Ordinary Dividend 2007 per share 2006 per share 2007 £m 2006 £m
06/05 Final dividend 6p 6p 47.5 47.2
06/05 Interim dividend 2p 2p 15.7 15.7
Total 8p 8p 63.2 62.9

Warner - Ratio Analysis

2007 2006 2005

Gross Profit 46.1448% 48.1797% 47.1730%
Net Profit -0.6204% 1.7064% -4.8258%
Current Ratio 0.6350 : 1 0.7226 : 1 0.7105 : 1
ROCE 7.9926% 10.4006% 3.0545%
Gearing 0.5427 : 1 0.5449 : 1 0.5458 : 1

Competitor Analysis: Warner37

Warner’s goals
Drive shareholder value and improve competitive positioning
Warner’s competitive advantage

Information gathered available from: “ Warner’s Annual Report 2007”

− Leading artists and songwriters
− Stable, highly diversified revenue base
− Flexible cost structure with low capital expenditure requirements
− Digital leadership
− Focus on innovative A&R
− Leader in independent distribution
Warner’s strategy
• Attract, develop and retain established and emerging recording artists and songwriters
• Maximize the value of our music assets and capitalize on the growth areas of the music
• Focus on continued management of cost structure
• Capitalize on digital distribution and emerging technologies
• Enhance physical business by developing and optimizing Warner’s physical distribution
channel strategies and creating new physical formats
• Contain digital piracy
How Warner targets customers
• Goal is to maximize the likelihood of success for new releases as well as stimulate the
success of previous release.
• Seek to maximize the value of each artist and release, and help artists develop an image
that maximizes appeal to consumers.
• Raise profile of artists, through marketing approach that covers all aspects of their
interactions with music consumer (help artist develop creatively in album release, setting
strategic release dates and choosing radio singles, creating concepts for videos that are
complementary to the artists’ work, coordinating promotion of albums to radio and TV
outlets etc.)
• Windowing of content, create product bundles.
• Pre-release activities can be customized online.
• Facilitating TV and radio coverage / live appearances for key artists
• Corporate, label and artist websites provide additional marketing venues for our artists
Careful coordination of marketing and promotion to create greatest sales momentum

The Key Issues Facing EMI

• Liquidity and gearing problems could potentially lead to bankruptcy.

• Management problems- where policies are in place but are not being implemented
with great effect.
• Not maximising the efficiency of each functional department, with overlaps of
responsibilities occurring.
• Inefficient cost control- unnecessary spending to impress shareholders and artists.
• Low revenue- as a result of declining CD sales.
• Artists by passing record companies
• Lack of leadership- whilst management are highly qualified and experienced
within the music industry there appears a lack of coherent direction.
• Traditional marketing methods no longer as effective because of the rise of
e-commerce marketing.



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“IMPI Digital Music Report 2008” Available from: cited 8/2/08

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Cited 5/3/08

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Skapinker, M. (2004) “No such thing as a free lunch in the music industry” Financial
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Spellman, P. (2003) “The future of Music Careers: Quantum Career Development in a

Transforming Industry.” Available from: cited 5/2/08

Website Articles

“New trends in the music Industry” (2005) Available from: cited

“Strategic Leadership and Porters Five Forces” Available from: cited 12/2/08

Other websites