What used to be considered the ‘Big Four’ will soon be down to the ‘Big Three’. EMI has been sold, and like I speculated in February – it has been sold as parts.
EMI Ceo, Roger Faxon, sent an email to his staff in which he informed them that the company would be split up. Faxon assures his staff that there were interested buyers to EMI as a whole, but the financial markets got in the way. “With credit spreads widening and little access to debt capital it became difficult for financial bidders to formulate compelling proposals at the right price”. And so, EMI will be split in half. However the separation of the two businesses will take some time, so for the time being EMI remains the same as it was before the sale.
EMI’s recorded music division has been sold to Vivendi’s Universal Music Group (UMG) for $1.9 billion. The price tag represents 7 x the company’s earnings before interest tax depreciation and amortization (EBITDA). The cost will be financed from Vivendi’s existing credit lines, and UMG will see about $500 million in non-core UMG assets. However, independent labels are protesting the sale of EMI to UMG claiming that UMG is too powerful as is.
EMI’s music publishing division has been sold to group led by Sony. The investment group is made of Sony Corporation, the Estate of Michael Jackson, Mubadala Development Company, Jynwel Capital Limited, the Blackstone Group’s GSO Capital Partners, and David Geffen. The price tag the heralded publishing division comes in at $2.2 billion. Once the transaction is complete Sony / ATV Music Publishing will oversee the operations of EMI music publishing. Much like the protest with EMI & UMG, independent music publishers have protested the sale of EMI to Sony. They might not have much basis to the protest though, because unlike the sale to UMG, this sale will allow EMI Publishing to operate as a separate business entity.
Both Universal and Sony need to clear necessary regulatory hurdles before they can take ownership of EMI. In other words – nothing is final just yet – and in this industry, things can change overnight.
References
Read CEO Roger Faxon's Letter To EMI Staff On Sale To Universal
Citigroup Press Release on EMI Sale To Universal Music Group
Citigroup Statement Announcing Sale of EMI Publishing to Sony / ATV Group
11.19.2011
11.05.2011
A Financial and Legal Nightmare for Record Labels
It’s every major label’s financial and legal nightmare – and it could soon be a reality.
Back in March, I wondered if Eminem’s victory over Universal Music Group in a case dealing with royalties and legal downloads would have an impact on the industry. (See original post here)
For Universal Music Group (UMG) that case has set off a firestorm one that no major label would want to deal with. UMG could soon be hit with multiple class action lawsuits that claim they have short-changed artists of royalties owed to them for digital downloads and ringtones. The lawsuits all deal with the basic principle – are digital downloads and ringtones sold or licensed?
The difference between a sale and a license? Billions of dollars.
Labels claim that digital downloads and ringtones are sales, however artists claim that they are licenses because there is little cost involved to the labels. Currently labels pay artists a royalty rate – anywhere between 10 and 20 percent – for a digital download or a ringtone. If the artists win their case, the revenue distribution is much closer to a 50/50 split – which would threaten the continued feasibility in the marketplace of the labels.
Earlier this year the 9th circuit court of appeals ruled that Eminem recordings transferred online were licenses. UMG spun that to mean that it as a singular case that dealt with specific language in Eminem’s contract. In the upcoming cases UMG hopes the cases are treated as breach-of-contract disputes. Otherwise it could mean huge losses for the recorded music industry if the artists get their way.
Currently UMG has been the only target of such claims, however if artists become successful in winning these cases in court, more labels could soon be the targets. In an industry that has already seen losses due to the digital age, this could potentially cripple the recorded music industry. (Recorded Music – not music – remember to distinguish the two).
In the coming months it will be interesting to see what perspires in two separate cases going on now – one spearheaded by Rob Zombie and the estate of Rick James, and one by Public Enemy member Chuck D – both of which are classified as class action.
References:
Universal Music Loses Bid to Dismiss Class Action Over Digital Revenue
Court Rules Against Universal Music In Lawsuit that Could Pay Artists Millions. Chuck D Joins Fight.
Judge Declines Universal Music Groups Bid to Dismiss Class Action Over Digital Revenue
Back in March, I wondered if Eminem’s victory over Universal Music Group in a case dealing with royalties and legal downloads would have an impact on the industry. (See original post here)
For Universal Music Group (UMG) that case has set off a firestorm one that no major label would want to deal with. UMG could soon be hit with multiple class action lawsuits that claim they have short-changed artists of royalties owed to them for digital downloads and ringtones. The lawsuits all deal with the basic principle – are digital downloads and ringtones sold or licensed?
The difference between a sale and a license? Billions of dollars.
Labels claim that digital downloads and ringtones are sales, however artists claim that they are licenses because there is little cost involved to the labels. Currently labels pay artists a royalty rate – anywhere between 10 and 20 percent – for a digital download or a ringtone. If the artists win their case, the revenue distribution is much closer to a 50/50 split – which would threaten the continued feasibility in the marketplace of the labels.
Earlier this year the 9th circuit court of appeals ruled that Eminem recordings transferred online were licenses. UMG spun that to mean that it as a singular case that dealt with specific language in Eminem’s contract. In the upcoming cases UMG hopes the cases are treated as breach-of-contract disputes. Otherwise it could mean huge losses for the recorded music industry if the artists get their way.
Currently UMG has been the only target of such claims, however if artists become successful in winning these cases in court, more labels could soon be the targets. In an industry that has already seen losses due to the digital age, this could potentially cripple the recorded music industry. (Recorded Music – not music – remember to distinguish the two).
In the coming months it will be interesting to see what perspires in two separate cases going on now – one spearheaded by Rob Zombie and the estate of Rick James, and one by Public Enemy member Chuck D – both of which are classified as class action.
References:
Universal Music Loses Bid to Dismiss Class Action Over Digital Revenue
Court Rules Against Universal Music In Lawsuit that Could Pay Artists Millions. Chuck D Joins Fight.
Judge Declines Universal Music Groups Bid to Dismiss Class Action Over Digital Revenue
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