News Analysis: Metal and Rap Put Vivendi Universal at Top of the Pops ; EMI's Restructuring Will Struggle to Emulate Franco-American Success in the Music Industry

By Cope, Nigel | The Independent (London, England), March 19, 2002 | Go to article overview
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News Analysis: Metal and Rap Put Vivendi Universal at Top of the Pops ; EMI's Restructuring Will Struggle to Emulate Franco-American Success in the Music Industry


Cope, Nigel, The Independent (London, England)


WHEN EMI outlines the grand vision for its struggling recorded music division tomorrow, Britain's biggest music group will be trying to achieve a delicate balance between much-needed restructuring and the need for greater creative output.

Up to 1,000 job cuts are expected to be announced by Alain Levy, EMI's new head of recorded music as back office functions are merged. Regional offices will also be brought together and the overlaps between certain labels, such as Virgin and EMI, reduced.

What Mr Levy will be aiming for is a lean, mean fighting machine that is still capable of pumping up the volume with hit after hit. In short, he will be trying to do what one of EMI's competitors among the "Big Five" music majors has already managed. Universal Music, the largest of the majors and home to artists such as U2, Shaggy and Limp Bizkit, has been outperforming the industry to such an extent that it has set itself an extraordinary target. It expects to make more profit than Warner Music, Sony Music, EMI and BMG put together within two to three years.

"We think we have a good chance of getting there," says Jorgen Larsen, the chief executive of Universal Music International, a division that includes all world markets apart from the United States. "We know what we have coming up this year. It should be our strongest ever with two albums from Eminem and others from Limp Bizkit, U2, Shania Twain and some new signings from our competitors."

Universal, part of the Vivendi Universal conglomerate that also includes Universal Pictures, Canal Plus and a large utilities business, has already proved a resilient performer in a difficult market. Earlier this month it reported flat profits before interest, tax and depreciation of 1.2bn euros (pounds 740m). This is in a global music market estimated to have declined by around 5 per cent. It also compares with the paltry figure of just pounds 150m, which EMI is expected to achieve for the past year (or an estimated loss of pounds 3m after exceptional items, according to some analysts).

Vivendi's results announcement this month stated that Universal accounted for one in four albums sold worldwide last year. And despite a falling music market, the business achieved unit sales just 1 per cent lower than the previous 12 months.

How is Universal managing to buck the trends? There are a combination of factors such as leading market share and strong positions in growing musical genres such as hip-hop and metal. There is also the avoidance, so far, of artist contract cock-ups such as the Mariah Carey deal at EMI, which cost the company pounds 19.6m to sever.

One senior music executive says: "It's down to management. They really concentrate on their successes. Once something happens they really go for it in a big way. The way they've helped U2 is an example."

But for City analysts the most important factor is merger synergies. They say Universal's success in completing a major deal before the regulatory authorities clamped down on further industry consolidation has given the group a huge advantage. The mega-merger of Universal and PolyGram in 1998 brought together two companies that had already snapped up several other labels. Universal had acquired MCA, while PolyGram had picked up Island, A&M, Motown and Def Jam. All this preceded Vivendi's takeover of Seagram, which owned the Universal business as well as the drinks division which was later sold.

While Jean-Marie Messier's reinvention of Vivendi as a media giant has been widely criticised, the music business has certainly been a success.

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