EMI lobby gets smaller

Hands wants to cut funding to trade orgs

As EMI’s new owners comb through the previous regime’s largesse, its chieftain, Guy Hands, has come upon a way to eliminate more waste: Cut the funding to trade organizations.

In talks with potential investors, Hands has reportedly been lambasting EMI’s prior regime, led by Eric Nicoli, for spending £100 million a year on consultants, a three-bedroom mews house in Mayfair, bloated severance packages and expensive gifts for artists.

Hands, whose private equity firm Terra Firma took over EMI this year, proposed the company slice in half the $130 million or so it gives to the Recording Industry Assn. of America, the Federation of the Phonographic Industry and other national orgs. Those organizations are charged with lobbying governments, promoting the recorded music industry and creating and maintaining efforts to curtail piracy.

Hands is in the middle of a strategic review of EMI that will ultimately lead to layoffs and, it is expected, a rearrangement of operations at Capitol and Virgin Records, the company’s two pop labels.

Terra Firma has told investors that another $223 million in fixed costs can be cut at EMI and that cash flow, which is now about $43 million, will top $1 billion in 2012 thanks to new and expanding digital delivery systems. Those still seem like pie-in-the-sky numbers.

The turbulent credit market has forced EMI — and Warner Music Group as well — to curtail plans to use potential future revenues from its publishing operation to raise funds to cut debt or repay investors.

Citigroup, EMI’s lenders, with an eight-year commitment, have lost £200 million on their £2.5 billion loan, which was struck on covenant-light terms just before the credit crunch hit. Hands currently stands to lose hundreds of millions of pounds from the £2.4 billion purchase.

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