Jilted EMI charts new solo course

Antitrust concerns plagued talks

After twice pinning its aspirations for growth on ill-fated merger pacts, EMI Music again faces the future as a solo player.

But top execs at the venerable British label group, whose tortuously long discussions with would-be partner Bertelsmann officially came to naught last week, insist EMI is taking steps to ensure that it can succeed on its own.

The decision to end merger talks turned on fears of antitrust concerns from Euro regulators, who were reluctant to see the field of major music industry players reduced from five to four. Similar concerns scuttled a proposed tie-up between EMI and Warner Music.But EMI chairman Eric Nicoli insists merging is not EMI’s only option for growth.

“My job is not to sell EMI,” says Nicoli. “My job is to maximize the value of EMI, and the best way to do that is to run it better than anyone else can.”

For Nicoli and the EMI brass, that means turning business around in the crucial U.S. market.

While the company maintains a second-place presence in Euro markets, EMI has languished at No. 5 stateside — last among the big music groups. Its market share in the U.S. dwindled from 12% to 9% in fiscal 2000 (ended March). A big part of the problem has been the paucity of strong new-artist signings at EMI labels in the States.

While EMI’s Euro imprints have scored big with acts like Robbie Williams, the Spice Girls and Coldplay, the American divisions have been hard-pressed to crank out hits, relying more on catalog sales.

Not that EMI’s catalog is anything to sneeze at. The vaults of flagship label Capitol Records include works by Pink Floyd, Frank Sinatra and the Beach Boys.

And then there’s a certain foursome from Liverpool. “Beatles 1” — Capitol’s collection of the Fab Four’s No. 1 singles, spent two months atop the U.S. charts, selling 7.2 million copies to date (and well north of 20 million worldwide).

The release even helped fuel a turn in EMI’s fortunes for fiscal 2001. EMI says it expects sales to jump 12% on the year, and operating profit to be up 14%. And its market share for calendar 2001 has crept back up to about 11%.

But a major cannot live on catalog alone. That’s why EMI recorded music chief exec Ken Berry in March hired proven hitmaker Andy Slater to head Capitol and inject some vigor into its A&R operations. Among the artists Slater has cultivated in the past are Macy Gray, Fiona Apple and the Wallflowers.

“It’s about breaking new artists and bringing in people whenever you can,” Berry says. “That’s what Andy’s been doing all along.”

EMI isn’t waiting for Slater to start drawing new talent. Last month it signed superstar Mariah Carey to its Virgin imprint in a deal worth $80 million.

Virgin also got some happy news last week from Janet Jackson, whose latest album, “All For You,” topped the charts in its debut week with a blistering 605,000 copies sold.

The company is also branching out on the Net, led by senior VP and new media guru Jay Samit. EMI has arguably made the most aggressive moves into online music of all the majors, partnering with Microsoft, Nokia and Liquid Audio, among others. In April it joined with Bertelsmann, Warner and RealNetworks to bow MusicNet, an subscription service for music downloads.

Despite optimism about EMI’s solo prospects, the company remains a pure music play, and is therefore at a disadvantage to its rivals. For them, a sustained downturn in music sales can be made up in other divisions; for EMI, it could spell disaster.

Because of that exposure, EMI isn’t ruling out another merger attempt. But any prospective suitors would likely have to come from outside the music space to avoid those persistent antitrust concerns.

“The synergies wouldn’t be as strong, but it still stacks up,” says Merrill Lynch analyst Brett Hucker.

Among the names floated as possible partners are Viacom, Disney and News Corp.

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