EMI announces restructuring

Music giant issues profit warning

By PHIL GALLO

For the third time in five years, music conglom EMI has announced a major restructuring of its recorded-music operations that will result in a significant number of layoffs.

This time, EMI hopes the cuts will provide about $215 million in incremental annual cost savings.

EMI created the plan, which included the dismissal of two top execs, after figuring the company's revenue may decline by as much as 10% from the previous year. EMI's financial year ends March 31, and the recorded-music arm's second-half performance in terms of sales, revenues and profits has been below expectations so far.

Beyond the dismissal of chairman-CEO Alain Levy and vice chairman David Munns, EMI Music was vague in its exact plan of attack. Company said it would "realign its investment priorities and focus its resources in areas where it is positioned to make the best and most certain returns."

The restructuring program for EMI Music, the group's recorded-music biz, will include "de-layering" the group's management structure; exiting territories perceived as risky; and pursuing partnerships to extract further leverage from the company's infrastructure.

Company, which owns Capitol, Virgin and Blue Note Records, also hopes to strengthen its digital and consumer marketing.

The cost savings are expected to come through the global elimination of fixed costs, most of which will come from EMI Music, with some from EMI Music Publishing. That means layoffs, although no figure has been given.

EMI slashed 1,500 jobs in 2004 and eliminated 1,800 positions two years before that. The company has sold off its manufacturing plants and many of its real estate holdings, including the Capitol Tower in Hollywood, which it now leases.

One of EMI's most expensive flops of the year was Janet Jackson's "20 Y.O." On the heels of that failure, Virgin's urban music chief -- and Jackson's boyfriend -- Jermaine Dupri ankled, although he was to be given a label deal. It appears that deal and the workforce associated with it will be scuttled.

The one-time cash cost of implementing the restructuring is expected to be no more than $290 million.

Company is reviewing its balance sheet, and it expects to report a non-cash charge separately in the group's 2006-07 income statement.

Management alterations include a number of title changes. Eric Nicoli, who has been executive chairman of EMI Group since July 1999, becomes CEO of EMI Group and, as part of this role, takes direct responsibility for the management of EMI Music.

John Gildersleeve, currently non-exec deputy chairman of EMI Group and senior non-exec director, becomes non-exec chairman of EMI Group.

Martin Stewart continues as chief financial officer of EMI Group; as part of this role, he takes direct responsibility for the management of the finance function of EMI Music.

EMI artists include Norah Jones, whose next album will be released Jan. 30; Gorillaz; Coldplay; KT Tunstall; and the catalogs of the Beatles and the Beach Boys.