Labels Can Succeed in Today's Market
While I've focused on the precarious position of the recording sector in the realigning music industry, I've also claimed that change among labels had to start at home: restructuring their business and developing a new corporate culture to reflect the new market conditions. For edel music & EMI, that had suffered a significant downturn in their businesses, the formula appears to be a winner.
edel music AG, a large European independent music group, announced it had reversed its negative performance with a positive EBITDA of 3.7 million Euro for the first six months of the financial year 2002/2003 as compared to minus 3.2 million Euro for the same period a year ago. Of note is the significant improvement in the group's operational cash flow from a negative 8.9 million Euro to a positive cash flow of 2.2 million Euro for the first half of the current financial year. The remarkable turnaround, in the face of falling sales are credited to an extensive restructuring plan implemented by the group last year. "The positive development of the operational cash flow shows that our companies have learned to work much more efficiently. Now our main goal is to improve our margins and secure the financial turnaround"
In this case, what works for independent labels can be equally effective for majors. Take EMI's "dramatic turnaround" of its recorded music division:
* Operating profit increased 81% to £150.5m on turnover down 10.2% at constant currency
* EBITA margins more than doubled from 4.1% to 8.5%, driven by both fixed and variable cost savings
* Substantial improvement in North America, returning to profitability with 12% point margin increase
And while the label faces the same harsh market conditions as everyone else, including a 12.6% drop in recorded music sales, the positive results were driven far more by "far-reaching restructuring and reorientation plan with the objective of changing completely the way we work" than any new anti-piracy scheme.
"We delivered the promised substantial improvement in profitability driven by the turnaround of EMI Recorded Music, another solid performance from EMI Music Publishing and tighter financial management across the group. Furthermore, we have invested time and resources in strengthening our culture and management capabilities to equip our businesses to compete more effectively in tough market conditions and a rapidly changing environment," remarked Chairman Eric Nicoli.
This new corporate culture emphasizes internal management accountability, including an "aggressive policy of refocusing Recorded Music on its core business by streamlining the artist roster and exiting unprofitable operations and costly joint ventures... While we recognize that, in the long term, sales growth is an important objective, the year ended 31 March 2003 was clearly one during which we repositioned EMI Recorded Music on profitable foundations."
But perhaps the most encouraging statement from the company was its vision for the future: "In a world in which more music is being consumed than ever before, at EMI, with our extremely deep and rich music content bank, we have a unique opportunity to develop new revenue streams."
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