The rapid decline of the music business has hardly escaped anyone; rarely has a downfall of business model been so public. Yet one has to wonder in which world the executives of EMI were living in as details of their day to day exploits start to trickle out. The record label responsible for acts such as The Beatles, The Beach Boys and Rolling Stones as well as contemporary stars such as Robbie Williams, Spice Girls and Coldplay has in the last few years experienced a dramatic crash; just five years ago the group reported profits of £401m on turnover of £2.1bn. Last year revenue had fallen to £1.458bn, and losses to an incredible £757m.
In August 2007, EMI was acquired by the private equity firm Terra Firma; ending a long lasting courtship from rival industry giant Warner. Terra Firma set up a financial vehicle to run EMI called Maltby Capital Ltd, who oversees the EMI businesses and provides a corporate governance role.
Maltby Capital recently published the annual report for the year ending March 31 2008 and it’s an amazing story of not only a business model in grave need of change but a company totally out of control.
Spend management and governance highlights include:
- Reporting structures so dysfunctional that the new management struggled to find out the true picture.
- A decision which abolished EMI’s global procurement function, resulting in the use of multiple suppliers – as many as 10,000 was in use in the UK alone.
- An exceptionally liberal approach to cost control, while there were appropriate policies, they were not consistently applied.
The report states:
In particular, EMI operated in an industry in which generous spending on hospitality, travel and similar expenses were considered normal. In EMI Music, this type of cost was not closely monitored and employees were not encouraged to feel accountable. The approach to travel and expense policies was more than generous. Recent investigation showed EMI Music to be the fourth largest spender on a well-known taxi firm in London, with a bill of over £700,000 in the last year. This was only slightly less than the bills of 3 investment banks, with 8-10 times more staff than EMI Music.
But the report not only gives the insight into a business in decline, it also outlines how they plan to deal with the situation. The full report can be downloaded here: EMI Group Report (PDF). It’s a roadmap to what may happen when governance and corporate control are lost.
February 16, 2009 at 11:35 am
[...] cost awareness has seeped into the minds of the record company office managers (as opposed to the freewheeling spend management that once seemed to rule the entertainment industry) since many of the boxes that were being loaded into the office were labelled [...]