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Citigroup buys EMI

updated 07:00 am EST, Wed February 2, 2011

Plans sale, possibily splitting up EMI

Citigroup has bought EMI in a deal that may see the end of one of the four last major surviving record labels, according to a report. Citigroup already owned EMI's $4billion debt and excused the debt in exchange for control of its operations. The takeover could signal the end of the 80 year-old company with its rich musical history.

Citigroup has no interest in retaining EMI as its core business is banking and by its very nature is motivated by the desire to sell its new acquisition at a profit. One way that it can achieve this goal is by splitting EMI for sale as two separate entities; one its publishing arm and the other its recording arm. Such a move would effectively end EMI.

The beginning of the end came with the purchase of EMI by Terra Firma, a private equity firm in 2007, which paid close to $8billion for the company. Terra Firma believed that it could sell off EMI's debt but its plans were forestalled by the GFC. Although EMI was performing well financially, its debt burden was dragging the company closer to defaulting on its repayments to Citigroup.

As recently as two weeks ago, Warner Music was investigating the possibility of buying EMI as it sought to simultaneously sell itself as a value-added proposition. It was this maneuver that triggered Citigroup's decision to take control of EMI now as the sale of Warner Music could result in potential bidders dropping out of the race to acquire the remains of EMI.

Among EMI's publishing catalog are the Beatles, recently released on iTunes, Pink Floyd, and Queen as well as more recent artists such as Katy Perry, Cee Lo and Radiohead. If one of the remaining three music groups (Warner, Universal, Sony) acquired EMI's catalog, it could have a significant effect on digital music as it would consolidate a large proportion of the global digital music catalog under one roof.

This in turn, could influence the way this music is distributed, as some prefer different business models. The pay-per-track employed by iTunes and Amazon is the preferred model of Warner chief Edgar Bronfan. Alternative models include the Spotify ad-supported approach, or subscription models. The undoing of EMI will have ramifications that extend beyond the loss of an enduring music icon.

by MacNN Staff



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