EMI looks to Net sales; failed merger prompts loss

Record company EMI Group had a fiscal first-half loss because of costs related to its scrapped merger with Time Warner’s music unit. EMI lost $44.6 million (31.3 million pounds), or about 6 cents a share, in the six months ended September.
30, after taking a $61 million charge for the failed Time Warner merger. Net income in the year-ago half was $45.4 million, or about 6 cents a share, EMI said in a statement. The company, whose artists include the Spice Girls and Garth Brooks, is now in merger talks with Bertelsmann’s music business. EMI needs to combine with a rival to cut costs. It also needs to build up its Internet sales.
EMI “wants to merge with somebody; I think they see the upside of being part of a larger media group,” said Gareth Thomas, an analyst at Commerzbank Securities who has a “hold” rating on EMI. Joining BMG Entertainment, whose artists include Britney Spears and Santana, might also give EMI an online outlet through Napster, which allows its 38 million members to share music online for free.
Bertelsmann is trying to convince Napster to charge a subscription fee. In exchange, it will drop a court case against the Internet company. “In the online market, critical mass is everything,” said Thomas. In the United States, EMI maintained its market share at 10 percent, a situation the company called challenging. Still, U.S. sales rose 12 percent to $549.9 million, boosted by a hit album by the singer Aaliyah and a strengthening dollar.
The company increased its European market share by 2 percent to 18.4 percent, helped by sales for British pop star Robbie Williams and a new album from Radiohead. EMI expects to sell 20 percent of its music online, either through CD e-tailers or the digital downloading of music, by 2005, Ken Berry, head of EMI Recorded Music, said during a conference call with reporters. “New media is a growth area,” Berry said. “Royalties are just starting to rise.” EMI has invested in 27 companies involved in the digital sale and downloading of music.
The company said last week it will make its music available online in the United States through an agreement with closely held Streamwaves.com. The record company called off the merger with Time Warner’s music unit in October because of European Union regulatory concerns. EMI had a profit before tax, exceptional items and goodwill amortization of $84.1 million.

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