British newspapers say the state-of-the-company speech EMI’s Guy Hands has planned for Tuesday will include jobs cuts, after all. A lot of job cuts: Hands is reportedly looking to axe 2,000 of EMI’s 5,500 employees — a 36% payroll reduction. Some details from the Telegraph:
Costs will also be taken out of marketing. Typically, record companies spend up to 20 per cent of projected sales on marketing, but EMI managers are understood to have been tasked with bringing that cost down to an average of 12 per cent.
By this summer the group aims to increase profits by £100m. Managers will make their bonus if group Ebitda (earnings before interest, tax, depreciation and amortisation) increases from last year’s £150m to £250m. The bonus structure has been changed so that managers are no longer incentivised according to the performance of individual labels and CD sales but according to the group profit targets.
As difficult as the cuts will be for EMI’s workforce, they’re not a shock. Every EMI employee knew that they’ve been part of Hands’ plans since his Terra Firma p.e. group bought the company last summer. And from an outsider’s perspective, they seem rational given the state of big music. When EMI released its last quarterly earnings report in August, it disclosed that CD sales had dropped 20%, and those numbers could get worse over the next few years.
Hands makes that argument, more or less, in an interview with the FT, where he goes to great lengths to describe what a lousy company, in a failing industry, he’s bought:
He identifies three characteristics of today’s music business: “The industry is based still on the phenomenon of the 1990s and the CD. It is based on the belief that if you have hits you’ll make sufficient money to cover everything else.
“It’s based on the belief [that] if you have conglomerates of labels they can benefit from economies of scale through manufacturing and distribution sufficiently to make enough money.
“It is based on the belief that individuals who know a particular type of music in a multicultural and multi-demographic society can push a product to the consumer.
“All three of those, in my view, are complete fallacies,” declares Mr Hands.
So after the cuts, what? Selective investment, Hands says. He’s raising another $400 million or so, much of which he says will go into the company’s A&R department — the folks responsible for finding and signing new acts. And the money-making publishing group should remain relatively unscathed.
EMI’s culture must change, says Mr Hands, from a bloated bureaucracy to a lean, customer-focused operation. He plans to expand its A&R talent scout team, which accounts for just 6 per cent of staff, while cutting back 400 middle managers and hundreds of other staff.
Music publishing – the division that manages EMI’s lucrative back catalogue of songs and generates 70 per cent of profits – is one area he hardly wants to touch. “It is the best publishing business in the world,” he says. “It’s not seen as glamorous or sexy. It gets no PR or press, but it makes money.”
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