EMI Music Group - Terra Firma - Case Study

About assessing a company or investment potential an enlighting case study is the Terra Firma acquisition of EMI. Terra Firma paid 6.2 Billion Euro to acquire EMI in 2007. EMI had and has an outstanding artists catalogue, but the recording industry and the market situation - still in an uncertain and not well defined transition between the CD physical support and the online world - made that investment not a good choice, in our opinion, and the amount of 6.2 Billion Euro paid by Terra Firma was absolutely excessive.

Or, perhaps EMI was a "poisoned candy" prepared on purpose by someone to undermine Terra Firma as a Private Equity Firm.

Worse was the fact that there was not a clear, brilliant business strategy for EMI, new executives were hired - and many of them fired in a short term - often without any experience or knowledge nor of the recording industry neither of the digital media environment and with no idea or clue of what a successfull turning point for EMI in the internet era could be.

And no clear and winning strategy was developed by any of them, and as a result - apart from cutting costs and downsizing staff - EMI finds itself with no clear direction and floating in extremely uncertain seas. According to an article on the Financial Times of November 2009, Terra Firma has written down the value of its investment in EMI by 90%.

Within this uncomfortable situation, It has to be remarked the brilliant work done by Lord Birt in his Maltby Capital 2008 Report for Terra Firma, and his precise, and disenchanted analysis of the EMI situation in early 2008.

Lord Birt was bright and correct to envisage the right direction and path EMI should take and identify the challenges.
We like to mention 3 sentences of his Report:

“ … taking EMI back to business basics: understanding customers, sourcing an excellent product, finding the right channels to market, and packaging and marketing music in an appealing way”

“ … build a new EMI fully equipped to meet the radical challenges of a wholly new and different modern media and entertainment environment.”

“ … concentrate EMI on finding fresh, imaginative ways of getting it to listeners. This is the only way we can succeed for our artists and all our stakeholders.”

Unfortunately, his wise words on the direction and objectives that EMI should take, remained dead letter, and unaccomplished.

EMI still today is uncapable even to properly promote and market their outstanding catalogue, comprising names as the Beatles, Rolling Stones, Queen and Pink Floyd.

Lost opportunities.

We have been in contact with Executives of Terra Firma and advised them on a set of strategies to turn around the fortunes of EMI.
Terra Firma Executives faced a strong resistance from the Executives of EMI, which were sticking to their old fashioned, shortsighted, failure proned way of thinking at the music business.

No way incompetence and short-sightedness can win good results.

In our view those EMI Executives should have been fired on the spot and replaced with smart, competent and open minded Executives.


Comparing EMI and Apple Strategies and Results.

While all this bad management was carried out at EMI, Apple Inc. made the astounding hits between 2004 to 2009 with the iPod and iTunes first, and with the iPhone and iPod Touch then, reshaping the present and the future of the entire music business.

Any investment firm would have dreamed of buying Apple shares at $7 back in 2003, and sell them in 2008 at $180 or now, 2009, at $200.

A 3000% return. What a result.

It reminds us of the results achieved by George Soros and Jim Rogers Quantum Funds in their rampant years.


A Provoking Question.

We want to challenge your mind with a provoking question:

Yes, Apple did great.
But where would Apple be today, without the iPod?

and without the iPod, no iPhone would be there, either …

and no iTunes, and no "halo" effect on Macbook and iMac.
Without the iPod, Apple would probably make 75% less revenues and 90% less profits of what they make today.
Apple shares would be valued around $10, not $200 as they are today.


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