Music rivals take the stage in EMI auction

Two EMI stablemates, Coldplay and Tinie Tempah, will take to the Pyramid stage at the Glastonbury festival on Saturday night.

The biggest question for their industry, however, is whether they could soon be signed to the same label as a rival headline act such as Universal Music’s U2, Sony Music’s Beyoncé, or Warner Music’s Cee Lo Green.

The auction of the British music group kicked off officially this week, when EMI announced that Citigroup was exploring a sale for the business the bank seized from Guy Hands’ Terra Firma private equity group in February.

Citigroup has been encouraged by the strong field of bidders in the recent auction of EMI’s closest rival, Warner Music, which drew 10 bids from competitors, private equity funds and rich individuals.

EMI’s auction will attract many of the same names, such as the Gores brothers, with the addition of some new British names, possibly including Simon Cowell, the media entrepreneur.

An information memorandum should go out in the coming week, but bidders have yet to see EMI’s latest accounts and are still in the dark about whether pension shortfalls could present serious obstacles.

Other uncertainties remain about whether Citigroup will entertain separate offers for EMI’s recorded music and music publishing divisions or allow bidders to team up.

But the least expected element of the long-awaited sale is the possibility that EMI’s next owner might be one of its rivals.

For over a decade, music has attracted intense scrutiny from European competition authorities, frustrating attempts to tackle the pressure from crashing CD sales by gaining scale.

An attempt to combine EMI and Warner Music failed in 2000. In 2004, the Sony-BMG merger of Sony and Bertelsmann’s recorded music arms was allowed, but lobbying from Impala, a trade association for independent labels, threatened for three years to unravel the deal. Then in 2006, Brussels forced Universal Music to divest a chunk of Bertelsmann’s BMG music publishing division to buy the rest of the business.

Such deals have reduced the number of music industry participants and made Universal and the renamed Sony Music more dominant.

Yet Universal, Sony, Warner and a newly formed publishing venture between Bertelsmann and KKR, also called BMG Music Publishing, are all expected to bid for EMI.

Their motivations vary. Universal and Sony Music’s new chief executives are colleagues turned rivals. Len Blavatnik, having won the auction for Warner, could find big one-off savings from an EMI deal; while BMG aims to become a major force in music.

“It’s conceivable they could get past [regulators], but what has to happen to get there? Six to nine months of regulatory hell,” one industry executive notes. Citi, mindful of uncertain financial markets, is likely to favour the deal with the highest price and the least risk of regulatory hurdles and delays.

Helen Smith, Impala’s secretary-general, suggests that independent labels’ position has changed little.

“You [would be] creating a new Universal and Sony. The gap between the majors and the independents would be much bigger and the competitive impact would be overall worse,” she says.

Such talk has encouraged many observers to believe that BMG, with its smaller market share and the firepower of KKR behind it, has the advantage. But others note that much has changed since regulators last reviewed the industry.

Most obviously, CD sales have continued their slide, weakening all labels just when Apple’s iTunes store has become a dominant retailer. Any ‘strategic’ bidder could argue that it needs scale to bargain with powerful digital gatekeepers such as Apple, Google and Amazon.

According to Charles Caldas, chief executive of Merlin, which licenses rights for independent labels accounting for 10 per cent of the market, the big four’s tendency to set terms of trade with new digital services such as Spotify and Apple’s iCloud could count against this argument.

“There still seems to be a lot of controlling behaviour,” Mr Caldas argues.

Additional reporting by Salamander Davoudi and Gerrit Wiesmann


Names in the frame


Warner Music and EMI have tried to combine for 12 years, but regulators’ objections and disagreements over price have stood in the way. This may be the last chance to combine the third- and fourth-largest music majors, yielding hundreds of millions of dollars of savings.

Len Blavatnik’s $3.3bn agreed bid for Warner should close in late July and, having paid so much, the new owner of Cee Lo Green’s label will be highly motivated to win EMI. Regulators may allow a recorded music combination, but merging Warner-Chappell and EMI Music Publishing will be a tougher sell.

Universal Music

The largest of the music majors on both sides of the Atlantic, with Lady Gaga, above, Eminem and Justin Bieber on its roster, may struggle most with competition authorities. Yet Vivendi, its owner, says it is keen to invest in music and one person close to Universal says it will be “exceptionally aggressive” in going after EMI – possibly with a partner such as BMG.

Observers think it has two objectives: positioning itself to pick up scraps another bidder has to divest, and ensuring its ex-boss, Doug Morris, does not use EMI to leap ahead of Universal in his new role at Sony Music.

BMG Music Publishing

Bertelsmann’s re-entry to the music business, after selling most of its music publishing to Universal and its share of Sony BMG to Sony, is bankrolled by KKR’s private equity resources. Under Hartwig Masuch, BMG Music Publishing has rolled up many medium-sized owners of songwriters’ rights, from Chrysalis to Cherry Lane, but it always looked like it had been set up for a big deal. Its main interest lies in EMI Music Publishing, but BMG says it also likes the recorded music catalogue. It bid low in the Warner Music auction, but is small enough to face few antitrust hurdles in the EMI race.

Private equity

Guy Hands’ Terra Firma beat interest from rival private equity firms such as Cerberus and One Equity to win EMI’s last auction, in 2007, and financial bidders have been drawn to every other music deal since the 2006 BMG Music Publishing sale. Apollo has just picked up CKX, which manages Elvis Presley’s estate, while Warner Music’s auction featured private equity firms and wealthy individuals including Platinum Equity and the Gores Group, run by Tom and Alec Gores, respectively, and Ron Burkle’s Yucaipa Companies. Sean Parker, the founder of Napster, looked at the Warner Music auction but is not expected to bid for EMI.


Sony narrowly lost out to Len Blavatnik in the Warner Music auction, where it made it into the final round in partnership with Ron Perelman and Guggenheim Partners. The Japanese music group behind Glee, Adele and Beyoncé knows more about music merger risks than anyone, after Brussels regulators nearly unpicked its 2004 Sony BMG deal. Marty Bandier, who runs the Sony ATV music publishing joint venture, ran EMI Music Publishing for many years and still covets it. But how aggressive Sony’s Tokyo head office will be after the Japanese earthquake and recent hacking attacks is unclear.

The British contingent

EMI is the last corporate bastion of the British music business. But British entrepreneurs have disproportionate influence in the music business, and people familiar with EMI’s auction say some are tempted to save the home of The Beatles for the nation.

People close to Andrew Lloyd Webber and Clive Calder rule them out. But Simon Cowell, founder of The X-Factor, has talked to potential bid partners, according to one person familiar with the discussions. Simon Fuller, the Spice Girls and American Idol svengali, might also be drawn in. Both Mr Cowell and Mr Fuller worked at EMI in their early years.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from and redistribute by email or post to the web.