EMI Merges With...(Insert Name Here)

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Virgin Records announced the closure of stores in Chicago and Salt Lake City. Caroline Distribution lost its regional sales staff, and Navarre Distribution sold their music interests to their competitor, Koch. Rhino Records and Warner Music both suffered double digit layoffs and The Source, the hip hop magazine, filed for Chapter 11.

But the big news of the week came from EMI Records, who is accepting offers to be sold. EMI is the smallest of the four international conglomerates in the record business today, representing the catalog of Capitol, Virgin and Blue Note. The real jewel in the crown is still the Fab Four.   Over forty years later, the Beatles catalog is still the hottest catalog in the record business. Since The Beatles download rights have not yet been granted, whoever takes over the EMI catalog stands to make a fortune, unless they overpay.

On Monday, the company fielded a 4.7 billion dollars proposal to sell to the private equity company Terra Firma. In addition, several other bids to buy EMI have recently been received and speculation now runs high that the Warner Music Group will make a bid, as they have done unsuccessfully in the past.

Some economists say the only merger that makes sense for EMI is between two music giants. With the cost of running a music company high and sales on a decreasing trajectory, merging two similar companies would allow layoffs for redundancies.

But EMI’s public position is that the Terra Firma deal is very attractive and a merger with another music company could bring regulatory disruption.

The disruption EMI is referring to, is the regulatory process commissions in Europe. Sony & BMG, merged in 2004, but in 2006 a European court annulled their merger, after reviewing evidence from the independent trade organization Impala.  Impala argued that without strict controls, a merger between giant labels could easily limit the growth of the indy music sector, forcing many labels out of business. Independent music is considered the lifeblood of the European music business. Since the annulment decision, the European Trade Commission has held hearings for Impala, Sony and BMG to defend their positions. The European Trade Commission has not given its final ruling yet, and Sony & BMG have been forced to put future plans on hold.

Impala set up guidelines in 2000 outlining acceptable conditions for major label mergers and the Warner Music Group has paid attention. Warners successfully negotiated with Impala in early 2007 to acquire EMI, but the EMI board did not accept Warner’s offer.

Perhaps with the Terra Firma deal now on the table, the Warner Music Group will find a way to meet EMI’s financial needs.  Adding The Beatles to their roster would give both companies a stronger advantage in this unpredictable marketplace.

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