EMI Group PLC Case Solution

1. How is EMI doing? What are your concerns? What does EMI have going for itself?

EMI has been in a difficult spot on account of the digitization shift that has taken place within the industry. EMI has a diverse base of revenue drivers that are bifurcated on the lines of music recording and publishing, the former of which has received a battering of 27% decline in terms of sales. The consolidated income statements reflects this as a decrease 328 million pounds in 2007. At the same time, the group has reported an operating loss, amounting to 207 million pounds, for the first time in the past five years. All of this is on the back of industrial digitization that has exposed the high-cost nature of traditional distribution channels in the form of physical assets that add an additional burden on the costs of the company. These issues have raised serious concerns for anyone valuing a stock such as EMI because these are considerable changes on the fundamental dynamics of the business. Despite EMI’s past performance as a dependable stock with stable earnings, the current fiscal year reflected the unexpected challenges that the industry was facing with great brunt.

However, at the same time, there EMI Group being cognizant of these rapid changes has managed to streamline a strategic policy that helps it navigate the difficult terrain. Acquisitions are one important pillar as it adds greater synergies, and increases the portfolio for the robust royalty business that the publishing section demands. Taking a cue from its successful acquisition of major independent record labels such as Capital Records and Virgin Music Group, EMI continued on its philosophy of expanding its catalog of having the best hits across time by also inducting Berry Gordy’s music catalog as well. This would also later help the group in establishing buffer revenue from its publishing division, in difficult times. Moreover, undertaking a long-term restructuring campaign is in line with the needs of the future as the 2007 financial figures also represents the group's foresight, as it attempts to keep with the changing times by investing in its digital assets and distribution set-up. The recent growth of the group’s digital revenue by 59%, and an overall contribution of 10% to revenues as a whole, was a welcome development that showcased the future direction of the company.