EMI Turns Profit – A Look Inside
In a memo to his staff at EMI, Guy Hands announced that his turn around efforts are beginning to bear fruit. In the last quarter
- Revenue in the record division is up 61%
- Earnings doubled
- Quarterly earnings before interest, tax, depreciation and amortization of $118.4M
compared to a loss of $71.5Min the same period in ’07.
Seemingly impressive stuff, but its only part of the real story:
- The Coldplay album had just been released; so its positive impact will be felt of the coming quarter or two
- Many of the most expensive restructuring costs including executive buy-outs will not be reported until next quarter
- EMI staffers say the savings came from lower marketing outlays to
achieve similar sales. But is the model sustainable? When a product
cuts ad budgets, the effects are not felt until months later when
residual consumer interest fades. - Morale in many departments remains low
- New signings (aka future sales) remain slim
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Coldplay came out in June. Revenue from CD shipments and digital sales hit first quarter’s books. Plus there were single sales. I know Hands said Coldplay didn’t impact the quarter much, but we’re talking about tens of millions of dollars. It wasn’t an accident the album didn’t come out in the current quarter.
As for moving expenses around or suppressing expenses or doing whatever to cook the books, it’ll catch up next quarter. A privately held company doesn’t worry about quarterly performance so much — it’s one of the benefits of not having shareholders breathing down your neck all the time — so I’d be kinda surprised if there was an organized effort to change the timing of expenses in any one quarter.
There’s nothing wrong with getting similar sales on lower marketing costs. That’s just being efficient. But I see what you’re saying, that EMI held back on marketing outlays that will impact future sales. Like I said, it’ll all catch up with them eventually.