EMI Group plc History

Address:

4 Tenterden Street
Hanover Square
London W1A 2AY
United Kingdom

Telephone: (0171) 355-4848
Fax: (0171) 355-1308

Website: www.emigroup.com

Public Company
Incorporated: 1996
Employees: 17,699
Sales: £3.39 billion (US$5.58 billion) (1997)
Stock Exchanges: London
SICs: 2741 Miscellaneous Publishing; 3652 Phonograph Records & Pre-Recorded Audio Tapes & Discs; 5735 Record & Prerecorded Tape Stores; 6719 Offices of Holding Companies, Not Elsewhere Classified

Company History:

EMI Group plc is the fourth largest of the world's "big six" music giants. Demerged from Thorn EMI plc in 1996, after nearly 17 years of the EMI and Thorn "duet," EMI Group now focuses almost exclusively on music--music recording, music publishing, and music retailing. In the recording arena, the company runs more than 60 labels in 46 countries, including noted pop/rock labels Capitol (Bonnie Raitt), Chrysalis (Billy Idol), and Virgin (Rolling Stones, Smashing Pumpkins, Spice Girls); rap's Priority Records (Ice Cube); Capitol Nashville (Garth Brooks) in country; the jazz of Blue Note (Cassandra Wilson); as well as classical labels EMI Classics and Virgin Classics, EMI Latin (Selena), and the labels of the EMI Christian Music Group. EMI Music Publishing is the world's largest music publisher, owning the rights to more than one million songs. Music retailing includes more than 330 HMV music stores and Dillons bookstores in nine countries (Australia, Canada, Germany, Hong Kong, Ireland, Japan, Singapore, the United Kingdom, and the United States), and HMV Direct, a comprehensive direct mail catalog business. EMI also holds investments in music television channels in Germany (VIVA and VIVA2) and in Asia (Channel V).

Earliest Roots in the Gramophone

Electric and Musical Industries (later known as EMI Ltd.) was formed in 1931 from the merger of The Gramophone Company and Colombia Graphophone Company. The gramophone was invented in 1887 by Emile Berliner. Ten years later, The Gramophone Company was founded in London as both a manufacturer of gramophones and as a recorder of records to play on the gramophone. In 1898 the company made its first recordings and opened branches in Germany, France, Italy, and central Europe. Additional offices were established in Russia in 1900, in India in 1901, in Japan in 1902, and in China in 1903. The Gramophone Company had its first major artist when opera singer Enrico Caruso recorded ten songs for the company in 1902.

The increasing popularity of recorded music was evidenced by the ownership of a gramophone by one-third of British households by 1913. As a result of World War I, The Gramophone Company lost its Russian and German operations. By 1930 the company's roster of artists included Italian conductor Arturo Toscanini, German opera conductor Wilhelm Furtwängler, English composer Sir Edward Elgar, and English conductor Sir Thomas Beecham. In 1931, the year EMI was formed, the recording studios at Abbey Road were opened and EMI demonstrated stereophonic recordings for the first time.

During the 1940s the company's artist lineup expanded to include Austrian conductor Herbert von Karajan and German conductor Otto Klemperer. The company in this decade also appointed its first A&R (artists and repertoire) managers to develop popular music talent in the United Kingdom; George Martin, who later signed the Beatles, was among these appointees. In 1952 EMI added Maria Callas to its artistic roster.

Over the years EMI organized a line of sophisticated electronic systems--an outgrowth of its gramophone manufacturing origins--which included early British radar equipment and the BBC's first television system. Meanwhile, the company enlarged its position in the music recording and publishing industries through the 1955 acquisition of Capitol Records, one of the leading record companies in the United States, with a roster that included Nat "King" Cole, Frank Sinatra, Peggy Lee, and Gene Vincent. Additional global moves were made when EMI entered the Mexican market in 1957 and with the establishment of joint venture Toshiba-EMI Ltd., a Japanese record company formed in partnership with Toshiba.

1960s Brought Beatles on Board

During the 1960s EMI's recording division experienced tremendous growth, largely on the strength of sales of records by the Beatles, who were signed by Martin in 1962, the same year their first single, "Love Me Do," was released. That same year Capitol Records released the first Beach Boys album, Surfin' Safari. The success of EMI in the 1960s was most evident in the British singles charts for 1964, which had EMI artists--eight different EMI artists--hold the number one position for 41 of the year's weeks. In 1966 the company released its first prerecorded cassettes. The following year EMI signed Pink Floyd. Queen was added to the roster in 1972.

By the late 1960s profits from the EMI recording division surpassed those of the electronics division and enabled EMI to purchase the entertainment organization of Sir Lew Grade and the cinema business of the Associated British Picture Corporation. As a result, EMI had become one of the largest motion picture entertainment concerns in the world by 1970.

The late 1960s and early 1970s saw EMI expand in the areas of music publishing and music retailing. In 1966 the company began to expand its HMV music store operation. The first HMV shop had been opened in 1921 on Oxford Street, London, by composer Sir Edward Elgar. By 1970 there were 15 HMVs; six years later there were 35 and HMV had become one of the leading music retailers in the United Kingdom. The music publishing operation was bolstered through a series of acquisitions. EMI purchased Keith Prowse Music Publishing and Central Songs in 1969, Affiliated Music Publishing in 1973, and the Screen Gems and Colgens music publishing companies in 1976, both of which were bought from Columbia Pictures Industries. In 1973 EMI had organized its music publishing operations within a newly formed EMI Music Publishing Ltd. subsidiary.

In the early 1970s, however, EMI was also burdened by heavy losses from its Capitol Records operation and a poorly planned investment in an Italian television manufacturer called Voxson. The most significant nonmusic development for EMI during this period was the introduction of a revolutionary new Computed Tomographic X-ray scanning device in 1972. The fact that EMI had developed this scanner, with no previous experience in X-ray equipment, caused many to seriously reconsider the company's prospects.

Profitable sales of the scanner in the United States were drastically reduced after the Carter administration restricted government aid to hospitals. In addition, EMI failed to anticipate a strong reaction from its competitors. General Electric subsequently introduced a similar but faster model that effectively removed EMI from the market.

By 1977 serious problems with the medical electronics division caused management to be broken up into three divisions, each responsible for its own profitability. At one point EMI even appeared willing to dispense with its recovering music operations. Instead, EMI's path led to its being taken over in 1979.

Thorn EMI Created in 1979

The financially ailing EMI became a takeover target for lighting and equipment rental giant Thorn Electrical Industries Ltd. Thorn had been established in 1928 as the Electrical Lamp Service Company by Jules Thorn, who remained at the helm until he retired in 1979, not coincidentally prior to the takeover of EMI (Thorn's domineering personality had squelched a proposed merger between the two firms a few years earlier).

Institutional investors, who held a three quarters voting majority in Thorn, expressed concern that a merger of the two companies would be problematic because Thorn and EMI were very different companies. In the event of a merger, Thorn would have to let EMI management run itself, at least for a few years, because it knew so little about EMI's businesses. Another cause for concern was that EMI's new management team, led by the very capable Lord Delfont, had to prove itself under difficult circumstances.

At the end of October 1979 EMI rejected a £145 million bid by Thorn. The offer was resubmitted the following week for £165 million and accepted. The new company's name was changed to Thorn EMI plc on March 3, 1980.

1980s Thorn EMI Restructuring

The various divisions within the old Thorn and EMI organizations continued to operate independently of each other and, to some extent, of the central management group. Management reimplemented a planning model developed by the Boston Consulting Group that provided for the development of new enterprises by channeling funds from profitable operations. This had the effect of starving the successful enterprises within the company of funds needed to maintain competitive product lines. Just as the model failed in the early 1970s, it was failing again a decade later. Thorn EMI was less like a successful operating company and more like a weak investment portfolio.

In an attempt to raise money and reduce losses during 1980 and 1981, the company sold its medical electronics business, its hotels and restaurant division, and parts of the leisure and entertainment division. Later in the 1980s, additional Thorn and EMI businesses were sold, including EMI's entertainment operations. By the late 1980s, under the leadership of CEO Colin Southgate, Thorn EMI had returned to the basic industries upon which Thorn and EMI had been separately built: music, lighting, rental and retail, and technology (including computer software and defense electronics). All told, during the 1980s Thorn EMI divested more than 50 noncore operations, bringing in more than US$700 million.

EMI Bolstered in the Late 1980s and Early 1990s

Although EMI's music operations had been neglected somewhat during the restructuring of Thorn EMI, they now became the beneficiary, as much of the cash generated by the asset sales was poured into acquisitions and expansions. In 1986 HMV became a separate division of Thorn EMI and an international expansion of the chain began. In 1990 alone, HMV outlets appeared for the first time in Australia, Japan, Hong Kong, and the United States. By 1996 there were more than 300 stores worldwide in eight countries, including Canada, Germany, and Ireland. In 1995 a U.K. bookstore chain called Dillons was acquired and was added to the HMV division.

EMI Music Publishing was bolstered through the 1989 acquisition of SBK Entertainment World, Inc. for £165 million (US$337 million). SBK was the onetime publishing unit of CBS Records, which consisted of a 250,000-song catalog, including "Singing in the Rain" and "You've Lost that Lovin' Feeling." This addition made EMI Music Publishing the top music publishing operation in the world; its catalog included more than 850,000 songs by late 1992. EMI's music recording unit, meanwhile, acquired several prominent labels. In 1990, 50 percent of Chrysalis Records was purchased, with the other half acquired two years later. Chrysalis brought such acts as Huey Lewis & The News, Billy Idol, and Sinead O'Connor to the EMI fold. The blockbuster acquisition, however, was that of Virgin Music Group Ltd., bought for £510 million (US$957 million) in 1992, a deal that included both record labels and publishing catalogs. The addition of Virgin, whose artists included the Rolling Stones, Phil Collins, and Janet Jackson, cemented EMI's position as one of the music industry's giants, alongside Time Warner, Sony, PolyGram, MCA (which later became Seagram's Universal Music Group), and Bertelsmann. Also acquired in 1992 was Sparrow Records, the largest Christian music label in the United States, which later became the centerpiece of the EMI Christian Music Group. Added in 1994 was Intercord, a leading independent record company in Germany. During the early 1990s EMI garnered blockbuster sales in the United States from the star of its Liberty label, country singer Garth Brooks (who later recorded for EMI's Capitol Nashville label). Virgin signed Janet Jackson to an exclusive, $60 million contract in 1996, the same year that the Beatles' Anthology albums posted large sales.

In 1994 EMI entered into the music television arena through joint ventures in Germany, where the VIVA and later the VIVA2 channels were launched, and in Asia, where Channel V was introduced. All of these stations devoted much of their airtime to domestic artists, whereas MTV, even in Germany, for example, tended to showcase English-language acts. The VIVA stations were co-owned by EMI, Bertelsmann, Time Warner, Philips (owner of PolyGram), and Sony. Channel V was 50 percent owned by News Corporation, with EMI, Time Warner, Sony, and Bertelsmann each holding a 12.5 percent stake.

1996 Demerger of Thorn EMI

Thorn EMI itself, meanwhile, was continuing to be transformed in the 1990s. Thorn's rental operations became the company's most important nonmusic unit and had been beefed up in 1987 through the £371 million acquisition of Rent-A-Center, a rent-to-own outfit based in the United States. In 1993 Thorn EMI sold its lighting division, the business upon which it had been founded. Over the course of several years and several transactions, the company's defense businesses had been divested by 1996. Thus Thorn EMI in mid-1996 had just two divisions--music and rental--both world leaders. They had little in common, however, leading to the long-anticipated August 29, 1996 demerger of Thorn and EMI, out of which emerged EMI Group plc and Thorn plc, both initially headed by Southgate as chairman. EMI Group included all of Thorn EMI's music-related operations: music recording, publishing, and retailing and the investments in the music channels. It also included the Dillons bookstores, which continued as part of the HMV Division. Several noncore businesses--Central Research Laboratories, Thorn Secure Science International, Thorn Transit Systems International, and a holding in Thorn Security--which EMI retained after the demerger, were divested less than a year later.

Rumors that the newly independent EMI would be taken over by one of the industry's other giants persisted for some time following the demerger, but had subsided some by late 1996. In October 1996 the debut album by the prefabricated Spice Girls posted huge sales; more than 17.5 million copies had been sold in the 12 months following its October 1996 release. EMI's immediate concern was the need to turn around its flagging North American music operations, which had managed to capture a mere eight percent of the US$12.5 billion U.S. market in 1996. In May 1997 North American management was shaken up, with Ken Berry, who was already president and chief executive of EMI Records Group International and chairman and chief executive of Virgin Music Group Worldwide, taking over. Berry became the worldwide president of the newly formed EMI Recorded Music unit, which comprised all three of these operations. At the same time, a restructuring of the U.S. operations--including the closing of the head offices of EMI-Capitol in New York--led EMI to record a charge of £117.2 million (US$192.8 million) in fiscal 1997. Later in 1997, EMI Music Publishing, already owner of the rights to more than one million songs, added a catalog of 15,000 songs from the Motown era--including "I Heard It through the Grapevine" and "My Girl"--in a deal with Berry Gordy, founder of Motown Records, worth up to £232 million (US$382 million).

EMI Group had come a long way over a 100-year history spanning the gramophone and the Spice Girls. Worldwide, EMI was the fourth largest music company in 1997. It could challenge the companies ahead of it with a turnaround of its North American operation, which held no better than fifth or sixth place in the United States, the largest and most profitable music market. EMI may look for additional acquisitions as one avenue to U.S. success, as evidenced by the fiscal 1997 purchases of 50 percent of rap label Priority Records (including the rapper Ice Cube), 49 percent of New York-based alternative label Matador Records, and all of Forefront Communications, the largest independent Christian music label in the United States, headlined by million-selling artist dc Talk. And as overall music sales in Europe and North America continued at a sluggish rate of growth in the late 1990s, EMI was also likely to continue to seek growth opportunities in the emerging markets of eastern Europe, Asia, the Middle East, and Latin America, where the company was achieving success marketing domestic talent.

Principal Subsidiaries: EMI Records Ltd.; EMI Music Publishing Ltd.; Capitol-EMI Music, Inc. (U.S.A.); EMI Entertainment World, Inc. (U.S.A.); EMI Music France S.A.; EMI Music Italy S.p.A.; EMI Electrola GmbH (Germany); EMI Music Australia Pty. Ltd.; Chrysalis Records Ltd.; Capitol Records, Inc. (U.S.A.); Virgin Records Ltd.; Virgin Records America, Inc. (U.S.A.); Virgin Schallplatten GmbH (Germany); Groupe Virgin Disques S.A. (France); Toshiba-EMI Ltd. (Japan; 55%); EMI Group Home Electronics (UK) Ltd.; HMV Division; Dillons the Bookstore Division; EMI Group Finance plc; EMI Group North America Holdings, Inc. (U.S.A.); EMI Group North America, Inc. (U.S.A.); EMI Group International Holdings Ltd.

EMI Group plc History

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