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EMI Won’t Abandon Trade Groups, Will Cut Fees to IFPI

emi piracyS.W.O.T and Cost-Benefit analysis are nothing new to consultants. They’re tools of the trade.  They’re also part of the vernacular of turnaround specialists looking to right the sinking ship of a company in crisis.  When such an executive walks into a troubled corporation one of the first things asked is what is returning value and what isn’t.  “Where is the pain?” the saying goes.  Under-performing sectors that aren’t part of the strategic vision end up on a short list to be euphemistically cut.

Last year, private equity firm Terra Firma entered the fray of the struggling music industry and privatized “Big 4” label EMI.   Quickly, they went looking for the trouble areas and one of the first areas to be called out was the music industry trade groups like the RIAA and the IFPI (the International Federation of the Phonographic Industry).  At a reported cost to the label of nearly $130m a year, there were serious questions whether these assorted lobbying groups were returning enough value to justify the expense. 

(In October, Sony BMG’s head of litigation Jennifer Pariser admitted in trial proceedings that the RIAA’s aggressive anti-piracy litigation was a money pit that had cost the labels millions.)

Resulting from the excess spending, starting in November and escalating through January there was plenty of hostile commentary and rampant speculation EMI might either cut their contributions to these groups or back out entirely.  Now March, the two sides have finally reached an agreement.  Costs will be cut but the relationship will endure.

Speaking for EMI, Jean-Francois Cecillon said “together [EMI and the IFPI] have been able to find solutions which we believe are achievable whilst maintaining what the IFPI does best in representing the industry.”

No details have been released about the specific details.  An IFPI spokesperson did tell Reuters in a statement that the agreement was a “sensible, appropriate and reasonable reduction in our budget.”

Some are speculating that language translates to cuts in the range of 15 to 25 percent of EMI’s prior direct contributions. (The International trade group is funded by a combination of direct and indirect contribution.  Indirect money is money given to national groups which then pay some of it to the global organizations.   Direct contribution is money paid straight from the label to the global organization).

Sources speaking to the Financial Times hinted half the IFPI’s budget reportedly comes via indirect contribution from the national trade groups like the RIAA in the U.S. and BPI in the UK, and that money wouldn’t be subject to these cuts.  If true, the speculative range is plausible, maybe even probable.

Next up, EMI, which recently cut costs with layoffs too, is expected to have related negotiations with the national groups. Similar cuts, whatever they may be, could be in line for the RIAA and BPI.


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