EMI Is On the Brink of DeathS

The number of major record labels seems set to drop to a mere three, as EMI has failed to make a deal for North American distribution rights with either Universal or Sony. Updated

As I wrote about extensively here, EMI is doing very, very badly, and things have just been getting worse for them. They had hoped to get themselves out of immediate danger of being broken up or sold by making a five-year deal with either Sony or Universal worth about $304 million. They couldn't pull it off.

So where does that leave them? Well they need to raise about $180 million by June or their loan from Citigroup goes into default, at which point the bank could seize EMI and either break it up or sell it.

The consolidation of the major labels to a mere three (Sony, Warner and Universal) would be the tightest the music industry has ever been. But those remaining three, while struggling to be sure, have not been in the terrible situation EMI has been in. And with them probably snapping up EMI's valuable assets (without the worthless ones) for rock-bottom prices, they could get a bit of a life come this summer.

But the way things are headed for the industry, without some major changes they're all headed in the same direction as EMI. The questions is whether or not they'll be able to figure out how to change course before it's too late.

Update: A source familiar with the discussions told me that Universal initially approached EMI for a deal. Sony then heard about it and got in on the discussions as well as they turned serious over the weekend.

In the wee hours of the morning yesterday, EMI walked out from the deal UMG was proposing as it did not offer enough value to stakeholders or its artists. The deal's off and EMI is finalizing a plan for its owner, Terra Firma, and in turn, Terra Firma is talking to its investors about additional funding for an "equity cure" or cash to ensure Terra Firma can meet its debt obligations for EMI.

If EMI had been that desperate for cash, they would have taken the UMG deal — about $310 million — and banked the money before the end of its fiscal and you would have seen a deal announced. But EMI is doing great in an otherwise down market and they didn't need that UMG deal.

In any case, the deadline for EMI is June. We'll see what happens. [AP via Brooklyn Vegan]