Despite the lavish affair at the W Hotel in Hollywood, EMI is in desperate financial trouble. So deep, in fact, that some were wondering how it could afford to host a party at all.
A few days after last month's Grammy Awards, Terra Firma, the venture-capital firm that owns EMI, announced that the record giant had lost nearly $2.5 billion last year. Not only that, a brick wall looms: EMI has to raise more than $200 million in the next six months to ensure that it does not fall into the hands of Citigroup the bank that lent Terra Firma, controlled by British financier Guy Hands, the cash to buy it 2 years ago. Given that finances are so tight, it is hardly surprising that EMI executives aggressively reminded journalists that the Grammy party did not cost the company a penny, thanks to sponsorship deals with the likes of Samsung and Xbox. The concern is an indication of how far EMI has fallen since the days when the Spice Girls topped the charts. The world's fourth largest record company, which also has the Beatles and Coldplay on its books, can't afford or rather can't be seen as being able to afford its own party.
EMI's financial problem is simple. When Hands bought the 113-year-old British company in August 2007 just before the credit crunch hit both he and Citigroup expected he'd be able to finance the $4.2 billion in debt he'd taken on to close the deal. Hands also believed he could quickly turn around EMI's long-struggling record division.
Since then, the company's finances have improved marginally. The record division made nearly $250 million in underlying profit in the fiscal year 2009, while the company's music-publishing arm, which oversees songwriters, generated $208 million. Both profits, though, were wiped out by massive write-downs, which created a largely paper loss of $2.4 billion. “With that level of debt in the business, the reality is that EMI is now almost worthless," says Simon Dyson, editor of the London-based industry newsletter Music & Copyright.
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