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Last Updated: Friday, 12 January 2007, 11:43 GMT
EMI's great survivor takes the helm
Robert Peston
By Robert Peston
BBC business editor

Man in record store
The way consumers buy music has been changing rapidly
Eric Nicoli, the executive chairman of EMI, is the great survivor.

He has stayed at the helm through so many reversals of fortune at EMI - incredible swings in profit, deals that have failed for assorted reasons - that I have almost lost count.

But what he has announced today will test him like nothing that has gone before.

EMI Music business just is not shifting enough CDs.

We knew that, in the sense that it is also part of the background to the lousy figures announced yesterday by HMV and poor figures due to be announced by Woolworths.

But the scale of the downturn is pretty gobsmacking: EMI Music's full-year revenues could decline by between 6% and 10%.

Apparently, it is not Mr Nicoli's fault.

Out the door go the charismatic French chairman of EMI Music, Alain Levy, and his vice chair, David Munns. Effectively, they will be replaced by...Mr Nicoli.

The music biz and "denial" have always been hand in glove
Robert Peston

He has become chief executive of the whole group, handing over the chairmanship to John Gildersleeve, the former Tesco man, who will fill this role in a non-executive capacity.

But the important change is that the separation between the "group" and its "EMI Music" subsidiary will effectively be eliminated. In his new role as chief executive, Mr Nicoli will run EMI Music.

In decline

Now here is the positive gloss - Mr Nicoli will run the company in the way that a private equity owner would.

Remember that late last year EMI told Permira, the leading private equity house, to hop off when it said it wanted to buy the company.

In view of what has happened to EMI's sales, Permira may think it has had a lucky escape. But EMI's shareholders may question whether the company should have been so dismissive of the offer.

Shelf of CDs
Many consumers have turned from CDs to music downloads

Anyway, EMI says it can cut its annual running costs by a staggering 110m over the coming two years, on top of cost savings that have already been announced.

In an industry that has been in decline for years, due to the conspicuous pressures from digital downloading, it almost beggars belief that these costs are still in the business.

The music biz and "denial" have always been hand in glove.

What's more, EMI is hinting at gearing up the balance sheet (taking on more borrowing) when the cash-flow benefits of the reconstruction start coming through. Again, this is private-equity strategy without the private-equity bid.

Market instability

So EMI shareholders will be in something of a state of turmoil this morning.

On the one hand, they will like the idea that private-equity returns could flow directly to them, but they will also question whether they are right to place their confidence in Mr Nicoli to deliver these returns.

At the moment, Mr Gildersleeve is Mr Nicoli's human shield, but the future of Mr Nicoli and EMI remains uncertain.

Permira will not, I think, come back with a new bid, and there are regulatory obstacles to a rival music company making an offer.

However, what has been announced today by EMI is not the end of the story.

What will be very gripping will be details of Mr Levy's severance terms and Mr Nicoli's new remuneration contract - he will be in some difficulty if either look too generous.

EMI's shares have fallen 7% and 85 million shares - or more than 10% of the entire company - have been traded since the announcement.

The hedge funds are piling in. And where they lead, instability follows.

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