One year after stunning the music business by paying nearly $1 billion for Virgin Music Group, Great Britain's Thorn EMI is still dogged by conventional wisdom that it grossly overpaid.
But EMI and Virgin executives hope that the coming weeks will blunt the criticisms by showing that they have turned an operation that was breaking even at best into a major contributor to the company's operating profit. What's more, they are counting on a huge boost from the long-awaited Janet Jackson album, which went on sale last week.
"When you buy a Picasso, people will always say you overpaid. But there is only one of them," EMI music chief Jim Fifield said.
EMI is expected today to report its earnings for the year ended March 31. The company wouldn't disclose any numbers, but analysts who follow the company expect that EMI's operating profit should be in the $320-million range.
Virgin's contribution is expected to be about $80 million for the 10 months of the fiscal year that EMI owned the company, with estimates that it will rise to $125 million a year next year, something that securities analysts find encouraging.
"The market may be revising its view of this deal," said Christopher Page, a London-based analyst for Goldman, Sachs & Co. "The new figures will go a long way toward removing the doubts."
EMI bought Virgin last year from flamboyant British entrepreneur Richard Branson, who had built Virgin into a huge independent label that boasts such stars as Janet Jackson, the Rolling Stones, Lenny Kravitz anD Paula Abdul.
But Virgin had also grown flabby, and problems were exacerbated because the label was stuck in limbo for more than a year while Branson shopped it around. Once that cloud of uncertainty was lifted by the EMI acquisition, Virgin Chief Executive Ken Berry went to work making some delicate belt-tightening moves that Virgin needed, while at the same time trying to make sure the company kept its independent identity.
The number of Virgin artists was trimmed from a bloated 200 to a much leaner 80. Virgin slashed the number of employees worldwide from 1,100 to 700. Most important, Virgin reaped big savings because EMI now makes and distribute its CDs and tapes, something Virgin previously contracted out to other companies.
"Any company that had bought Virgin would have needed to shrink the size of the overhead," Berry said. "When you pay all that money to buy a business, it has to perform financially to make it work. But we had to make sure those changes within Virgin were healthy for the company."