EMI to Cut 1,800 Jobs, Drop 400 Musical Acts

EMI Group announced a massive overhaul Wednesday, slashing 1,800 jobs and dropping 400 acts in a drive to cut costs and stem losses at the struggling British music giant--home to such stars as Garth Brooks, Norah Jones, Janet Jackson and the Beatles. Nearly one-third of the layoffs will be in Los Angeles.

The dramatic restructuring, in which about 20% of EMI’s work force will be cut, is expected to deliver annual cost savings of about $140 million, the company said.

The move follows two profit warnings and comes ahead of the release next week of EMI’s 2001 earnings report in which the company is expected to post an estimated $214 million in pretax profit--down from $372 million a year ago.

Alain Levy, chief executive of EMI’s record division who was brought in last year to revive the world’s third-largest music company, said the cuts were necessary as sales continued to plummet. He warned that the industry must change its glitzy ways.

“The old industry system is doomed. It got too fat,” Levy said in an interview from London. “Music companies have got to change the way they do business. This is not about guaranteed executive bonuses or first-class plane flights anymore. Nor should the focus simply be about market share or quarterly reports. It’s about long-term artist development. It’s about profits.”

Levy said about 500 of the 1,800 pink slips would be issued to U.S. employees at the Virgin and Capitol labels, as well as its EMD distribution operation, all of which are based in L.A. And although the bulk of the staff cuts will affect back-office positions, the layoffs also will include more than 20 managing directors at satellite offices around the world.

Despite the worldwide downturn in music sales and rampant piracy, David Mumms, head of EMI’s North American operations, acknowledged that some problems dogging the British corporation were “EMI-specific.”

“We discovered a number of efficiencies that we had room to make without doing any real damage to the process of making and selling records,” Mumms said.

Levy said a large part of the restructuring would focus on better management of Virgin Records, which EMI acquired in 1991 and, he maintained, was never fully integrated into the company’s global empire. In many countries, Levy said, EMI operated separate offices for Virgin and Capitol, with duplicate accounting, marketing and promotion staffs.

Levy said that no other EMI superstars were expected to meet the fate of Mariah Carey, who was pushed out after only one disappointing CD. In January, EMI agreed to pay the pop diva an estimated $33 million to buy out her contract, in addition to $20 million Carey had earned for one album.

Levy said the company expected to save millions in recording and marketing costs by elbowing out hundreds of unknown acts in such markets as Finland, Indonesia, Chile and Malaysia.

The massive restructuring plan is expected to result in a one-time charge of about $340 million. Levy said EMI also intended to refinance its debts and cut its annual dividend in half to help pay for the restructuring.

Wednesday’s announcement is the latest in a string of shake-ups at EMI. In November, EMI Group Chairman Eric Nicoli fired EMI record chief Ken Berry and replaced him with Levy. Levy then fired Virgin head Nancy Berry, the wife of Ken Berry, as well as a number of executives, including Chief Financial Officer Tony Bates.

Levy also ousted Virgin executives Ray Cooper and Ashley Newton, barely a week after dumping Carey.

Nicoli said he was confident that Levy’s restructuring plan would help resuscitate his beleaguered company.

“It you want to make a comparison between the new management team with the previous regime, I would say that these guys have a much harder commercial edge,” Nicoli said. “They also have vision and leadership--qualities that the business badly needs in the foul weather that we find ourselves in.”

Shares of EMI rose 2.9% in London trading Wednesday.