EMI’S 20% SOLUTION

This morning, EMI rolled out the worldwide restructuring plan undertaken by the team of Alain Levy and David Munns, and the numbers were even more aggressive than expected.

The latest wave of cutbacks represents the culmination of a sweeping staff reduction, as about 1,800 employees out of EMI’s total global workforce of 9,000—or roughly 20%—will be let go by the time the process is completed.

According to those close to the situation, the 20% staff reduction amounts to a 15% cost savings but comes with a $150 million price tag, which will be taken as a one-time charge. These moves will result in estimated annual savings of $140 million (well, 98.5 million pounds sterling, to be precise). The company further announced that annual shareholder dividends would be cut in half and the savings reinvested in the restructuring plan.

Most of the pink slips will be handed out by the end of April, and the process should be completed by late September.

"We are shaping EMI Recorded Music for the future, and positioning it for revenue growth from a much lower cost base and with much better practices," Levy proclaimed in a statement. "There are some real challenges facing the music industry at the moment. However, we are firmly on target to improve EMI's performance, and we are optimistic about our ability to attack the broader challenges."

Flanked by Munns, EMI Group chieftain Eric Nicoli, Finance Director Roger Faxon, EVP Strategy, Business Development and New Media John Rose, European head Emmanuel de Buretel and U.K. chief Tony Wadsworth, among other execs, Levy assessed the shape of the biz and his vision of EMI's evolving place within it at a press conference.

He blamed numerous factors for slow growth in the industry, some external (such as piracy and the widespread availability of free music online) and some internal, including what he called "a tendency to buy marketshare rather than achieve it," non-performance-based executive compensation packages, lack of innovation in the digital realm and an unwillingness to invest sufficiently in the development of star acts.

"Many industry executives have forgotten it’s all about artists and music," he declared. Whoa, deja vu.

Not surprisingly, the remade/remodeled EMI will emphasize A&R, promotion and marketing on a worldwide basis. Those prioritized areas will exist as two distinct entities in each territory, one under the Virgin logo, the other under Capitol (formerly EMI and Parlophone, among other recently discarded label names). Back-office functions such as finance, human resources, payroll and business developments are being centralized. Insiders assume that the dual distribution that exists in most countries will be unified as well.

Though the radical changes outlined above constitute much of what Levy called Phase One of EMI's restructuring, he underscored that aggressive new-media intiatives would highlight Phase Two, slated to take place in 2002-03.

Since taking over the music unit last October, Levy has been scrutinizing the company’s global operations in search of redundancies and dead wood. During that time, EMI has issued two profit warnings amid a depressed market.

Additionally, Levy plans to sell off some of EMI’s properties, reportedly including the company’s stake in U.K.-based retail chain HMV Media, in order to reduce debt, which is hovering in the vicinity of $1.4 billion.

EMI warned last month that its profit before tax, amortization and one-time items—like the $28 million it shelled out to Mariah Carey to go away—would be about $215 million. The company’s fiscal year ends March 31.

Levy replaced EMI Recorded Music Worldwide Chairman/CEO Ken Berry, who’d been ousted after a four-year run that saw two failed merger attempts (with WMG and Bertelsmann), declining marketshare, the much-criticized $80 million signing of Carey and wavering stock prices at parent EMI Group. Levy was previously PolyGram’s President/CEO.

Shortly after being named EMI’s CEO, Levy anointed Munns as EMI Vice Chairman. Munns, the onetime Senior VP of Pop Marketing worldwide at PolyGram, has since been put in charge of EMI’s North American operations.

Late last week, after reports of the impending cutbacks were published, Schroder Salomon Smith Barney raised its rating of EMI stock from "neutral" to "outperform," with a commensurate increase of its price target from 300 pence to 400 pence.

"Forward-looking statements are not forecasts," the company reminded attendees of its press conference. Amen to that.