Large global music publisher EMI, owned by private equity firm Terra Firma, will be cutting 2,000 of its 5,500 jobs according to The Sunday Telegraph. The company will cut out duplication among the back offices of its several record labels.
Shareholders of Warner Music Group (NYSE: WMG) are certainly looking on. The publisher's stock has fallen from about $30 in mid-2006 to just over $5 last week. The digital download business and piracy has undercut critical revenue from CDs and that is not likely to end.
Apple Inc. (NASDAQ: AAPL) now controls most digital music pricing through iTunes. Music publishers have no large alternative means of marketing artists. CD sales are never likely to reverse their sales slide.
Warner is probably left with little other than to make huge cost cuts of its own. In the last quarter it had very modest operating income of $142 million on revenue of almost $3.4 billion. But, interest expense on the company's debt was over $180 million for the period.
Mass lay-offs will not solve WMG problems long term, but they may be essential for the company to make it through the next couple of years.
Douglas A. McIntyre is an editor at 247wallst.com.