The Worm In the Apple – Terra Firma’s EMI Purchase looks Increasingly Sour

As you may have read here on our blog Terra Firma are suing their advisors/lenders Citibank for perpetrating a fraud against them – essentially Terra are saying that Citibank mislead them about the amount of competition there was for the record label’s purchase, the benefit to Citibank being more than £92 million in fees and lending them £2.5 billion that they claim they didn’t need to borrow. The plot thickens when you realise that EMI was in a huge amount of debt to Citibank, among others and that it was in danger of defaulting on the debt if it wasn’t rescued by a purchaser. The specific accusation is that a Mr. David Wormsley, a Citi employee who was advising Terra Firma told a rather significant pork-pie in an attempt to prevent Terra from dropping out of the bidding for EMI, precipitating a ‘busted auction’ – something that would have massively decreased EMI’s stock price, and thus the value of Citi’s asset, as well as EMI’s ability to repay any value that was still outstanding in their loan from Citi.

These accusations may be coming from a party that is desperately trying to shore up a huge investment in a failing company (look at EMI’s previous 10-K’s for an idea of their year on year losses), but they are pretty frightening for the big 4 labels – file sharing may finally be on the wane, with big torrent trackers like Mininova and The Pirate Bay being forced to go legit, but costs at labels are still outstripping income, and copyrights on some of their biggest selling artists are going to begin running out over the decades to come: the first Beatles song will come out of copyright in the EU in 2012 (unless there’s a change in the law).

Apple, eMusic and some other download stores are breaking ground in making online music profitable, but there are indications that even iTunes market share is dropping – innovation is happening with streaming services like Spotify entering the fray with big-label backing, but the true form of digital music in the decades to come is as yet undecided. I wonder if EMI will be there to see the changes happen.

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