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MARKET COMMENT
By
Carburton Street, London -- There are very few strategic options open for players in a shrinking or declining market. And demand for recorded music certainly appears to be showing all the signs of an industry has gone beyond the stages of maturity into a period of prolonged weakness. Part of the problem stems from new technology, in the form of digital media that has slowly eroded the attraction of recorded music. Downloads from the Internet, both legally and illegally, have made compact discs and audiotapes almost defunct for some consumers. The downturn in demand for recorded music has taken its toll on the music company EMI (LSE: EMI). At the interim stage, EMI posted a 7% fall in turnover to £1,067m and a 61% decline in operating profit to £43.1m. This drop in operating profit caused pre-tax profit before accounting for exceptionals to fall from a profit of £59.1m last year into a loss of £2m this time. But it wasn't all bad news at EMI. The company's music publishing business saw turnover grow by 4% to £200m and operating profit at this division remained relatively steady at £51.2m. EMI said it expects its music publishing business to deliver another good performance in the second half but the outcome for its recorded music unit remains unpredictable in view of uncertain market conditions. EMI has opted for one of the more favoured strategies for companies operating in a declining market. It aims to restructure through addressing the issues of cost. This helps to create an organisation that can, through its superior cost structure, exploit the shrinking market through competitive pricing. EMI is pinning its revival hopes on Alain Levy, the man who will head EMI Recorded Music. It is widely expected that his strategic review will result in a restructuring plan that would deliver greater savings. To succeed, Levy will need to shrink costs quickly and at a faster rate than the speed of market contraction. More: EMI discussion board.