Don't Believe the Hype: EMI Did Not Post a $535 Million Profit
Here's another reason not to believe everything you read in the papers: London's Sunday Times reported that EMI's most recent annual profit rose 7% to £330 million ($535 million). The story was then picked up by a Bloomberg reporter who didn't pass the number through a basic sniff test. (Unfortunately, I could not find the Sunday Times article from which Bloomberg took the number.)
Short answer: EMI did not post an annual profit of $535 million.
Long answer: There are many accounting measures used in financial reporting. The number $535 million may have appeared somewhere on EMI's books, but there's no chance it posted a net profit of that much. Ultimately, the problem is the Times' and/or Bloomberg's lack of understanding of accounting terminology.
Such a sizeable profit doesn't pass the sniff test if you know what EMI's previous numbers were. According to the last Maltby Report issued when EMI was owned by Terra Firma, the company's annual revenue was £1,173 million ($1.8 billion) for the 12 months ended March 31, 2010 and its earnings before interest, taxes, depreciation and amortization (EBITDA) was £184 million ($297 million). Interest, taxes and other charges would take most or all of that £184 million.
A sizeable profit doesn't pass the sniff test if you have followed the trials and tribulations of the music industry. Profits are scarce (not operational profits, or pro-forma profits, but actual net profits). Warner has not posted a quarterly profit since the end of 2008. Over the last two years, its quarterly operating income (from continuous operations) has ranged from a low of -$1 million to a high of $54 million. Universal Music Group has accumulated earnings before interest, taxes and amortization (EBITA) of $449 million over its last four quarters. Its actual net profit is considerably less.
One accounting term is not like another. EBITDA, often called operating profit, is not profit. EBITDA adds back interest expense, taxes and amortization and depreciation - there can be considerable amortization expenses for music companies that own and acquire copyrights. On one hand, EBITA is a good metric because it gives a glimpse of operational performance. However, EBITA ignores two big costs of some music companies: the cost of maintaining debt and the cost of replenishing its music copyrights. After all costs are taken into account you're left with net profit or loss. This is the familiar "profit" term. It's the bottom line, the "earnings" in "earnings per share.
When you figure in the supposed 7% increase, the number reported in the Times make even less sense. If profit or EBITDA increased 7% to £330 million ($535 million), the same figure would have been £312 million ($508 million) the previous year. But the last Malty Report issued while EMI was owned by Terra Firma puts the company's EBITDA at £184 million ($297 million) (it also gave an EBITDA of £334 million [$539 million] that did not include restructuring and goodwill impairment charges). Perhaps timing is part of the discrepancy. The Maltby Report covered an April-to-March fiscal year while the Times report could be for a calendar year. But given the timing of the news, a mid-May leak implies a financial period that extends to the end of March.
Media reports are haphazard in their use of accounting terms. A company will often try to spin its earnings release in a favorable manner. For example, a company's press release might use the term "operating profit" instead of "net profit," and as a result journalists' coverage will report the company's growth in operating profit. Few if any articles will actually explain the difference between operating profit and net profit. And that's too bad, because there is a big difference between the two.
In this case, however, it appears the Times and/or Bloomberg simply got some financial information from a source and did not word the article very well. EMI did not respond to Billboard's request for a comment.
Domino Records Week-Long Pop-Up FM Radio Station
-- First the satellite radio pop-up station, now the FM pop-up station. Domino Records is launching a one-week FM radio station starting June 6, according to MusicAlly. "In the spirit of such stand-alone broadcasting giants as Radio Caroline, The Peel Show, Rinse FM, The World Service and Woman's Hour - and dispensing with such orthodoxies as play lists and compliance - Domino Radio commences transmission on June 6th 2011 - for one week only - featuring non-stop twenty four hour music, conversation and good times," the label explains.
Interesting idea. Pop-up radio is an avenue worth pursuing as brands look for new ways to get involved with music. It has worked for artists like Paul McCartney who have created short-lived stations on satellite radio. As Billboard reported (subscription required) recently, Kenny Chesney's No Shoes Radio was originally a pop-up station on XM Radio before it became a standalone entity. Now, No Shoes is a web-based Internet radio station and can be heard on Clear Channel's iheartradio service, too. In addition, Chesney weaves his sponsorships into No Shoes' programming - the station does not have traditional advertising.
Ghostly International's Free iPhone App
-- Here's some fun innovation out of the indie world: If you want to discover music based on mood, and you like the electronic-heavy catalog of Ghostly International, you're in luck. Ghostly Discovery is a free iPhone http://ghostly.com/discovery and web http://ghostly.com/discovery/play app that allows the user to explore the label's catalog based on desire mood. You can choose from aggressive, frenetic, energetic, neutral, laid back, introspective and sad. In addition, the user can control the songs played according to their how digital/metric and faster/slower they are. For a human touch, Ghostly is hosting the playlists - played in a pop-out player - created by its friends at XLR8R Magazine, Stones Throw, RCRD LBL and o2 Creative Solutions, the developer of the Discovery iPhone app.