Outlook: Finnish hit could pull EMI out of the mosh pit

Barrett's pay; Painless recession
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The Independent Online

To understand the bind that EMI, Britain's premier music group, finds itself in, there is really only one set of statistics you need to know. EMI employs nearly as many people as Universal Music, part of Vivendi Universal, yet it sells less than half as many records and on the present numbers makes just a fifth of Universal's profits. More worrying still, the company seems to be relying for life support on its back catalogue of golden oldies.

EMI's top five selling acts last year included the Beatles, Pink Floyd and Janet Jackson. No one should underestimate the enduring appeal of these artists, but the company's inability to generate new acts of any significance points to an organisation that more and more is living on borrowed time.

Alain Levy, EMI's new head of recorded music, and his trusted lieutenant, David Munns, pressed all the right buttons yesterday in outlining their plans to address these deep-seated problems, but the concern must be that it is already too late. That is not, it has to be said, a view shared by the stock market, which has added more than 30 per cent to the EMI share price since Mr Levy announced he was joining.

A lot of hope is already being invested in this music industry veteran's ability to turn EMI around. Mr Levy is going much further than the half baked set of cost cutting measures announced when the former head of recorded music, Ken Berry, was sent packing. Nearly £100m a year is being slashed from the costbase and the group is dramatically slimming its catalogue of B-list artists. Not many people knew this before yesterday, but apparently EMI has no fewer than 49 acts in Finland, which as Mr Levy himself opined, is probably rather too many.

All this comes at a considerable cost. EMI is proving as generous with the redundancy cheques as it has been with its pay, and there will be a £110m exceptional charge to cover the cost cutting alone. On top of that comes the £38m set aside for terminating the company's contract with Mariah Carey and an additional £92m of asset write-offs and writedowns on loss-making investments. After that lot, the need to "rebase" the dividend by chopping it in half, goes without saying.

It is always hard in a people business as filled with fragile egos and assorted free loaders as EMI to achieve job cuts on this scale, but the surgery, traumatic though it might be, is actually the easy part of Mr Levy's job. Then comes the next stage of rebuilding the company's stock of creative talent, and that's going to be much tougher. EMI has been slow in tapping into the latest musical trends, and its relatively poor presence in the United States puts it behind the curve in the top selling youth acts of rap and new metal.

It has taken EMI an awfully long time to grasp the nettle and do the necessary. Much of the last two years has been spent pogoing around in pursuit of a consolidating merger that was so plainly going to fall foul of competition regulators that it is hard to know how the idea ever came to be put forward in the first place. In the meantime, the company has sunk further into the mosh pit. It's going to take a lot more than band aid to make EMI sing again.

Barrett's pay

Can it really be only two years ago that Matt "I'm a bargain" Barrett last had to justify a bumper pay package? It can and on that occasion the chief executive of Barclays wrote a rambling and at times emotional six-page letter to every member of staff to let them know what was "rattling around" in his head.

The newspapers had mischievously suggested Mr Barrett was in line for a payout of £30m while Barclays was busy closing down branches, ripping off small business customers and charging the rest of us for the use of its cash dispensers. "Hype and lunacy," he thundered, adding for good measure that Barclays' share price would have to rise ten-fold to trigger such a windfall.

How right he was. The increase in the share price has been a rather more pedestrian 28 per cent, netting Mr Barrett a measly £4.5m not including the value of his long-term share awards. Given that Barclays' share price has done no more than track its peers, that still looks pretty good for unexceptional performance. But the Barclays press office is nothing if not game and this year they have tried to pre-empt the uproar by announcing details of Mr Barrett's latest pay deal before they leak out, accompanied by a pleasingly brief one page press release.

Barclays is delighted to have secured Matt's services for another three years and in return he stands to collect £10m. There is £1.1m in basic pay accompanied by the same again in bonus payments if Barclays succeeds in enabling investors to double their money. (Not quite as challenging as it looks when re-invested dividends are taken into account). But the real humdinger is the contribution to Mr Barrett's pension pot, which is more than doubling to £990,000 a year. The bank's explanation is that Mr Barrett is only three years away from retirement and, since he joined after the final salary scheme was closed down, he might otherwise have been staring at pensioner poverty. Mr Barrett is a bachelor and has a lifestyle to keep up, so it really wouldn't do.

At least everyone now knows what's been rattling around in Barrett's head. It's money.

Painless recession

Is this really as bad as it gets? If yesterday's labour figures are anything to go by, Britain has survived the business downturn of the last two years with pretty much nil impact on employment. Even since 11 September, there has been no net rise in unemployment. Despite all the gloom and doom, the country is as near to full employment as it is possible to get without actually experiencing the real thing.

Not for nothing has it already become known as the "painless recession" or, because in the end there was not even a single quarter of declining growth, the "non-existent recession". Even the two resident doves on the Bank of England's Monetary Policy Committee, Sushil Wadhwani and Christopher Allsopp, refused to vote for a rates cut at the last meeting. Nothing could be more indicative of the change in prevailing mood.

None the less, all business downturns have their defining characteristics, and just as the one in the early 1990s is still remembered for "negative equity", perhaps this one will become known for the day everyone collectively woke up and realised they didn't have a pension any more, or at least not the one they thought they had.

The bear market has crept up on savers almost unawares and it is really only in the last six months that your average Joe six-pack has come to appreciate the damage it has done to his prospects of a comfortable retirement. The London stock market is little higher now than it was at the start of 1998, one of the longest periods of nil return on equities in recent history.

In the meantime, Britain's debt-fuelled consumer boom has continued unabated, even though the reality dictates that workers should be saving more, not spending it. Most people remain in a state of denial about the long-term implications. Perhaps another label for the present downturn should therefore be "pain delayed".

j.warner@independent.co.uk

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