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Outlook: Robbie puts EMI's Levy between a rock star and a hard place

ARM Holdings; Trinity Mirror

Jeremy Warner
Thursday 03 October 2002 00:00 BST
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Robbie Williams will be loving angels instead this morning after signing a new contract with EMI which seems to set new standards of profligacy even for an industry as prone to excess as popular music. "I'm rich beyond my wildest dreams", shouted a jubilant Mr Williams. "Do shut up", Alain Levy, EMI's head of recorded music must have been muttering under his breath. "You don't want to make us look like complete plonkers".

No one was saying officially what the big number is, but for obvious reasons, EMI was desperately trying to downplay reports that it was as high as £80m for a standard four album deal. But that it is a record for EMI is not being disputed. No other British artist has commanded such a sum, and although the deal is more complicated than it seems, few US singers have either.

Mr Williams is a class act. There is no doubt about that, but can he really be worth so much? Conditions in the music industry have rarely been worse. Sales are collapsing and piracy is rampant. This doesn't seem an appropriate times to be shelling out top dollar for any entertainer, let along one yet to make his mark in the US. In the City there was incredulity followed by relief that Mr Levy seems at least to have tied payment to the achievement of sales targets. The advance may also include a lump sum for an equity stake in the former Take That star's company, which would give EMI an ongoing interest in anything Mr Williams makes outside the album contract, including touring, publishing, merchandising and TV shows.

Regrettably, details of the contract are thin on the ground, so it is hard to know how well protected EMI's position really is. The precedents are not good. EMI signed a similar deal with the American singer Mariah Carey, only to see her career go into free fall. One of the first things Mr Levy did when he arrived at EMI was to grasp the Carey nettle and buy her out for $30m. The free spending ways of the past were at an end, he seemed to signal. In future the company would be run for success and profit. The Robbie deal seems to run counter to the rhetoric. Mr Williams doesn't look like another pop idol on the verge of a nervous breakdown, but this is a big gamble by Mr Levy none the less.

Whatever its insurance, EMI will need to work Mr Williams very hard indeed to justify the headline figure. Much depends on whether Mr Williams can be broken into the lucrative US market, where he has yet to sell in quantity.

EMI has achieved some success in the US with Kylie since Mr Levy arrived, but it will have to do better by an order of magnitude with Robbie to make the gamble work. From a standing start, that's one hell of a challenge, even for the reformed US network Mr Levy has put in place. Robbie Williams as the new Frank Sinatra? For American tastes, the Williams marketing pitch seems too much like coals to Newcastle. IT is not at all clear that Robbie's "cheeky chappie" charms will work as effectively in the US as here. Americans may speak the same language, but culturally there's a yawning gap.

Robbie and his lawyers have played a good game, and by the look of it won themselves an excellent deal. For Mr Levy, it's hard to know what else he could have done. Robbie placed EMI between a rock and a hard place. Which would have been better? That the company signs a deal many will see as a high risk return to the old profligacy? Or that it announces just before Christmas in an industry deeper in the doldrums than it can ever remember that it has just lost its best selling singer to Universal? "Down the waterfall, wherever it may take me, I know that life won't break me". If only EMI could be as sure as Mr Williams and his agent are.

ARM Holdings

No company can forever keep growing without at least the occasional breather, and with 18 quarters of consecutive earnings growth under its belt, ARM Holdings, the chip designer, kept it up for longer than most. Even so, ARM did rather set itself up for yesterday's halving of the share price by continually boasting of its unbroken track record in meeting market expectations. Share prices may rise and fall, the technology bubble has come and gone, but ARM has never performed any worse than it said it would. That was the promise and the track record seemed to make it credible. Until yesterday that is.

ARM is one of those companies that was meant to be comparatively immune to the ups and downs of the business cycle. The idea was that even when the going got tough, manufacturers of mobile phones and other gadgetry would still have to keep buying its designs for chips or they would get left behind by the competition that did. John Chambers, chairman of Cisco, used to say the same thing about his internet routers group. It didn't work for him and although ARM's Sir Robin Saxby has managed to keep the faith for longer, in the end it hasn't worked for ARM either.

The semiconductor industry is going through its worst downturn ever with production and sales down by something like a half from the peak. ARM doesn't manufacture micro-chips. Rather it designs them and then makes its money through licensing and royalty deals. Even so, it was fantasy to believe the company could for ever remain immune to the pain being felt by its customers. ARM achieved the trick for longer than others, and in so doing encouraged the City to believe that perhaps it was capable of bucking the business cycle after all. Not so.

The reaction to yesterday's admission that profits in the third quarter would be half what the City expected with no improvement seen for the rest of the year was predictably harsh. Sir Robin won't lose his job over it all. The business is financially safe and the model still a viable one. But investors have again been badly let down. The climb back will be long and hard. At the height of the bubble, the shares were a favourite among the army of small investors that joined the great speculation. Now they are back to the same level they were floated at, before all the excitement about the New Economy took hold.

Trinity Mirror

More embarrassment at Trinity Mirror, whose directors awoke on Tuesday morning to discover they had just hired as finance director a man at the centre of one of the worst profit warnings the City can remember. Trinity's chairman, Sir Victor Blank, quickly unhired the WS Atkins man, but the damage in terms of PR had already been done. Trinity may also have to pay him as much as £300,000 to go away.

Trinity says it couldn't possibly take on anyone with such a disastrous association. Out of control debt and an absence of financial controls were two of the most striking features of Tuesday's corker of a trading statement from WS Atkins. The only reason the finance director, Ric Piper, wasn't fired alongside the chief executive seems to have been that he was leaving anyway, having been due to start his new job at Trinity Mirror yesterday morning.

Trinity directors claim to be as shocked by the revelations as everyone else, and having heard the WS Atkins chairman say at the annual meeting on Tuesday afternoon that both the chief executive and the finance director were culpable, they had to act. All this is no doubt true, but Mr Piper's failings wouldn't have been entirely new to them.

In March, Atkins warned there were problems with the introduction of the new billing system, in May it delayed its year-end results and in July it warned the problems would result in a big increase in working capital. None of these things got much of a mention in the press but you might have thought they would have attracted the attention of Trinity Mirror.

Whatever. In the meantime, the power vacuum at the top of Trinity Mirror looks worse still. The chief executive, Philip Graf has said he's going next year and now there is no finance director either. Trinity Mirror has rarely looked more vulnerable to a break-up bid.

jeremy.warner@independent.co.uk

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