Last week, Viacom announced plans to slash its borrowings by $1.7bn (pounds 1.1bn) by spinning off its cable television operations to rival Tele-Communications Inc (TCI).
Viacom, which owns the MTV music channel, incurred huge debts after buying the Paramount film studios and Blockbuster video stores. But a series of asset disposals, including the sale of Madison Square Garden in New York for more than $1bn (pounds 625m), have helped transform the balance sheet, enabling Viacom once again to challenge Rupert Murdoch's News Corporation in the race to become the world's premier supplier of entertainment software.
According to a Viacom spokesman in New York, the TCI deal reduces Viacom's net debt to $8bn (pounds 5bn), equivalent to 40 per cent of its current stock market capitalisation.
The spokesman declined to comment on whether Viacom is interested in taking a minority stake in EMI or acquiring it outright. But Frank Biondi, Viacom's chief executive officer, has made no secret of the fact that he is keen to enter the music business, either from scratch or through acquisition. "We are looking at a number of options," the spokesman added.
Analysts say the EMI record label, with labels ranging from Virgin and Chrysalis and big artists from the Beatles to Blur, would make an ideal fit for Viacom.
"A deal with EMI would certainly make sense if Viacom can leverage it," says a stockbroking source at Salomon Brothers in New York.
In particular, access to Viacom's music and video stores, coupled with the MTV pop channel - the most powerful medium in the music world - would allow EMI to increase its share of the US record market, the largest in the world.
"EMI lacks critical mass in the US," says Greg Feehely, leisure analyst at Kleinwort Benson. "Its main problem is the need to push volumes through other distribution channels. We reckon their market share of the North American market has fallen to 8 per cent from 12 per cent last year." He notes that Viacom's strong retailing presence in the US would also tie in with EMI's plans to expand the HMV music chain and Dillons bookshops.
It is unlikely that EMI's attractions will be lost on Viacom, either. EMI is the world's only free-standing record major. The other four big hitters are tied up in larger media and entertainment groups. BMG is controlled by Bertelsmann, Time Warner owns Warner, Sony is part of its Japanese parent, while Philips has 80 per cent of Polygram.
EMI should fetch a high price, having turned in an average compound growth rate of over 30 per cent in the last five years.
According to Kleinwort Benson, EMI is worth pounds 4.8bn, while the Thorn electrical retailing division may be worth pounds 1.9bn. That implies a share price of pounds 15.50, compared with Friday's closing price of pounds 13.81, which values Thorn- EMI at pounds 5.9bn.
But Viacom is unlikely to have a free run. Disney Corporation and US music mogul David Geffen are also said to be interested.