We're all dancing to a different beat

The British music industry is suffering at the hands of a fickle public and changing technology.

he British record-buying public is, it seems, a fickle lot. Just take a look at which artists are making the number one slot in the pop music charts. There have been 12 different number one records in the official singles charts in as many weeks this year, and the music styles have ranged from the disposable pop of the Spice Girls and their new hit "Goodbye" to the crunching dance beats of Fatboy Slim.

Concerted radio campaigns and heavy discounting can account for part of the phenomenon. But the diversity of artists to have made it to the top slot sends conflicting signals about market tastes to music industry chiefs as they seek out the next big money-spinners.

The messages about the kind of music making it to the top of the charts are almost as confusing as record sales. According to the British Phonographic Industry, the UK music industry body, sales of CDs in Britain rose by 18 per cent in the last quarter of the year, and 11 per cent in the year as a whole.

The results fly in the face of gloomy forecasts for the industry from City analysts, who just a few weeks ago were bemoaning the dearth of new talent in the UK as well as the negative impact on profits from collapsing markets in Asia and Latin America and the threat to the established music business from digital forms of distribution.

"I don't think there has really been any big pick-up. These figures swing wildly because it all depends on whether there is a hit in a particular month," said Anthony de Larrinaga, analyst with WestLB Panmure.

Industry chiefs disagree. "When you look at the way the market has grown, it's fantastic," said Jonathan Morrish, spokesman for Sony. "Yes, there was a massive amount of "best ofs" from the likes of Cher and George Michael, but then there are every single year. There were also some terrific new products from the likes of Robbie Williams and the Corrs."

John Kennedy, chairman and chief executive of Universal Music Group Europe, agrees. "Everyone is upbeat. When you come out with good records and the records sell - and that's shown by more album sales last year - it's got to be good news."

Market trends in the US paint a similar picture. "There has been quite a pick-up in the US in the fourth quarter too," said Michael Nathanson, music analyst with the New York-based investment bank Sanford C Bernstein. "Almost every firm had a big release coming out and this went hand-in- hand with an increase in consumer spending."

But despite their positive take, music industry sources are still concerned about what the future holds. New technologies - such as the internet - which will enable artists to side-step the traditional methods of distribution, are a constant worry but still an unknown quantity as to how far they will hit bottom-line profits.

The strong pound is causing another, more immediate headache. According to industry sources, the strength of sterling has led to cheaper CDs coming in from the Continent, made legally under licence in Europe, which the music industry is powerless to stop because of the single European market.

"That eats into the UK business and our bottom-line profits," said the source. "We still receive the royalties but we are not making the same margins, because we bear all the costs like video production and marketing. There is nothing we can do except reduce our prices, which is impossible if we are to cover the costs."

Industry executives are also divided as to what the real trends are in the industry, and whether the enormously lucrative Britpop phenomenon, started by bands like Oasis, has run its course.

"It's a pop world at the moment - it's very commercial. The industry ebbs and flows, reflecting what the customers want rather than what they are fed. Record companies lead markets but they follow them as well, and it's confusing for record companies trying to push new acts," said Marc Marot, who runs Universal Island records. "There are already signs we are coming to the end of pop, like successful singles that don't convert into album sales."

Jeremy Pierce, chief executive of V2, laments the trend towards a rapid turnover of chart toppers.

"It is regrettable. It would be much better if records hung around longer. People would have the sense more of a record being a real hit than when a record goes in number one and is gone in three weeks," he said.

The recent shake-out in the industry, including Canadian distiller Seagram's purchase of PolyGram that was completed last month, could have a positive impact on profits because, according to another source, record companies will release fewer but better records.

Nowhere will the trends in the industry be watched more closely that at EMI, the UK and Europe's only publicly listed music major. Analysts are expecting a drop in the company's profits with Merrill Lynch predicting pre-tax figures to fall to pounds 225m from pounds 307m a year ago.

The company, jilted at the altar by Seagram last year, has been the subject of a takeover for almost a year. On Friday, the company's share price fell 10.25p to 419p following reports in the trade press that the German music giant BMG was not interested in buying the company.

"I don't think EMI is a good deal right now," BMG's head Strauss Zelnick is reported to have said. He went on to state he had never even met EMI's chairman, Sir Colin Southgate.

"There are a lot of reasons why there should be a takeover of EMI, but the underlying businesses are modest, showing only modest growth. You've got to be careful if you are buying stock for takeover purposes only," said Nathanson.

Investors, for the time being, seem to agree.

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