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Telecommunications EMI trouble could be sign of things to come for telcos
Telecommunications EMI trouble could be sign of things to come for telcos | EMI trouble could be sign of things to come for telcos |
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| by Stan Beer | |
| Sunday, 20 January 2008 | |
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UK-based global telecommunications analyst Ovum believes the drastic forced restructuring of troubled recording major EMI portends a similar fate for the communications industry. EMI records earlier this week announced a restructuring of the business, including a downsizing whereby up to 2,000 of its 5,500 staff could leave the business. Last year an ailing EMI was snapped up by Terra Firma (a private equity firm), and the restructuring announced earlier in the week is an attempt to restore the margins enjoyed in the 1990s. Ovum analyst Mike Cansfield believes this is of greater interest to the communications industry than many might at first think. Cansfield writes: "To understand this it is important to reprise the history of the record industry. The record industry has been for decades a star performer in the UK economy, with EMI at the forefront. In the 1960s and 70s British bands ruled the airwaves and clocked-up billion dollar export earnings, and EMI (with the Beatles, Queen and others on their label) was part of this success. As the creative predominance of British bands waned in the 1980s and 90s , along came new technology (CDs to replace vinyl) and the industry gained another boost as customers replaced their old collections on the new format. With music and video converging (and a back catalogue of pop videos) and new formats looming (e.g. HD DVD), its assumption was it could pull off the same trick in the future. "But EMI failed to spot the changing industry and initiate enough action fast enough to stay ahead of the game. Technology moved in a different direction than anticipated (the MP3 player succeeded the portable CD player), and internet downloads (from iTunes and others) pulled the rug from underneath CD retailers (EMIs channel to market). "As a result of these changes, customer behaviour changed and new business models were needed. Major new acts rapidly appeared after raising their profile through social networking sites such as MySpace (e.g. the Arctic Monkeys) and shunned the traditional major labels. Perhaps more worrying for major ('incumbent'?) labels, established acts completely bypassed the traditional record company (e.g. Paul McCartney, Madonna and Radiohead). "Could what has happened to EMI repeat itself in other technology sectors, such as communications? Quite possibly. The communications sector is analogous to the music industry - all you have to do is change some of the words. A look at the products, technology, delivery channels and business models illustrates this. "In communications, voice has been the cash-cow product, but prices have collapsed - just as in the music industry with CDs. On technology, just as vinyl was replaced by the CD and now MP3 files, so in communications traditional PSTN has been superseded (although not replaced) by GSM and now VOIP. Turning to delivery channels, just as retailers no longer stock CDs (you buy them on-line today, if at all) communications channels to market are changing too (telecoms services are now bought in the high street), with the internet growing in importance too. And finally, business models are changing. Per unit (minutes or megabytes) billing is a thing of the past. "So there are neat parallels between communications and the music industry, but these in themselves do not mean that history will repeat itself. However, if you also consider that the EMI restructuring plan was driven by Terra Firma (we expect private equity will be increasingly involved in the communications sector in the coming years); and the internet is both a delivery mechanism and incubates competitors with far better brand kudos (e.g. Google, Apple, Sony, etc.) than any Telco's; then the parallels become sharper and the warning signs for the communications sector more apparent."
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