Virgin Records America, Inc.

views updated

Virgin Records America, Inc.

Contact Information:

headquarters: 338 n. foothill rd.
beverly hills, ca 90210 phone: (310)278-1181 fax: (310)278-8695 toll free: (800)862-8621 url: http://www.virgin.com

OVERVIEW

Virgin Records is the foundation upon which Richard Branson had built his business empire that is now Virgin Group PLC. Virgin Group PLC sold Virgin Records in 1992 to the EMI Group, but the company remains indelibly marked by the Branson days.

The record business depends heavily on U.S. sales, and when the market slowed in 1996 and early 1997, EMI Group's music division, EMI Music, realized the slowdown the hardest. With sales dropping more than 15 percent and profits over 25 percent from 1996 to 1997, the British company did something decidely American—it reorganized the music division, eliminating a subsidiary, jobs, and costs. The U.S. label EMI Records was the one to go, with Virgin and Capitol Records the two major U.S. labels representing EMI Music. Several smaller labels were overseen by the two majors, the smaller releasing records in the country, jazz, classical, and other music genres. With reorganization complete and the U.S. music market back on the upswing, EMI Music has reported better sales and an increasing market share.

Diversification in releasing records is crucial due to more fragmented listening audiences today. While rap music is still heavily favored by young men, women, especially those in their mid-20s to mid-30s, prefer popular music. Major labels are also in the business of finding up-and-coming independent labels that have good sales to niche markets. Competition is fierce among record labels to sign bankable artists and the next hot act. Virgin Records has a reputation for maintaining a good stable of diverse artists such as the Rolling Stones, Smashing Pumpkins, Janet Jackson, and the Spice Girls.

COMPANY FINANCES

The parent company of Virgin Records America, the EMI Group, reported a loss in sales from $7.7 billion in 1996 to $6.5 billion in 1997, a decrease of 15.4 percent. This loss was blamed on a sluggish U.S. market. EMI Music contributed $1.44 million in sales, or 22 percent of the parent company's total sales for 1997. Profits also fell during this time, from $343 million in 1996 to $254 million in 1997, a decrease of 26 percent. In the first six months of 1997, EMI reported that its EMI Music division's sales were up 3 percent and profits down only 3.6 percent. For fiscal year 1998, EMI Music's sales rose 4.1 percent, with profits declining 8.8 percent, due mostly to the economic slowdown in Asia, as well as lower than expected sales in Germany.

ANALYSTS' OPINIONS

In 1997 the record industry as a whole had an annual growth of only 2 percent following more than a decade of double-digit sales gains, much of which was attributed to the appearance of the compact disk (CD). (The CD market went from $3.8 billion in 1983 to $12.5 billion in 1996.) The market for recordings in the United States was estimated at $12.5 billion in 1997. Many believe the reasons for the industry's slow growth in the 1990s included: disappointing follow-up albums by new groups who first albums were very successful; the fact that some chain music stores expanded too quickly and went bankrupt or cash poor; and the decline of MTV, as the network scheduled more non-music programming. However, the music industry was expected to recover.

Virgin did not escape the decline in the music industry. Sales in 1997 were below that of 1996, which were considered dismal. It was noted, however, that the Spice Girls, Virgin's top-selling act, contributed heavily to the company's bottom line in 1996 and 1997. Therefore, when a member of the Spice Girls left abruptly in 1998, EMI's stock fell more than 2 percent. Some media analysts say the member's departure should not have a long-term effect on the company, due to its reputation for consistently attracting quality new talent.

HISTORY

Richard Branson, founder of Virgin Records, would have been the fourth in a long line of barristers (a sort of British attorney), had he only adhered to the profession of his forebears. From his teens, Branson was an entrepreneur. His earliest businesses were Christmas tree sales and bird breeding. However, it was a student magazine, which he dropped out of school to run, that would successfully fuel his budding entrepreneurial drive. Run from a telephone booth at his boarding school when he was just 15, the first issue sold 50,000 copies. On his last day of school, Branson's headmaster predicted that he would "either go to prison or become a millionaire."

Soon, a mail-order record business was started to help finance the magazine. In the early 1970s Branson opened his first record store, which he called Virgin Records. By 1973 Branson was operating 16 record stores. As an offshoot of Branson's budding empire, he decided to start a record label. It was only marginally successful until 1974, when Tubular Bells by Mike Oldfield became a best-seller. Ever the promoter, Branson concocted a one-night-only performance of the 49-minute song. The event propelled both Oldfield and Virgin. Tubular Bells became a multi-platinum international album that sold more than 5 million copies. Branson continued to look for new acts to bring to the label, and in 1977 Branson signed the punk group the Sex Pistols after, according to company lore, the group had been turned down by every other label in Great Britain. The Sex Pistols was promoted heavily by Branson, much to the chagrin of the royal family, as well as his own family. The Sex Pistols also, despite parental disapproval and their bent on rapid self-destruction, helped draw the attention of other artists to the company.

FAST FACTS: About Virgin Records America, Inc.

Ownership: Virgin Records is a wholly owned subsidiary of the EMI Group, a British company traded on the London Stock Exchange.

Officers: Ken Berry, Pres. & CEO, EMI Recorded Music; Chmn., Virgin Music Group Worldwide; Nancy Berry, VChmn. Virgin Music Group Worldwide & Virgin Records America; Ray Cooper, Co-Pres., Virgin Records America; Ashley Newton, Co-Pres., Virgin Records America

Employees: 24,500 (1997, EMI Group)

Chief Competitors: Virgin Records competes for artists, shelf space in stores, and air time on radio-stations against other record labels. Competitors include: Sony Music; Polygram; and Time Warner.

Virgin would become the most successful independent label and responsible for making careers of many artists, including Boy George, and the solo careers of Phil Collins and Peter Gabriel. Other artists who signed with Virgin in the next decade included: The Rolling Stones, Janet Jackson, Lenny Kravitz, Simple Minds, and UB40. As Virgin Records grew, it developed subsidiary record labels, which kept the companies in closer touch with bands and the tastes of the market. This could improve each company's chances of having radio stations play its new releases.

In June 1992 Thorn EMI purchased the Virgin Music Group and its worldwide subsidiaries for 560 million pounds ($960 million). The company continued to show the same commitment to quality espoused by Branson. In the mid-1990s, the label's artists included Tina Turner, Cracker, David Bowie, Iggy Pop, Bryan Ferry, and Smashing Pumpkins. By fiscal year 1994, Virgin Records had $133 million in profits on sales of $669 million, which was touted as the best performing year in Virgin's history.

Under the original terms of the deal with EMI, Branson was excluded from all of the company's business activities for 30 months. When the restriction lapsed in 1996, he immediately approached Sony executive Jeremy Pearce with an offer to help him set up a new record company, which would become known as V2 Music. V2 Music is an independent global company that is marketed in 75 percent of the world markets.

Virgin has further grown to include Virgin Atlantic and Virgin Express Airlines, Virgin Interactive Entertainment, Virgin Radio, Virgin Studios, Virgin Hotels, Virgin Cola, Virgin Cinemas, Virgin Publishing, among other profitable businesses. The number of its Virgin Megastores totaled 100 establishments in major cities around the world. The 75,000-square-foot stores carries about 1 million CDs and cassette tapes, 1,000 listening booths, a disc jockey, and travel services. Forbes magazine estimated Branson's personal wealth at about $2.7 billion in the late 1990s.

STRATEGY

EMI Music underwent a massive restructuring in it's U.S. holdings in 1996-97 in order to cut costs and streamline operations. Part of the plan was to close EMI Records of America and shift the artists and some of the staff to Virgin and Capitol Records, the two major U.S. labels for EMI Music. Minor labels under the two majors would concentrate on different music genres such as, jazz, classics, Broadway music, country, Christian music, alternative rock, and Latino music. Virgin Records was expected to pick up EMI Records strength in urban music, and also acquired Narada Media, a new age music label and distribution company, in 1997.

Virgin Record's strategy was to sign established artists and continue to lure up-and-coming artists. In doing so it had to provide money, creative freedom, and promotional and marketing support. The better its reputation, and those of its artists, the better chance the label had of attracting a potential artist's eye. In 1991 the Rolling Stones signed on to Virgin for a reported $30 million. Janet Jackson, who was heavily courted by many labels, signed with Virgin in 1996 for a reported $60 million.

Virgin and EMI Music as a whole, also looked for new labels to acquire, expanding their music offerings. In 1997 Virgin Records bought 50 percent of Priority Records, a small urban/rap label. In 1998 Virgin completed the purchase, now owning Priority outright. Virgin also purchased one of the leading direct response music marketing firms, Westwood Promotion, in 1998.

CHRONOLOGY: Key Dates for Virgin Records America,Inc.

1967:: Richard Branson drops out of boarding school to start his own magazine
1970:: Branson founds Virgin as a mail order record retailer
1971:: The first Virgin record store opens in London, England
1973:: Branson starts the Virgin record label, with Mike Oldfield as the first artist signed
1977:: The Sex Pistols sign with Virgin Records
1983:: Virgin Vision is established to distribute films and videos
1985:: Virgin wins the Business Enterprise Award for company of the year
1987:: Virgin Records America is launched
1992:: Thorn EMI purchases Virgin Music Group
1996:: Virgin signs Janet Jackson for $60 million, the largest contract for a solo female artist to date
1998:: Virgin purchases Westwood Promotion

INFLUENCES

The sagging U.S. music market in 1996 left all music labels with declining sales. In reaction, the EMI Group restructured its American operations and set into place a plan to activate once the market began to turn. In the first six months of 1997 EMI Music reported higher sales, due to a pick-up of the U.S. market. In all music genres, Virgin and Capitol had a strong release schedule ready and, with it, captured more of the U.S. market share. By the end of fiscal 1998, EMI Music increased market share by more than 2 percent, from 9.7 percent in 1997 to more than 12 percent in 1998. This made EMI Music companies fourth overall in the U.S. market, up from sixth in 1997.

PRODUCTS

Virgin Records produces compact disks and cassette tapes of music. In 1997 top selling albums included: Spice by the Spice Girls; Bridges To Babylon by the Rolling Stones; and Flaming Pie by Paul McCartney.

CORPORATE CITIZENSHIP

The company claims that it recognizes that its business activities have an influence on the communities in which it operates. EMI's corporate policy is to "consider projects which relate primarily to our individual businesses and create learning opportunities and encourage improved environmental performance. Within this we strive to achieve a well balanced programme which adequately reflects the current needs of today's society and environment."

The EMI Group formed the Music Sound Foundation in celebration of their 100th anniversary as a music company. The Foundation's goal is to provide access to music listening, composing, teaching, and playing to all people. Grants are given by the Foundation for instruments in school, to improve educational opportunities, and to promote music-oriented lectures and concerts both in the United Kingdom and abroad.

Richard Branson specifically has started a number of charitable organizations, including a birth control counseling center and a foundation dedicated to the AIDS epidemic. In addition, he launched a condom company in the late 1980s, putting up thousands of vending machines throughout the United Kingdom, with all profits going to charity.

The Virgin Healthcare Foundation promotes education on current healthcare issues primarily to young people. In the 1990s the foundation launched the Parents Against Tobacco campaign, which aimed to stop children from smoking. The company also established the Virgin Helicopter Emergency Medical Service, which is on call 365 days of the year. The service has a paramedic and doctor on board at all times, and is called upon about three or four times per day to assist in emergency situations.

GLOBAL PRESENCE

The EMI Group sells worldwide, and as a British company, considers Virgin Records America a foreign holding. EMI achieved double-digit growth in 1997 in the markets of Latin America and eastern Europe. In Europe EMI was most aggressively gaining market share in France on the strength of their local acts such as World's Apart and Doc Gyneco. The weak economy in Japan caused a decline in the music industry, including sales for EMI. In a decided effort to increase the company's international presence, EMI Music Publishing opened offices in the Czech Republic, Hungary, Korea, Poland, and Taiwan, with licensing arrangements in the Baltic States, Croatia, Slovenia, and Turkey.