The Universal Music Group, the largest music company in the world and home to acts like U2, Eminem and Mariah Carey, was expected to announce yesterday a restructuring that will eliminate 11 percent of its work force.
In the next several months, 800 jobs will be cut across all of Universal Music's divisions, according to company executives. Combined with the 550 jobs trimmed earlier this year, Universal Music's work force will shrink to 10,850 people. Executives said the cut will eventually save the company US$200 million a year.
"While we are doing something that is painful, we believe we will ultimately emerge as a stronger company," said Zach Horowitz, president of Universal Music.
The changes come amid one of the most tumultuous environments the music business has ever faced. Sales of recorded music have plummeted in the last three years, dropping nearly 10 percent annually.
The music labels have placed most of the blame for the decline on the swapping of music files over the Internet, although some analysts and consumers have also pointed to excessive prices.
Meanwhile, the labels have struggled to keep talent and marketing costs in check.
Universal Music, which was not included in the recent sale of Vivendi Universal's entertainment assets to General Electric, has also introduced price cuts for retailers. At the beginning of the month, the company lowered the price of most of its new CDs by 25 percent.
Universal Music is not the first of the five major labels to refocus its business.
Earlier this year, Sony Music Entertainment said it was laying off 1,000 people after several quarters of losses, and it hired a new chief executive from outside the music business.
The new chief, Andrew Lack, was a top executive at NBC. Last year the London-based EMI Group cut 1,800 people, 20 percent of its staff. And the Warner Music Group has also restructured its business, while its parent company, Time Warner, weighs a sale or merger with either EMI or Bertelsmann's BMG.
The sale of a controlling interest to EMI for about US$1 billion in cash appears to be the most likely outcome.
Although many analysts and industry executives say they believe further global consolidation is necessary, those financial benefits can go only so far.
In September, Vivendi Universal said its music group had an operating loss of US$48 million for the first half of the year, attributing the results to the decline in the dollar as increased file sharing.
Universal Music's market share has fallen slightly this year. According to Nielsen SoundScan, Universal had 29.8 percent of the market for music sales in the US for the year through Oct. 12, down from 30.5 percent in the same period last year.
But Universal remains the dominant player. The market share of its closest competitor, Warner Music, was 17.3 percent.
Some of the Universal Music's cost cutting will include layoffs of marketing and sales executives. In the Philippines, for example, the staff has been cut from 160 to 30.
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