Cantillon

Inside the world of business

Record labels' profits  still music to their ears

ALMOST A year and a half after announcing their initial out-of-court agreement, Eircom and the big music labels have embarked on a process that will ultimately see persistent online sharers of music lose their broadband connection.

The Irish Recorded Music Association (Irma), which represented EMI, Sony, Universal and Warner in negotiations with Eircom, claims online sharing is killing its members’ business. Dick Doyle, director general of Irma, says legitimate sales of music in Ireland fell by 27 per cent last year, which he blames squarely on illegal downloads.

But considering the deepness of the recession, which must have had an impact on discretionary spending on items such as CDs and music downloads, the latest filed accounts for the Irish subsidiaries of the four big labels do not paint a picture of an industry in crisis.

EMI Records (Ireland) posted a profit of €3.4 million in the year to the end of March 2009 and has reserves of €12.1 million. Sony Music Entertainment (Ireland) posted a €2.1 million pretax profit in the 15 months to the end of March 2009 and holds €16.7 million in shareholders’ funds. In a note with the accounts, the directors say that while sales of CDs are falling digital sales “continue to grow very strongly” and the company is “well placed to deliver its level of profitability for the foreseeable future”.

Universal Music Ireland posted pretax profits of €6.2 million for the 2008 calendar year, while Warner Music Ireland managed a profit of €838,000 in the 12 months to September 26th, 2008.

No one doubts illegal sharing of music online affects the revenues of record companies but on the flip side the iPod generation is listening to more music than ever. Clearly attractively priced legitimate alternatives to free downloads of dubious quality are needed. Eircom was to develop such a service as part of its settlement but it is still a work in progress.

Irma seems to be putting more effort into the stick than the carrot, but its members won’t be panicking just yet.

Things sour at Glanbia

THE 22 board members of Glanbia plc will today face shareholders at its annual general meeting (agm), the first public outing for the company since the defeat of the proposal by co-op members to buy back the company’s Irish dairy division.

As with most agms, a motion will be proposed to reappoint directors, but while this may indicate business as usual, it’s not all boardroom harmony at Glanbia. In fact, three of the 14 Glanbia co-op board members are leaving the board of Glanbia Co-operative Society – which means that in turn they will eventually be exiting the board of the plc.

John Fitzgerald, Nicholas Dunphy and Christopher Hill were not re-elected through the regional co-op voting structure this year. Their successors will be elected at the co-op’s agm on June 9th. As the 14 board members of Glanbia co-op sit on the Glanbia plc board, their successors will be elected to the board of the plc.

Glanbia co-op board members come and go but, while the replacement of co-op representatives is not unusual, the exit of three members simultaneously is. While it is tempting to see the departure of three co-op board members as a signal of disquiet about the buyback proposal, the timing of their departure (the ballots in all three cases took place before the proposed deal was announced) in fact demonstrates the enormous pressure co-op representatives have been under from farmers.

Historically low milk prices in the run-up to the deal meant that Glanbia co-op board members were at the coal face of the irreconcilable tension between the demands of farmers and plc shareholders. Co-op farmers are not shy about making their feelings known, and the merciless rules of the co-op structure means that board members were constantly answerable to their members.

Having listened to concerns from farmers in recent years, the co-op put forward a deal which they believed would give farmers control of the dairy business. With that deal having been rejected by farmers, and three co-op board members no longer sitting on the board, co-op board members would be forgiven for asking whether they can ever keep their members happy.

Government’s gas plans

AT THIS stage it looks like a fog of confusion has descended over various Government measures to tax greenhouse gas emissions.

Last week, its plan to tax €75 million in windfalls earned by power plants for passing on the cost of carbon emissions to customers hit a delay. This week, Fine Gael’s Simon Coveney is using the Government’s own mathematics to show that the carbon tax introduced for all fuels in the budget is not revenue neutral and is in fact delivering at least €90 million to the exchequer.

The measure is expected to raise €250 million this year; €130 million of this is being used to fund grants for retrofitting houses to make them more energy efficient. A further €36 million will supposedly be set aside to pay PRSI exemptions for businesses that hire workers directly off the dole queues. Even allowing for this, Coveney says there is still about €90 million heading for the State’s coffers and, as a result, taxpayers are being ripped off.

In fact, Minister for Finance Brian Lenihan never said in his budget speech that the measure would be revenue neutral, but committed to spending the money raised on energy-saving and efficiency initiatives.

Coveney is half right. The carbon taxes are a means of raising extra money. But the Government is spending all the cash raised on creating and supporting jobs. It estimates that 6,000 construction workers will be employed retrofitting houses.

The principles behind the PRSI exemption and the windfall measure are more or less the same. The windfall tax proceeds will be given to big employers who say their large energy bills are hitting competitiveness and threatening their ability to maintain jobs.

The Government is guilty of a little sleight of hand, but so what? It is trying to maintain and create jobs. However, it can only be temporary. Retrofitting will run out of steam, while the windfall tax will end in 2012, when electricity companies will have to pay for carbon credits, driving up energy costs.

TODAY

Glanbia annual general meeting and results for CC, Greencore and Marks Spencer.

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