Polygram Profits Slip On Poor Records Sale
International music and film group PolyGram yesterday reported an almost 18 per cent fall in earnings after taking dramatic action to respond to a slowdown in record sales.
PolyGram's 1996 net income after tax and extraordinary items dropped to 608 million guilders ($327.4 million) from 741 million guilders in 1995. The company held its dividend at 0.95 guilders per share.
The results topped market forecasts and PolyGram shares surged 4.80 guilders to 88.10 on the Amsterdam stock exchange on yesterday morning.
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PolyGram took a post-tax charge of 114 million guilders as it reorganised its music operations, cutting some 400 jobs.
That move came as the music industry stalled after a decade of rapid growth. Global music sales had risen to $40 billion in 1995 from $14 billion in 1986 but the rate of growth slowed to an estimated three per cent last year.
This will be a challenging year for PolyGram's music division, particularly in the US where market instability is likely to persist for the next six to 12 months, PolyGram president and CEO Alain Levy said.
Nevertheless, we remain optimistic that our continued success in breaking new talent and the measures we have taken to adapt to changing markets around the world will create the right conditions for long-term growth, he added. Levy told Reuters that PolyGram, which boasts artists such as U2, Van Morrison, Elton John and The Cranberries, should see some swift benefits from its restructuring.
He said there should be some positive effects this year but added: That is not essential. What is essential is to be adapted (to market conditions).
PolyGram is restructuring the operations of its Motown unit, moving the label's headquarters from Los Angeles to New York as it seeks to recreate its heyday of the 1960s and early 1970s.
It is also reorganising its European music distribution and marketing operations and restructuring its classical music division. PolyGram's music division increased its sales by five per cent to 7.95 billion guilders but operating profit dipped slightly to 1.11 billion guilders as margins were squeezed.
PolyGram's infant film division moved into profit in the second half of last year thanks to the success of films such as Sleepers, Mr Holland's Opus and Dead Man Walking. The division has secured 14 Oscar nominations this year.
Levy said that the film business had done extremely well in its four years of operation but was now entering a crucial phase as it moved into bigger budget movies. PolyGram is listed in Amsterdam and New York, with many of its senior executives based in London. Dutch giant Philips Electronics NV owns a 75 per cent stake in the firm.