EMI Group PLC: Stock Prices, Market Share, and Dividend Payout

Case 27: EMI Group PLC
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Case 27: EMI Group PLC
How is EMI doing? What are your concerns? What does EMI have going for itself?
EMI has found itself in a challenging position. The company needs to realign its strategic plan, especially with the coming of digital music and those stored and downloaded in MP3 file format. The company is in financial distress and is finding it hard to keep its revenues up because of a steady decline it has witnessed in the last few years.
I worry that the company's stock prices have drastically plummeted in the last few years, and this is a risk to investor confidence. The main concern is the digital revolution that works to the advantage of consumers. Notably, music consumers have friendly downloading options that don't require significant costs. The ability of EMI to keep up with the digital revolution will have it either succeed or crumble because of the inevitable digital revolution and internet. Undoubtedly, the rise of digital media has taken a huge chunk of revenues. In 2006, for example, nearly $2 billion was associated with digital sales, and such figures only elevate the position of digital media as a popular platform in the future. Companies such as EMI that solely rely on physical sales experienced drastic changes in their revenues. Between 2005 and 2006, physical sales dropped by 25%. Overall, there was a 3% decrease in sales revenue.
Similarly, EMI will lose its market share to its rivals. By 2007, there were established competitors such as Sony BMG, Universal Music Group, and Warner. These competitors made it increasingly difficult to monetize music consumption when the digital revolution emerged in the music industry. As a result, EMI, together with its competitor's standing, was weakened. Besides, the risk of a takeover sounded to be a reality. Apparently, the risk was heightened because of EMI's market share reduction. These massive changes and economic dynamics made its revenue fall significantly between 2003 and 2007. By 2007, stock prices had dropped to 200p from 600p in 2000. Such decline created a serious risk of a takeover by rival companies in the industry.
Meanwhile, EMI directors had a plan in mind to tame the situation. Annually, EMI had consistently paid an 8p-per-share dividend to its shareholders beginning 2002. However, given the company's dwindling fortunes, the company's chief financial officer, Stewart, had doubts if EMI could maintain its GBP 63-million yearly dividend payment given the challenges. While such a decision would retain cash, the consequence would be on EMI's share price that stood at 227p. This would have likely led to a takeover, and the solution was to boost its share price if the company wanted to maintain its independence.
It seems like this dividend decision is a big deal. Do shareholders generally prefer firms that pay dividends? Do you think EMI shareholders would pay more if EMI promised a 6p dividend?
Often, one...