Business Comment: Spice fails to make EMI flavour of the month

Sir Colin Southgate has another three years to run at EMI until he becomes Ex-Spice. With the outlook patchy at best, he will just have to soldier on for the time being as Mixed Spice. Despite the phenomenal contribution of Geri, Mel B, Mel C, Emma and Victoria to EMI's bottom line (12 million sales and number one hits in 14 countries) the business as a whole is not firing on anywhere near that number of cylinders.

Since the demerger from Thorn last August, the shares have underperformed the market by a third and yesterday they continued their downward spiral, oblivious to the prospect of Spice Girls: The Movie and the pounds 500m capital repayment Sir Colin conjured up keep investors happy.

In fairness, this underperformance is in some ways the flip side of the meteoric rise Thorn-EMI enjoyed as it prepared to do the splits and the market speculated on the premium the music business would command when it was snapped up by Disney, Seagram, Bertelsmann, take your pick.

But the deeper seated difficulties were always there. Growth in the music industry world-wide has slowed to barely half its trend rate of 7-8 per cent and no one expects much improvement for the rest of this decade.

Now, EMI has come up with some home-grown problems of its own. Rich Spice, aka Jim Fifield, the phenomenally well-paid chief executive of EMI Music, has discovered that rap does not travel very well outside the US and is having to spend pounds 117m to put things right.

If the bad news was unexpected then so was the good news. EMI was under no pressure to return 10 per cent of its capital to shareholders. So the plan to reward investors through some unspecified but presumably tax- efficient mechanism looks like a defensive move, notwithstanding all the talk about gearing up and reducing the cost of capital.

Whether the bid will come now that Seagram, the favoured suitor, is apparently out of the picture, is another matter. In the meantime, EMI and its other half, Thorn, which has performed even more abysmally, remain living testimony to way demergers can destroy shareholder value as well as enhance it.