Mark Mulligan at Jupiter has some advice for EMI, and it has me scratching my head. Here's part of Mulligan's blog post that outlines a few of EMI's problems and his advice:

"So what can EMI do? Well continuing to aggressively pursue digital strategies is at the core. Strong iTunes download rates suggest some long overdue momentum in the digital market but it is still heavily skewed towards singles. EMI (and the other labels) need to aggressively incentivise consumers to buy albums. That means making them significantly cheaper than a CD on Amazon (digital is an inherently inferior product after all). This requires some brave licensing initiatives with the retailers. Once that strategy is in place the orders of magnitude of download revenues will augment strongly. It won’t be a like for like increase, but it will be sizeable."

Mulligan is a very good analyst with a keen eye toward emerging technologies. Maybe that's the problem with the advice. It's too shallow. EMI's problems go well beyond its digital strategies.

EMI needs to do far more than figure out a way to sell (a) more digital music and (b) more digital albums. Even the most successful, brilliant digital strategy isn't going to help with two of EMI's historical problems, a weak urban presence and difficulty breaking hit UK artists in the States. Mulligan noted that EMI has a "weak US footprint." That's true. It's true mostly because it rarely puts out urban bestsellers and its rock/pop signings have not been the type of music that mainstream Americans want to hear. There have been a few recent success stories, though. Lately EMI has had success in America with KT Tunstall and Corrine Bailey Rae, but those have been exceptions. Lily Allen has become somewhat of a star, but mainly in Europe. As Universal Republic is about to reach platinum with its UK success story, Amy Winehouse, Allen's album is 125,000 short of gold status.

EMI new artist signings are curious. Its recent signings have been the talk of the town, but they're probably going to be mid-level successes. Critics love Interpol and The Decemberists, two new Capitol Music Group artists. Critically adored, yes, but little chance of multi-platinum sales. Consumers love mainstream fare like Nickelback, Carrie Underwood and the Pussycat Dolls, three of the biggest sellers of the last few years and three artists who are not signed to EMI labels.

In addition, EMI needs to make better use of its independent distribution. Its major-owned competitors have been better at cultivating underground hits and upstreaming artists. Getting more out of its indies could do as much for EMI's bottom line as a new digital initiative.

And what about EMI's digital strategy? Its move to drop DRM is popular with tech journalists and those consumers who know what DRM means. In the short term, the move won't add much to the bottom line. In the long term, its most likely impact will be to encourage new business models and enable new promotional partners. There isn't much of a first-mover advantage, however, since any of EMI's three competitors could drop DRM and be in the same boat almost overnight.

To suggest that EMI drop prices on digital albums is another curious bit of advice. First, are artists and their managers going to accept a lower wholesale price for new releases? While a lower price may or may not have an impact on sales, it would definitely mean lower royalties and a longer period to recoupment.

Digital albums already have a far lower wholesale cost than CDs. A standard digital album has a wholesale cost of about $7.00. The typical CD has a wholesale cost of around $12.00 (for a full list price CD). iTunes prices albums at $9.99. It has the right to price albums for less and make less margin, but it does not. Instead of sale prices, iTunes offers consumers albums with value-added features like bonus tracks. It's their choice. Best Buy, on the other hand, has a relatively lower sale price because (a) it gives itself a lower margin and (b) its takes coop marketing funds from labels. Amazon.com also works on slim margins and takes label coop marketing funds.

How much does price matter for iTunes purchases? The research I've seen says price ranks below convenience and selection for music download purchases. If labels were to drop their digital wholesale prices even more, I have serious doubts that the increase in sales would offset the loss from the price cut. It might help ticket sales and merchandise sales, but EMI has few contracts that capture a share of those streams.

In any case, this could be all academic. Terra Firma could break up EMI's publishing and recorded music divisions and the number of major recorded music groups could drop to three from four. Right now, EMI's best strategy is probably to join with a company that hasn't spent the last few years waiting to be purchased.